The informal saying, “When South Africa sneezes, Botswana caches flu” might be true after all, atleast when it comes to the currencies of the two neighbours.
Recently the South African currency ÔÇô the Rand, suffered blows from the turmoil in Turkey, and the negative effect somehow found itself into the local shores. Botswana’s own Pula also depreciated, making life a little bit more difficult for importers as foreign products became expensive. The Pula depreciation has also affected the country’s current account.
Official data from the Bank of Botswana statistics show that, the Pula depreciated against the Rand (2.3 percent), but appreciated against major currencies at the end of July 2018.
The Pula appreciated against the Rand (4.7 percent), but depreciated against all major currencies at the end of June 2018. It depreciated against the US dollar (4.5 percent); euro (4.2 percent); pound sterling (2.9 percent); Japanese yen (2.7 percent) and the Chinese Renminbi (1.1 percent).
In the twelve months to June 2018, the Pula had appreciated against the Rand by 3.4 percent, but recorded some depreciation against the Chinese Renminbi (4 percent); euro (3.5 percent); Japanese yen (3 percent); pound sterling (2.4 percent) and US dollar (1.7 percent).
Barclays Bank Botswana Economist, Naledi Madala says the Pula depreciation which has been going on since May 2018 is a source of concern.
Madala says neighbouring South Africa faces challenging times as the new President Cyril Ramaphosa’s popularity fades and reality sets in.
As when South Africa sneezes and Botswana sneezes; this could eventually affect the Botswana fiscus through lower than projected Southern African Customs Union (SACU) revenues.
Botswana Unified Revenue Service (BURS) latest annual report of 2016/17, shows that Botswana’s share of revenue from the SACU Common Revenue Pool registered lower performance as it fell from P15.818 billion recorded in 2015/16 to P11.773 billion for the period. The decline was as result of the shrinking of the SACU Pool from R88.9 billion reported in the 2015/16 financial year to R79.3 billion in 2016/17.
Madala also noted that, looking at Namibia, growth contracted in 2017, “but projections show that a recovery is on its way supported by the mining sector, however the link to the ZAR also means imports will be more expensive.”
On the local economic front again, it is widely acknowledged that Botswana faces two twin challenges which need to be tackled urgently, namely, declining economic growth and low levels of employment creation. Fluctuations in Botswana’s GDP tend to follow those of the mining sector, highlighting the overdependence on the sector.
The government’s budget sustainability is also highly dependent on mining revenues, as shown per the financial year 2018/19 38 percent of revenues is expected to come from mineral taxes, royalties and dividends. This she said, leaves both government operations and economic activity heavily reliant on mining activity and emphasizes the need for diversification. Against this background, the growth is expected to continue to be driven by mining sector as well as rising tourism. The forecast growth of 4.6 percent in 2018 and 4.1 percent in 2019.