BoB predicts “sharp deterioration in economic growth” | Sunday Standard
Thursday, July 2, 2020

BoB predicts “sharp deterioration in economic growth”

Bank of Botswana (BoB) has cautioned that projections by both the Ministry of Finance and Economic Development and the International Monetary Fund (IMF) suggest a sharp deterioration in economic growth for Botswana in 2020.

In the April 2020 World Economic Outlook, the IMF forecast GDP to fall by 5.4 percent this year, before rebounding to 6.8 percent in 2021, while the Ministry estimates that the economy will contract by 13.1 percent, and rebound to a 3.9 percent growth in 2021.

Central Bank governor Moses Pelaelo says the wide range of forecasts attest to the challenges of making forward projections when there is uncertainty about the duration of constrained economic activity, the resultant adverse impact on productive capacity, as well as the speed of resumption of production and pace of recovery in demand.

“Even with recovery in 2021, the contraction in 2020 equates, approximately to a two-year loss of output,” he said.

Briefing the media, Pelaelo said the COVID-19 pandemic and consequent containment measures have severely curtailed economic activity globally and domestically as production, supply chains, project implementation and provision of goods and services are constrained.

He added that similarly, consumption and spending are disrupted, hence domestic demand pressures and foreign prices remain subdued. He is of the view that consequently, overall risks to the inflation outlook are skewed to the downside.

“Inflation may rise above current forecasts if international commodity prices increase beyond current projections and in the event of upward price pressures occasioned by supply constraints due to travel restrictions and lockdowns,” said Pelaelo.

He is of the view that recognized that the short-term adverse developments in the domestic economy occur against a potentially supportive environment including accommodative monetary conditions. He spoke of improvements in the provision of utilities and also reforms to further improve the business environment.

 “Concerted efforts by government to mitigate the impact of COVID-19 and a prospective economic recovery programme would also generally be positive for economic activity in the medium term,” he stated.

The Bank Monetary Policy Committee (MPC) this week also decided to maintain the Bank Rate at 4.25 percent while inflation eased from 2.5 percent in April to 2.4 percent in May 2020, remaining below the lower bound of the Bank’s objective range of 3 – 6 percent.

BoB also stated that inflation is forecast to revert to within the objective range in the third quarter of 2021, adding that this is a significant downward revision from the April 2020 forecast.

Information from BoB MPC is that mining output contracted by 3.9 percent in 2019, compared to a higher increase of 7.9 percent in 2018, mainly due to weaker performance of the diamond, soda ash, copper and coal sub-sectors. Stated that is non-mining GDP grew by 3.8 percent in 2019, compared to 4.1 percent in 2018. Furthermore, the slower expansion in non-mining GDP was primarily due to a deceleration in output growth of the manufacturing, construction, transport and communications, and social and personal services sectors.

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