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Inflation breaches lower bound of inflation target


February’s year-on-year consumer inflation rate moderated further to 2.8%. This deceleration was faster than the 4.6% that was recorded during the same month of 2014. As stated previously, this deceleration was largely to be expected, as the significantly lower fuel prices dragged it to its lowest level in over 20 years.

On a monthly basis, overall prices fell by 0.8% after dropping by a smaller margin in January of 0.2%.

The transport category, which accounts for about 19% of the Consumer Price Index (CPI) fell by 4.3% during February largely driven by a decline of 7.3% in the sub-category ‘Operation of Personal Transportation’ which comprises the fuel and associated costs. On a year-on-year basis, transport costs declined 5.5% taking away about 1.04 percentage points from overall inflation.

Clothing and footwear realised the most inflation of 7.3% over the one year period followed by Alcoholic Beverages, Tobacco & Narcotics at 7.0%. All other groups recorded inflation in prices over the year. The Food & Non Alcoholic beverages group recorded an inflation of 2.2% on a year-on-year basis adding about 0.5% to inflation.

The long awaited reduction in the fuel prices in the domestic economy started being filtered into the numbers and our expectations are in line with those of the Central Bank of Botswana to have a full effect of about 1% reduction in inflation over 2015. We expect some stimulus to disposable income to also come from the zero rating of certain foodstuffs that was recently implemented by the government, this could however be offset in spending in other non-zero rated foods.

Core inflation, which excludes food and fuel, remained unchanged from the previous month at 4.8%, implying a downwards bias by the two CPI heavyweights; Food and Fuel.

The recent reduction in the bank rate by 100 basis points we believe was meant to counter the decline of inflation below the 3% mark; unfortunately it came a bit late to have given the desired result. The magnitude of the rate cut was a surprise to us but in hindsight, we believe that there will need to be stronger demand to maintain the 3 – 6% inflation from the current levels of demand in the local economy which is mostly restricted by the restrained growth in personal income.

Looking ahead, we believe that a further drop in inflation is now limited, but will remain dependent on the local demand. Threats to the upside are around the increasing food prices (as evidenced in South Africa) and administered prices. We think that inflation will start trending upwards (although at a moderate pace) in the second quarter of 2015. Overall, inflation outlook remains benign. This will likely persuade the Bank of Botswana to keep rates low.

Tshephang Loeto, is an analyst at Investec Asset Management

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

21st September 2020
Botswana-on-high-alert-as-AML-joins-Covid-19-to-plague-mankind-

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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