Global output is forecast to increase by 3.5 percent in 2017 and by 3.6 percent in 2018, higher than the growth of 3.2 percent in 2016, while output growth for major economies is projected at 2 percent in 2017, slightly higher than the 1.7 percent in 2016.
In EMDEs, growth is expected to increase from 4.3 percent in 2016 to 4.6 percent in 2017, against the background of modest global demand and higher commodity prices.11 However, there are downside risks to global economic activity, including the prevailing policy uncertainty in the USA, as well as the emerging tendency towards protectionism, geopolitical tensions and persistence of tight financing conditions in some key markets.
In South Africa, GDP is forecast to grow by 1 percent in 2017 (from 0.8 percent previously forecast) compared to 0.3 percent in 2016. The South African economic prospects continue to be constrained by structural challenges, uncertainty and weak business sentiments. The downgrade of South Africa’s foreign debt to subinvestment grade (by Standard and Poor’s and Fitch) and prospects for further downgrade by the rating agencies weigh down on public sector investment through higher borrowing costs and difficulty in accessing funding.
It is expected that inflationary pressures will remain restrained, reflecting stable commodity prices and modest growth in global economic activity. Therefore, global inflation is projected to average 3.5 percent in 2017, higher than the 2.8 percent in 2016. Overall, it is expected that foreign price developments will have a benign influence on domestic inflation. In particular, it is anticipated that inflation for trading partner countries will average 4 percent in 2017, mostly reflecting higher inflation in South Africa, where headline inflation is forecast to average 6.2 percent12 in 2017, and to be within the 3 – 6 percent target range for the remainder of the year. Nonetheless, it is envisaged that the relative strength of the Pula against the South African rand will moderate imported inflation.
Domestic non-mining output expansion is projected to remain below trend in the medium term, influenced mainly by the restrained growth in personal incomes, moderate increase in government expenditure and modest economic growth in major trading partners. However, gradual recovery is expected in the medium term in response to the loose monetary conditions. Overall, inflation is forecast to breach the lower bound of the 3 – 6 percent objective range in the medium term.
Upside risks to the inflation outlook relate to any considerable upward adjustment in administered prices and government levies and/or taxes and any increase in international oil prices beyond current forecasts, as well as any significant upward deviation in regional food prices from international trends. Nevertheless, there are downside risks associated with restrained global economic activity and the potential fall in commodity prices.
It is projected that monetary conditions will continue to be accommodative in the short to medium term, largely on account of negative real interest rates. The accommodative monetary policy stance is supportive of growth in economic activity going forward. Even then, structural constraints, possible instability in the supply of inputs and utilities,14 as well as external and weather shocks could have adverse impact on growth.
The current state of the economy and the projected performance as well as the prospects for the financial sector, along with the positive inflation outlook, suggest that maintaining an accommodative monetary policy stance is consistent with keeping inflation within the 3 – 6 percent objective range in the medium term. Furthermore, the potential for banks to expand credit provision continues to be supported by a stable financial system and sufficient liquidity in the banking system (Charts 11-13). In particular, the level of Bank of Botswana Certificates and balances held by banks abroad, in part, represent excess liquidity, which is available for lending in response to any effective credit demand by both businesses and households.
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.
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.
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”