Thursday, March 4, 2021

2015 Macroeconomic Indicators: The Good, Bad and the Ugly

Persistent uncertainty in global commodity markets and the slow pace of economic recovery in advanced economies continued to drag down the domestic economic outlook. In 2015 Botswana continued to face a key policy dilemma as it struggled to mitigate the predicted decline in previously buoyant diamond revenues. SUNDAY STANDARD’s VICTOR BAATWENG reports.

Gross Domestic Product

Coming off a weak 2014, with real GDP growth of just 5%, the domestic economy staged yet another session of sluggish growth and slow recovery throughout the year. Figures from the government statistics agency, Statistics Botswana indicate that Real Gross Domestic Product (GDP) went up by 2.5 percent in the second quarter of 2015 (Q2:2015) compared to 3.4 percent realized in the same quarter in 2014. As such, the 2015 second quarter GDP at current prices stood at P37, 205.8 million compared to P36 107.8 million registered in Q1:2014.

At industry level, most of the increase was due to trade, hotels and restaurants, finance and business services as well as general government sectors which increased by 6.9, 5.8 and 5.8 percent respectively. All other industries recorded a positive growth over the period with the exception of the water, electricity and mining sectors which recorded a decrease of 41.1 and 8percent respectively.

Researchers at the statistics agency said that the increase in the real value added of the trade, hotels and restaurants sector was mainly due to the increase realized in vehicle dealers, hotels, restaurants and filling stations, which went up by 10.2, 8.3 and 8.2percent respectively. The SB data further shows an increase of 5.8percent recorded by the finance and business services sector was due to the increase in banks and real estate, which registered a growth of 8.5 and 6.7percent respectively.

Domestic Inflation

While weaker commodity prices and stable inflation continued for much of 2015, measures to stabilize prices seem to have been the most economic positive news out of 2015. Available figures show that due to weakening economic activity, lower credit growth as well as lower fuel and commodity prices, inflation has remained around 3% in Q2:2015.  This is at the lower bound of the Bank of Botswana’s 3-6percent objective range.

After holding steady at 2.8percent for two consecutive months, February and March, the April headline inflation slightly increased to 3.1percent whilst the core inflation, at 4.8percent, held steady. Despite the 6% salary adjustments for public sector employees implemented in April, the May inflation slightly slowed to 3.1percent. Experts argue that the slight decline in May inflation may be a reflection that producers respond with a lag to increases in administered prices and wages of public sector employees or of weaker conditions in the labour market.

Latest Consumer Price Index (CPI) figures from Statistics Botswana show that last month’s year-on-year headline consumer price inflation (CPI) slightly rose to 3.1percent from 2.9percent recorded in September. The domestic inflation is now forecast to close the year averaging the current levels.

Interest Rates

The Bank of Botswana lowered policy interest rates twice in 2015 (100 bps in February and 50 bps in August). This past week, the Monetary Policy Committee of the Central Bank left its benchmark lending rate unchanged at 6%, saying the medium-term outlook for inflation and domestic growth were within its targets.

The bank maintains that its monetary policy is aligned with the need to safeguard financial stability, and in this respect, credit growth is considered to be at a sustainable level, posing no threat to financial stability.

Throughout the cuts, the Central Bank has urged commercial banks to peg the deposit interest rates closer to the bank rate in a bid to encourage savings in the country. The move follows concerns raised over the country’s interest rates spreadÔÇöthe difference between rates charged on loans and that paid out on deposits ÔÇô that sparked outrage from analysts and consumers alike. At the same time, the Central Bank’s monetary policy came under sharp criticism for aiding local commercial banks to rip-off customers through huge lending interest rates while at the same time milking the country of billions of Pula through BoBcs.

The Pula

The Pula experienced depreciation against the Euro in 2014 and 2015, reflecting the divergence between major trading currencies. At end-2014, foreign exchange reserves stood at P70 billion, and had reached nearly P90 billion by April 2015. The Pula weakened against most of its major trading peers but gained traction against the Rand. The local unit surged by almost 4% to the Rand but gave up 3.4percent and 3.6percent to the Dollar and Pound respectively. The huge losses of the Pula this past week stretched the year to date weakness to almost 15percent to the greenback and 13percent to the Pound. The Rand reached all-time lows this week mainly at the back of the firing of SA Finance Minister.

High Unemployment

Renowned economics think tank e-Consult Botswana believes that at 20 percent, the current unemployment figures in Botswana may be underestimated and could in fact be close to the 30 percent mark. In March, Finance Minister Kenneth Matambo said that government was not in a position to avail the latest unemployment figures because such analysis would be incorrect, given recent signs of economic growth on the one hand, and a spate of retrenchments by local companies. An example of such retrenchments occurred at Statistics Botswana, which did not renew employment contracts of handymen and drivers who were engaged when the organization underwent a transformation process that gave it a certain degree of autonomy. Other companies that retrenched include Discovery Metals Limited, Cadbury as well as diamond cutting and polishing companies.

Economics experts argue that lack of up to date unemployment figures preclude the assessment of whether the low inflation is directly linked to high unemployment in the domestic labour market.

Economic Stimulus Programme (ESP)

With interest rates already near record lows, government will be looking for a planned stimulus package to assist development and promote investment in sectors identified as key growth drivers. The ESP, as it is widely known across the country, was first announced by President Khama at a Botswana Democratic Party (BDP) special congress almost two months ago. However, details on the ESP have been sketchy and the public is yet to get full information on what the much anticipated economic booster will entail. The expectation was that Khama would shed more light on the ESP during his state of the nation address three weeks back, but he only repeated, almost word for word, the details that he shared at the BDP special congress. However, the President promised that government will publish a detailed brochure in due course. Finance Minister Kenneth Matambo maintained Khama’s earlier stance early this month that more details of ESP will be revealed in the brochure. The brochure was released in early December, but still contained general information on what the ESP was intended for, much to the chagrin of members of the public and business pundits who had been waiting in anticipation to see how they could tap into the much touted program. Matambo has also stressed that the ESP should not be mistaken for a panacea for Botswana’s economic woes. 

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