The recently released financial statistics from Bank of Botswana reflect the continued decrease of lending to households, indicating restrained growth in personal incomes. Furthermore, the latest data shows that deposits held by banks also continue to decline due to the prevailing lower interest rates.
Total deposits held by commercial banks decreased by P2.3 billion (3.7 percent) from P62.4 billion in December to P60.1 billion in January 2017. This is after deposits of residents businesses decreased by 5.1 percent to P43.2 billion. The resident business category, made up of private businesses and parastatals, registered declines in deposits from private businesses and parastatals which fell by P2.2 billion (5.5%) and P190 million (3.1%) respectively. Furthermore, total deposits took a dip when deposits held by the local government tanked by 17.1 percent to P2.1 billion.
The decline in total deposits held by commercial banks was cushioned by slight increases in deposits held by households which advanced by 1.8 percent to P14.2 billion. Non-residents businesses’ deposits spiked by 63.7 percent to P495.2 million, while deposits held by central increased by 20.4 percent to P206.3 million. The latest data shows that businesses continue to hold the most deposits as they account for 72.7 percent of total deposits compared to 23.5 percent for households.
By type of deposits, there was a decrease in current deposits by P998 million or 7.1 percent to P13.1 billion. Current deposit accounts refers to bank accounts that have no specified maturity date, that is the, the owner can withdraw the funds at any time and without an early withdrawal penalty. Funds are typically made immediately available to the owner.
Deposits held in call accounts fell by 3.2 percent to P20 billion. A call deposit refers to a kind of deposit transactions where the owner of account does not specify savings term and cannot withdraw the money without notifying the bank in advance. The call deposit account combines the convenience of current deposit and higher interest rate than that of current deposit account.
The broader decline in deposits was also recorded in the savings accounts which reduced by 2.4 percent to P4.4 billion. Moreover, deposits fixed up to 1 month reduced by 38.1 percent to P1.1 billion while those fixed up to 6 months decreased by 3.2 percent to P11.8 billion.
As it can be expected, deposits held for longer periods recorded increased as commercial banks offer higher savings interest rates for them. The 3 month fixed deposit account increased by 18.3 percent to P2.4 billion. Deposits held to maturity for 12 months slightly increased by 0.7 percent to P5.5 billion while those held for more than 12 months grew by 6.1 percent to P2 billion.
There has been concern that despite Bank of Botswana’s accommodative monetary stance there has been a low uptake of credit. The recent data reveals credit growth in the beginning of the year on the back of business borrowings. Total credit extended by commercial banks increased by P260 million (0.5 percent) from P51.3 billion in December to P51.6 billion in January 2017. Loans to resident businesses increased by 1.3 percent to P20.6 billion. This was despite a 2.2 percent fall in credit held by parastatals. There was an uptake of credit in the non-resident businesses, advancing by 14.1 percent to P97.4 million. The biggest holder of debts, households, eased on credit as it shed of 0.1 percent to bring its debts to P30.8 billion.
Year on Year, commercial banks credit growth for January 2017 was 5.9 percent, lower than 6.2 percent registered in the previous month. The share of credit to the household sector was 59.8 percent, a decrease from 60.1 percent in the previous month. Outstanding bank of Botswana certificates (BoBCs) at market value decreased by 5.6 percent from P7.9 billion in December 2016 to P7.5 billion in January 2017, potentially reflecting diminishing liquidity in the banking sector.
The central bank uses bank of Botswana certificates to control money supply. If there is too much money supply, the bank sells interest bearing certificates to commercial banks to hold in exchange for the excess money. If money supply falls, the bank redeems its certificates, hence releasing the money bank to commercial banks plus the interest earned, this is reflected by decreases in outstanding BoBCs. The central bank says between December and January it injected liquidity in the banking sector through repurchase operations (repos) of P150 million compared to liquidity absorption of P1.3 billion.
The financial statistics for February reveal that during December 2016, the foreign exchange reserves decreased by 4.5 percent from P80.4 billion in November to P76.8 billion. Based on changes in the reserves, adjusted for unrealized gains and losses, the balance of payments was in an overall deficit by P3.2 billion in December while for the fourth quarter of 2016 the deficit was P873 million. For the year to date, the cumulative surplus was P2.8 billion.
At the end of February 2017, the pula appreciated against the euro by 2.7 percent, while firming against the pound by 2.2 percent. The pula continued to strengthen against US dollar by 1.8 percent while appreciating against the yen by 0.7 percent. The pula lost ground against the rand as it depreciated against it by 2.3 percent. In the twelve months to February, the pula appreciated against the pound (23.4 percent), euro (14.2 percent), US dollar (10.7 percent) and the yean (10.2 percent) but depreciated against the rand (11.4 percent).
Marcian Concepts have been contracted by Selibe Phikwe Economic Unit (SPEDU) in a P230 million project to raise the town from its ghost status. The project is in the design and building phase of building an industrial hub for Phikwe; putting together an infrastructure in Bolelanoto and Senwelo industrial sites.
This project comes as a life-raft for Selibe Phikwe, a town which was turned into a ghost town when the area’s economic mainstay, BCL mine, closed four years ago. In that catastrophe, 5000 people lost their livelihoods as the town’s life sunk into a gloomy horizon. Businesses were closed and some migrated to better places as industrial places and malls became almost empty.
However, SPEDU has now started plans to breathe life into the town. Information reaching this publication is that Marcian Concepts is now on the ground at Bolelanoto and Senwelo and works have commenced. Marcian as a contractor already promises to hire Phikwe locals only, even subcontract only companies from the area as a way to empower the place’s economy.
The procurement method for the tender is Open Domestic bidding which means Joint Ventures with foreign companies is not allowed. According to Marcian Concepts General Manager, Andre Strydom, in an interview with this publication, the project will come with 150 to 200 jobs. The project is expected to take 15 months at a tune of P230 531 402. 76. Marcian will put together construction of roadworks, storm-water drains, water reticulation, street lighting and telecommunication infrastructure. This tender was flouted last year August, but was awarded in June this year. This project is seen as the beginning of Phikwe’s revival and investors will be targeted to the area after the town has worn the ghost city status for almost half a decade.
The International Monetary Fund (IMF) has slashed its outlook the world economy projecting a significantly deeper recession and slower recovery than it anticipated just two months ago.
On Wednesday when delivering its World Economic Outlook report titled “A long difficult Ascent” the Washington Based global lender said it now expects global gross domestic product to shrink 4.9% this year, more than the 3% predicted in April. For 2021, IMF experts have projected growth of 5.4%, down from 5.8%. “We are projecting a somewhat less severe though still deep recession in 2020, relative to our June forecast,” said Gita Gopinath Economic Counsellor and Director of Research.
The struggle of humanity is now how to dribble past the ‘Great Pandemic’ in order to salvage a lean economic score. Botswana is already working on dwindling fiscal accounts, budget deficit, threatened foreign reserves and the GDP data that is screaming recession.
Latest data by think tank and renowned rating agency, Moody’s Investor Service, is that Botswana’s fiscal status is on the red and it is mostly because of its mineral-dependency garment and tourism-related taxation. Botswana decided to close borders as one of the containment measures of Covid-19; trade and travellers have been locked out of the country. Moody’s also acknowledges that closing borders by countries like Botswana results in the collapse of tourism which will also indirectly weigh on revenue through lower import duties, VAT receipts and other taxes.
Latest economic data shows that Gross Domestic Product (GDP) for the second quarter of 2020 with a decrease of 27 percent. One of the factors that led to contraction of the local economy is the suspension of air travel occasioned by COVID-19 containment measures impacted on the number of tourists entering through the country’s borders and hence affecting the output of the hotels and restaurants industry. This will also be weighed down by, according to Moody’s, emerging markets which will see government losing average revenue worth 2.1 percentage points (pps) of GDP in 2020, exceeding the 1.0 pps loss in advanced economies (AEs).
“Fiscal revenue in emerging markets is particularly vulnerable to this current crisis because of concentrated revenue structures and less sophisticated tax administrations than those in AEs. Oil exporters will see the largest falls but revenue volatility is a common feature of their credit profiles historically,” says Moody’s. The domino effects of containment measures could be seen cracking all sectors of the local economy as taxes from outside were locked out by the closure of borders hence dwindling tax revenue.
Moody’s has placed Botswana among oil importers, small, tourism-reliant economies which will see the largest fall in revenue. Botswana is in the top 10 of that pecking order where Moody’s pointed out recently that other resource-rich countries like Botswana (A2 negative) will also face a large drop in fiscal revenue.
This situation of countries’ revenue on the red is going to stay stubborn for a long run. Moody’s predicts that the spending pressures faced by governments across the globe are unlikely to ease in the short term, particularly because this crisis has emphasized the social role governments perform in areas like healthcare and labour markets.
For countries like Botswana, these spending pressures are generally exacerbated by a range of other factors like a higher interest burden, infrastructure deficiencies, weaker broader public sector, higher subsidies, lower incomes and more precarious employment. As a result, most of the burden for any fiscal consolidation is likely to fall on the revenue side, says Moody’s.
Moody’s then moves to the revenue spin of taxation. The rating agency looked at the likelihood and probability of sovereigns to raise up revenue by increasing tax to offset what was lost in mineral revenue and tourism-related tax revenue. Moody’s said the capacity to raise tax revenue distinguishes governments from other debt issuers. “In theory, governments can change a given tax system as they wish, subject to the relevant legislative process and within the constraints of international law. In practice, however, there are material constraints,” says Moody’s.
‘‘The coronavirus crisis will lead to long-lasting revenue losses for emerging market sovereigns because their ability to implement and enforce effective revenue-raising measures in response will be an important credit driver over the next few years because of their sizeable spending pressures and the subdued recovery in the global economy we expect next year.’’
According to Moody’s, together with a rise in stimulus and healthcare spending related to the crisis, the think tank expects this drop in revenue will trigger a sizeable fiscal deterioration across emerging market sovereigns. Most countries, including Botswana, are under pressure of widening their tax bases, Moody’s says that this will be challenging. “Even if governments reversed or do not extend tax-easing measures implemented in 2020 to support the economy through the coronavirus shock, which would be politically challenging, this would only provide a modest boost to revenue, especially as these measures were relatively modest in most emerging markets,” says Moody’s.
Botswana has been seen internationally as a ‘tax ease’ country and its taxes are seen as lower when compared to its regional counterparts. This country’s name has also been mentioned in various international investigative journalism tax evasion reports. In recent years there was a division of opinions over whether this country can stretch its tax base. But like other sovereigns who have tried but struggled to increase or even maintain their tax intake before the crisis, Botswana will face additional challenges, according to Moody’s.
“Additional measures to reduce tax evasion and cutting tax expenditure should support the recovery in government revenue, albeit from low levels,” advised Moody’s. Botswana’s tax revenue to the percentage of the GDP was 27 percent in 2008, dropped to 23 percent in 2010 to 23 percent before rising to 27 percent again in 2012. In years 2013 and 2014 the percentage went to 25 percent before it took a slip to decline in respective years of 2015 up to now where it is at 19.8 percent.