Thursday, October 29, 2020

Bank rate slashed as Botswana economy sinks

The Monetary Policy Committee (MPC) of the central bank on Thursday slashed the Bank Rate by 50 basis points to 4.25 percent stating that the current state of the economy and the outlook for both domestic and external economic activity provide scope for easing monetary policy to support domestic economic activity.

Bank of Botswana governor – Moses Pelaelo said Thursday that all commercial banks in the country are required to make the necessary interest rate adjustments with immediate effect to reflect the bank’s policy decision. Following the cut, Botswana’s Prime rate now stands at 5.75 percent from the initial 6.25 percent.

The Bank Rate cut comes at a time when the local economy is heading for its worst economic performance in history. The International Monetary Fund and bureaucrats at the Finance and Economic Development ministry have predict  an economic contraction in a magnitude unseen before.

The head of Treasury in Botswana– Dr Thapelo Matsheka said in a televised national address last week that Botswana economy has been pushed down by Covid-19 and the effect will surpass the damage inflicted by the 2008 global financial crisis.

The official figures however show that even before Covid 19, the health of the domestic economy was deteriorating. The most recent gross domestic product (GDP) figures compiled by state owned Statistics agency – Statistics Botswana (SB) showed that growth was subdued in the last quarter of 2019, registering a 1.6 percent growth. The SB report also showed that in overall, the country’s annual real GDP grew by 3 percent to P99.4 billion, a decrease from the previous year’s 4.5 percent growth. Nominal GDP, which uses current prices, advanced by 3.6 percent to P197.3 million, yet still lower than 2018’s 5.7 percent growth.

On Thursday Pelaelo said that the contraction in Botswana’s GDP reflects the substantial curtailment of economic activity due to the necessary global and domestic measures implemented to contain the spread of COVID-19 and safeguard human life.

“The recovery projections are fraught with uncertainty with respect to several critical factors, namely, the intensity and effectiveness of containment efforts; the extent of supply disruptions; fiscal and market financing constraints; shifts in spending patterns; trends in commodity prices; and, ultimately, business and consumer confidence”, Pelaelo said.

The Bank Rate cut also comes at a time when both the International Monetary Fund (IMF) and the government have since made revision to their projections on the growth of the local economy. While the IMF pegs the decline for 2020 at 5.4 percent, Matsheka pins it at minus 13.2 percent.

At the same time Dr Matsheka said the government’s total revenues and grants have now been revised downwards from P62.4 billion to P48.8 billion in 2020/21. This reflects a difference of 22 percent from the original February budget estimates.

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