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Inflation rises as rand weakens

The South African Rand (ZAR) which has over the months failed to maintain stability even after it was projected for success after the now President Cyril Ramaphosa rose to power has continued to weaken.

The ZAR which has been lower than the Botswana Currency (P) has a trimmed mean measure of core inflation increased from 2.6 to 3.1 percent, while inflation excluding administered prices decreased from 2 to 1.9 percent. The rand is reported to have lost ground against the dollar in morning trade on Tuesday ahead of a quarterly labor force survey from Stats SA, which is to outline the country’s unemployment rate.

Another report shows that the dollar was buoyed by rising US bond yields. By 10:00 on Tuesday, the rand is reported to have traded 0.69 weaker at R12.41, with analysts at Sable Forex expecting a daily range of between R12.20-R12.45. The consensus of the unemployment rate which is set to be released shows that that unemployment will move up from 26.7 percent to 28 percent,” Sable Forex said.

This report highlighted that it does not bode well for the rand, and if data comes out as anticipated, the rand should weaken more. Other than that, the rand is expected to weaken more as they will be moved by international factors more than local factors this week. As for Botswana, the monthly statistics report by Statistics Botswana shows a fluctuating trend that is likely to keep manifesting itself on a monthly basis. The report indicates that headline inflation increased to 3.4 percent from 2.8 percent in March a 0.6 difference which.

Statistics Botswana, continued to highlight that inflation for basic needs increased for: clothing and footwear from 2 to 2.1 percent. Although registered before recent fuel increases, transport rose from 4 to 6.3 percent largely because of an increase in the rate of price increase for transport services.  Communication slightly rose from 1.2 to 1.3 percent, while restaurants and hotels from 3.3 to 3.6 percent. Miscellaneous goods and services grew tremendously from 3.2 to 8.5 percent driven mainly by an increase in the rate of price increase for insurance.

However, the report notes that this was partly offset by inflation easing with respect to food and non-alcoholic beverages which registered no increase or decrease; alcoholic beverages and tobacco from 1.4 to 0.7 percent, housing, water, electricity, gas and other fuels from 5.7 to 3.3 percent; furnishing, household equipment and routine maintenance from 2.3 to 2.2 percent; health from 1.4 to 1.3 percent; and recreation and culture from 2.1 to 2 percent. Inflation remained unchanged for education 5.5 percent.

Compared to the current local inflation, a media outlet, Reuters noted that the rand slipped late on Monday having moved to a three-week high against the dollar late last week. It has also been reported that there is a high possibility of Investors scrutinizing the data for signs that an economic recovery has built momentum since President Ramaphosa’s election in February.

The local unit has been cited by another media outlet softer against the other major currencies. The pound has come under pressure in recent weeks after the Bank of England (BoE) kept interest rates unchanged. This was expected but was accompanied by an unexpected further widening of the trade deficit, together with a lower forecast for future growth. This turned investors sour on the GBP,” said Sable Forex. They noted that this will definitely move the market, but analysts are not sure exactly what the data will say.

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Botswana on high red alert as AML joins Covid-19 to plague mankind

21st September 2020

This century is always looking at improving new super high speed technology to make life easier. On the other hand, beckoning as an emerging fierce reversal force to equally match or dominate this life enhancing super new tech, comes swift human adversaries which seem to have come to make living on earth even more difficult.

The recent discovery of a pandemic, Covid-19, which moves at a pace of unimaginable and unpredictable proportions; locking people inside homes and barring human interactions with its dreaded death threat, is currently being felt.

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Finance Committee cautions Gov’t against imprudent raising of debt levels

21st September 2020
Finance Committe Chairman: Thapelo Letsholo

Member of Parliament for Kanye North, Thapelo Letsholo has cautioned Government against excessive borrowing and poorly managed debt levels.

He was speaking in  Parliament on Tuesday delivering  Parliament’s Finance Committee report after assessing a  motion that sought to raise Government Bond program ceiling to P30 billion, a big jump from the initial P15 Billion.

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Gov’t Investment Account drying up fast!  

21st September 2020
Dr Matsheka

Government Investment Account (GIA) which forms part of the Pula fund has been significantly drawn down to finance Botswana’s budget deficits since 2008/09 Global financial crises.

The 2009 global economic recession triggered the collapse of financial markets in the United States, sending waves of shock across world economies, eroding business sentiment, and causing financiers of trade to excise heightened caution and hold onto their cash.

The ripple effects of this economic catastrophe were mostly felt by low to middle income resource based economies, amplifying their vulnerability to external shocks. The diamond industry which forms the gist of Botswana’s economic make up collapsed to zero trade levels across the entire value chain.

The Upstream, where Botswana gathers much of its diamond revenue was adversely impacted by muted demand in the Midstream. The situation was exacerbated by zero appetite of polished goods by jewelry manufacturers and retail outlets due to lowered tail end consumer demand.

This resulted in sharp decline of Government revenue, ballooned budget deficits and suspension of some developmental projects. To finance the deficit and some prioritized national development projects, government had to dip into cash balances, foreign reserves and borrow both externally and locally.

Much of drawing was from Government Investment Account as opposed to drawing from foreign reserve component of the Pula Fund; the latter was spared as a fiscal buffer for the worst rainy days.

Consequently this resulted in significant decline in funds held in the Government Investment Account (GIA). The account serves as Government’s main savings depository and fund for national policy objectives.

However as the world emerged from the 2009 recession government revenue graph picked up to pre recession levels before going down again around 2016/17 owing to challenges in the diamond industry.

Due to a number of budget surpluses from 2012/13 financial year the Government Investment Account started expanding back to P30 billion levels before a series of budget deficits in the National Development Plan 11 pushed it back to decline a decline wave.

When the National Development Plan 11 commenced three (3) financial years ago, government announced that the first half of the NDP would run at budget deficits.

This  as explained by Minister of Finance in 2017 would be occasioned by decline in diamond revenue mainly due to government forfeiting some of its dividend from Debswana to fund mine expansion projects.

Cumulatively since 2017/18 to 2019/20 financial year the budget deficit totaled to over P16 billion, of which was financed by both external and domestic borrowing and drawing down from government cash balances. Drawing down from government cash balances meant significant withdrawals from the Government Investment Account.

The Government Investment Account (GIA) was established in accordance with Section 35 of the Bank of Botswana Act Cap. 55:01. The Account represents Government’s share of the Botswana‘s foreign exchange reserves, its investment and management strategies are aligned to the Bank of Botswana’s foreign exchange reserves management and investment guidelines.

Government Investment Account, comprises of Pula denominated deposits at the Bank of Botswana and held in the Pula Fund, which is the long-term investment tranche of the foreign exchange reserves.

In June 2017 while answering a question from Bogolo Kenewendo, the then Minister of Finance & Economic Development Kenneth Mathambo told parliament that as of June 30, 2017, the total assets in the Pula Fund was P56.818 billion, of which the balance in the GIA was P30.832 billion.

Kenewendo was still a back bench specially elected Member of Parliament before ascending to cabinet post in 2018. Last week Minister of Finance & Economic Development, Dr Thapelo Matsheka, when presenting a motion to raise government local borrowing ceiling from P15 billion to P30 Billion told parliament that as of December 2019 Government Investment Account amounted to P18.3 billion.

Dr Matsheka further told parliament that prior to financial crisis of 2008/9 the account amounted to P30.5 billion (41 % of GDP) in December of 2008 while as at December 2019 it stood at P18.3 billion (only 9 % of GDP) mirroring a total decline by P11 billion in the entire 11 years.

Back in 2017 Parliament was also told that the Government Investment Account may be drawn-down or added to, in line with actuations in the Government’s expenditure and revenue outturns. “This is intended to provide the Government with appropriate funds to execute its functions and responsibilities effectively and efficiently” said Mathambo, then Minister of Finance.

Acknowledging the need to draw down from GIA no more, current Minister of Finance   Dr Matsheka said “It is under this background that it would be advisable to avoid excessive draw down from this account to preserve it as a financial buffer”

He further cautioned “The danger with substantially reduced financial buffers is that when an economic shock occurs or a disaster descends upon us and adversely affects our economy it becomes very difficult for the country to manage such a shock”

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