Saturday, November 26, 2022

IMF exposes flaws in Botswana’s Producer Price Index

Botswana’s producer price index (PPI), which tracks the prices businesses receive for their goods and services, is proving to be “problematic.” 

This is according to a report released recently by the International Monetary Fund (IMF).

The IMF’s technical assistance (TA) mission which continues assisting Statistics Botswana (SB) with developing the PPI has exposed highly concerning flaws in the country’s IPP.

The report, authored by IMF’s team mission, emphasised that a broad range of representative price indexes are essential in understanding inflationary pressure in the country’s economy and to better-inform economic policy making by the authorities.

It says the SB national accounts department had requested that PPI coverage be expanded to include agriculture and manufacturing activities.

Says the report: “There are difficulties in the collection of price data from commercial farms.”

“The mission identified and discussed different options to improve non-response, along with investigating potential sources of agriculture data that may be available from other government departments and industry associations,” the report says.

The report says while the staff  at the SB’s price statistics unit which is responsible for the development, compilation, and dissemination of all price indexes clearly showed the capability for developing price indexes, they are limited by the number of resources available with which to develop, improve, and disseminate indexes.

Explain that manufacturing activities are an important component of the Botswana production sector, the report added that of note are the manufacturing industries for diamond cutting and manufacture of alcoholic beverages.

The report finds that: “These industries, along with several other manufacturing industries have also been flagged as being important for deflation purposes in the national accounts.”  

To meet the needs of national accounts, report says, PPI coverage will be expanded to include manufacturing activity. “The development of a PPI for manufacturing will require the collection of price data from establishments classified to manufacturing industries,” the report says.
IMF recommended that the price statistics unit at Statistics Botswana should discuss the availability of product level sales data for those establishments selected for the manufacturing PPI. It also recommended that SB should initiate each establishment for the manufacturing PPI by personal visit and discuss with national accounts the proposed list of industries to be included in the manufacturing PPI. 

Regarding agriculture activities, the report notes that there have been problems with collecting price data from commercial farms adding that this problem has been exacerbated by the Covid-19 pandemic.

The report recommended that the authorities should prioritize securing access to cereal crops price data from the Botswana Agriculture Marketing Board (BAMB).

The BAMB was urged to compile and disseminate monthly producer prices broken down by crop and by grade of crop reflecting the market price which cereal crop farmers receive per 50kg bag.

“However, the BAMB website is currently inaccessible and engagement with the BAMB had been suspended due to Covid-19. During the mission, investigations showed that the BAMB continues to disseminate the price data via social media accounts, although the mission recommended not relying on social media as a data source for PPI,” the report says.  

The mission recommended that SB should arrange a meeting with the BAMB as soon as possible to discuss the price data they disseminate and to arrange supply of both current and historic price data. This engagement should allow the authorities to begin compiling preliminary indexes for the cereal crop component of agriculture, while further development of a wider agriculture basket takes place. 

The report cites Statistics Botswana expressing concerns about seasonally missing price data for various items in the agriculture basket.

“In particular, some items, such as root vegetables are subject to seasonal availability. When dealing with seasonal unavailability, an attempt should be made to impute the missing price data until the actual prices return,” the report says. 

The report also quoted SB as saying that it continues to find it difficult to collect data for other products from farms. 

“SB has held initial discussions with the commercial poultry farms and horticulture farms and while these discussions have proved that suitable price data are likely to be available, a minimal amount of price data has been provided. In particular, the regular supply of price data from horticulture farms has been problematic,” the report says.

SB should consider a period of extensive face-to-face engagement with poultry and horticulture farms to encourage participation in the PPI. This engagement, the report notes, should build on the outreach that has already taken place, but also consider getting support from the respective farming associations who may help in convincing farms to provide price data. The mission also discussed the potential use of legislation to support price collection. The report added that: “While SB has legislation that would support the collection of data, it was felt, on the back of difficulties stemming from the Covid-19 pandemic that using this would potentially generate undue bad feeling.”

The report recommended that SB should commence intensive period of engagement with horticulture and poultry farmers to agree the provision of price data.  SB was also called upon to engage with the Department of Agriculture Business Promotion to identify the main commercial farms in Botswana and work with second egg farm to provide price data by size of egg. 

IMF also recommended that SB should begin the compilation of preliminary egg price index and consider dissemination alongside the mining and utilities indexes.

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