The annual inflation rate in October was 2.7%, shedding off 0.1% from the previous month, this is according to the recent Consumer Price Index (CPI) released by Statistics Botswana.
The data collecting agency has also changed the base year, in the process introducing new items in the basket as well as adjusting weights across group indices.
Group indices were generally stable between September and October 2016, recording changes of less than 1 percent. According to the latest data from Statistics Botswana, inflation remained flat for several commodity groups, including: housing, health, transport, communication and education, with each group registering no change in overall prices. There was a slight increase of 0.2% across the clothing and footwear, furniture, restaurant and hotels, recreation and culture group indices.
The biggest price increases were recorded in the Alcohol and Tobacco group index after recording a 0.7% increase following notable price increases in alcoholic beverages. An increase of 0.4% spread across the Food and Non-Alcoholic Beverages, and Miscellaneous Goods and Services groups. The Food and Non-Alcoholic Beverages group is the second main constituent of the CPI at 16.51% and in the last 12 months the group’s overall price increased by 3.29%.
The All-Tradable inflation rate was 1.9% in October, not showing any change from previous month. The Domestic Tradable inflation declined from 3.5% to 3.1% between September and October. The Imported Tradable inflation rate remained unchanged at 0.9 percent between the two periods. The Non-Tradable inflation rate remained unchanged at 4.9 percent between September and October 2016.
The core inflation, which excludes items that are prone to volatile price movements such as food, petrol and electricity, decreased by 0.2% to end at 3.4% in October. Core inflation is thought to be an indicator of underlying long-term inflation. This is the first set of CPI figures after the statistics agency rebased the year from September 2006 to September 2016. The CPI rebasing covers a number of issues which includes the new basket and weights, area coverage as well as the methodology. The current index has September 2016 as its base and the weights were derived from the 2009/10 Botswana Core Welfare Indicator Survey (BCWIS) results.
“CPI rebasing is a process of relating item prices in the CPI basket to the current consumption pattern i.e. to derive CPI weights which represent the new consumption patterns. The accuracy of weights to represent current expenditure patterns decreases as the length of time increases from the weight reference period,” said Ms. Majelantle, the Statistician General, before adding that there is a general shift in relative prices due to changes in supply and demand of goods and services in the economy and hence changes in the household consumption patterns.
The new basket has a total of 393 items which are categorized into 51 sections and 12 groups while the previous basket had 384 items but still classified as stated. The number of basket items has been increased and modified to cater for the changes in the consumption patterns as per 2009/10 BCWIS results. Each item in the basket is representative of all other similar items, hence the weights reflect the relative importance of an item to other items in the entire basket. It is therefore based on the fact that the behavior of the price of an item will be similar to that of the items it represents.
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”