The annual inflation rate in July was 2.7%, the same rate it was in the previous month, this is according to the recent Consumer Price Index (CPI) released by Statistics Botswana. Annual inflation in July 2016 is lower than in July 2015.
Group indices were generally stable between June and July 2016, recording changes of less than 1 percent. According to the latest data from Statistics Botswana, inflation remained flat for several commodity groups, including: health, communication, and education, registering no change in overall prices.
There was a slight increase of 0.1% across the transport, restaurant and hotels and miscellaneous goods and services group indices. The housing, water, electricity, gas and other fuels index was the only group index which fell by 0.1% on the back of declining prices in materials for maintenance and repair of dwellings.
However, this was partly offset by price increases in the Food and Non-Alcoholic Beverages group index after recording a 0.3% increase following notable price increases in bread and cereals, fruits, coffee, tea and cocoa. The Food and Non-Alcoholic Beverages group is the main constituent of the CPI at 21.84%.
In the last 6 months the group’s overall price increased by 1.8%. The Alcoholic Beverages, Tobacco and Narcotics index group was up also by 0.3 percent as a result of tobacco and alcohol prices slightly increased. The prices in the clothing and footwear index group rose by 0.2 percent.
The All-Tradable inflation rate was 1.5% in July, not showing any change from previous month. The Domestic Tradable inflation was up from 2.5% to 2.8% between April and May. The Non-Tradable inflation remained unchanged at 5.4%. The Imported Tradable inflation declined to 0.7 percent in July from 0.9% in June.
The core inflation, which excludes items that are prone to volatile price movements such as food, petrol and electricity, remained unchanged at 3.8%. Core inflation is thought to be an indicator of underlying long-term inflation.
Botswana has the second lowest inflation rate in Southern Africa after Mauritius. Zimbabwe is the only exception with its negative inflation rate. Southern African countries were hit the most by the El Nino phenomenon which affected agricultural production from late 2015 and extending into 2016.
The drought brought upon by El Nino affected the production of Southern Africa’s staple crops such as maize, pushing up prices. These forced Southern African governments to engage in tight monetary policies to rein in inflation.
Meanwhile in Botswana, the Bank of Botswana has been bucking the trend of increasing bank rates, and instead opted for loose monetary policy to spur economic growth. The lowest inflation rate in more than 3 years has given the country’s central back room to manoeuvre unlike its regional peers.
The bank rate was recently cut by 50 basis points to 5.5% following a Monetary Policy Committee meeting. The recent cut means that Botswana now has the second lowest bank rate in Southern Africa, coming second to Mauritius again.
“The current state of the economy and both the domestic and external economic outlook as well as the inflation forecast provide scope for easing monetary policy to support economic activity without undermining maintenance of inflation within the Bank’s medium-term objective range of 3 –6 percent.
Accordingly, the Monetary Policy Committee decided to reduce the Bank Rate by half a percentage point to 5.5 percent.2Monetary policy is also aligned with the need to safeguard financial stability. In this respect, credit growth is considered to be at a sustainable level and poses no threat to financial stability,” read part of the Monetary Policy Committee statement.
In Southern Africa, Zambia’s economy is struggling as the copper producing country is not only devastated by low commodity prices, putting the country’s inflation rate as the fourth highest in the region at 20%. The country’s bank rate is currently at 15.5%. Malawi which declared a state of national disaster earlier this year over the worsening food crisis has the second highest inflation rate at 22.6% and the bank rate is the highest at 27%.
Mozambique’s inflation is the third highest at 20.68% due to higher food prices, while the interest rate is the second highest in the region at 17.25%. The biggest oil producer, Angola, is still reeling from the fall of oil prices with the country’s inflation rate at 35.30% and interest rate at 16%.
The region’s economic powerhouse and the largest economy in Africa, South Africa, is also trying to contain its inflation which at 6.30% is above the South Africa Reserve Bank’s target range of 3-6%. In efforts to control the spiralling inflation, the reserve bank has since raised the bank rate by 200 basis points since 2014, leaving the current rate at 7%.
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”