Friday, May 7, 2021

Rising oil prices to constrain economic growth

Rising oil and commodity prices may lead to a general rise in prices of goods and services in the country, says Secretary for Economic and Financial Policy in the Ministry of Finance and Development Planning, Dr Taufila Nyamadzabo.

In an interview with Sunday Standard, Nyamadzabo explained that if international oil prices continued rising, Botswana as a price taker will continue to experience increases in commodity prices.”This means high oil prices will be transmitted to higher prices of goods and services produced locally as well as those imported from other countries. This may lead to a general rise in prices of goods and services in the economy,” said Nyamadzabo.

He explained further that a rise in inflation may lead Bank of Botswana to respond through monetary policy interventions, such as increasing the bank rate and consequently commercial banks would have to increase the prime lending rates.

“High interest rates would act as a disincentive to investment and production as it discourages borrowing for both production and consumption in the economy. With low aggregate demand for goods and services and low production of goods and services for exports, Botswana economy is likely to be constrained in terms of low revenue to government, said Nyamadzabo.

In addition, he said low revenue would mean that the government would have to continue to finance some of the development programmes through drawing down government’s cash balances and borrowing.
“This would deplete government cash balances and push the debt levels up. In short, high oil prices and high inflation in the economy are likely to have a negative impact on the growth of the economy, which would affect the overall development of the country,” he concluded.

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