Tuesday, August 9, 2022

Household debt is worsening the cost of living crisis among Batswana

Year in and year out the Bank of Botswana, through its annual reports has pointed out that household debt in Botswana was disproportionate to that of commercial debt.

That has pointed out to the fact that Batswana were by and large more tilted towards conspicuous consumption rather than investment.

That alone has been a worrying factor even during the best of times.

But today things are significantly much harder as a result of a combination of factors, chief of which is inflation. Last week Statistics Botswana reported that inflation had breached the 12 percent mark. This is the highest it has been for quite a while.

All forecasts point to the fact that it is likely to get worse before it gets any better. And Batswana should better be prepared.

At the moment everybody is feeling the pinch. This includes the employed and the unemployed. But also the middle class.

Botswana has a sizeable number of the unemployed, most of them the youth.

For these people the situation was bad enough during Covid 19 and immediately thereafter.

It has now gotten much worse and also unbearable.

Fuel hikes, the latest being late last month has made a terrible situation untenable.

An increase in fuel prices always tends to affect everything along the production chain. And that has been the case.

So bad is the situation that now many people are now having to make a choice between foregoing work and buying food.

Prices of food have been on the rise since during the height of the pandemic.

It is not an exaggeration to say that food prices are now increasing on a daily basis.

This inevitably affects the ordinary consumers especially those at the bottom end of the wrung.

Food inflation has now become a real problem.

But long before food inflation, food poverty was a big mess in Botswana especially among the middle class.

President Mokgweetsi Masisi has conceded that Botswana government cannot continue like its business as usual.

Without giving much details he has said that his government will intervene to mitigate the effects of the cost of living, especially on the poor.

We await the details, but are already worried that the devil will be in the detail.

In trying to correct this anomaly, government should be careful not to make the situation worse.

For many Batswana a rise in inflation effectively amounts to a salary cut.

This is because long before even the pandemic, there had been a salary freeze for most people in Botswana, especially those in the private sector.

For many in the public service a recent salary adjustment has now been all but wiped out by persistent inflationary pressures.

While debt to GDP ratio has remained healthy, especially when measured against the statutory levels, Botswana’s public debt has been on the rise. To make matters worse the reserves have been dwindling. The pandemic got the reserves to unprecedented low levels.

This, we have to point out will limit Botswana government’s room to maneuver.

Overall the country’s economic fundamentals remain strong, with Ratings as high and as strong as can be under the prevailing headwinds, but for a country that effectively relies on a single commodity for its export, the vulnerabilities have remained as stark as ever.

Beyond diamonds Botswana and to a lesser extent a few other minerals, Botswana remains an import economy.

Tax leakages continue to be a big problem. But let’s face it;  it makes little sense to overtax an underperforming economy.

The key, going forward will be to work on productivity. Another is reducing regulation.

Ours is an over-regulated economy.

Economic diversification now sounds like a broken record.

The country needs more not less financial and fiscal discipline from government.

Yet that has not been always the case.

Transparency, especially on the growing loans from China has been lacking too.

Among all the above, household debt is the elephant in the room.

Households are now at a breaking point.

Household debt was always ballooning long before the pandemic, long before inflationary pressures, long before the current fuel prices, long before current food prices and long before a war in Ukraine added fuel to the mix.

Any intervention by the Masisi government has to take that into consideration.

More crucially, it has to be clear from the onset how Government will be financing the proposed interventions.

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