An increase in civil service salaries is unlikely to generate significant demand or expectations of higher inflation in the domestic economy, the Bank of Botswana (BoB) has said. Releasing its Monetary Policy Statement this week, the bank says in view of the favourable domestic prospects, and the outlook for benign external price trends, it is projected that domestic inflation will continue to be within the 3 – 6 percent range in the medium term.
Reserve Bank Governor, Linah Mohohlo says on overall, it is anticipated that domestic demand pressures on inflation will be modest throughout the year. Mohohlo noted that precipitous decline in international oil prices since the second half of 2014, and the downward trend in international food prices combined to ease global inflation from 3.9 percent in 2013 to 3.8 percent in 2014. Figures provided by the government statistics agency, Statistics Botswana indicate that by the end of 2014, domestic inflation stood at 3.8 percent, compared to 4.1 percent in December 2013. By January 2015, the statistics agency pegged inflation rate at 3.6 percent reflecting a downward trend of 0.2 percentage point from the previous month.
Mohohlo says in 2014, recurrent outlays in the domestic economy which included a modest 4 percent increase in civil service salaries, had a small impact on overall demand.
“The benign trend in domestic inflation benefitted from the reduction in the price of fuel; there was also a dissipation of the previous year’s increase in the alcohol levy and the lower rate of adjustments in some administered prices, both of which had a favourable impact on price developments. This generally slower pace of price increases was also the result of subdued domestic demand pressures, despite higher government spending,” Mohohlo said Tuesday.
Meanwhile when delivering the budget speech last month, Minister responsible for finance and development planning Kenneth Matambo did not shed light on whether public servants will get any salary increase this year. However odds remain against a wage hike as the domestic economy continues to undergo stagnant growth which is estimated to be round 5 percent of real GDP. At the same time Botswana continues to be cautioned against a high wage bill. Matambo said in February that Government remains fully committed to the Bargaining Council in the process of negotiating public service salaries and will continue to consult with Trade Unions.
“Despite the downside risks with respect to the prospects for diamond revenues, the need to repay outstanding debt and continue to restore our net financial asset position, Government has nevertheless made an offer to the Unions. Such an offer is based on projected financial resources and it is expected that the Trade Unions will appreciate the budgetary constraints facing the Government. We hope negotiations by the Bargaining Council will be concluded soon and an agreement reached, before the beginning of the next financial year, so that public servants are not disadvantaged,” Matambo said.