Following the increase in Value Added Tax (VAT) and the introduction of a plethora of other levies last month, commodity prices could soon hike again.
This is because the central bank has cautioned that the potential increase in international commodity prices could spill into the country and drive inflation in an upward trajectory.
Bank of Botswana (BoB) Governor, Moses Pelaelo, said during the recent Monetary Policy Committee (MPC) meeting that risks to the inflation outlook are assessed to be skewed to the upside.
“Upside risks include the potential increase in international commodity prices beyond current forecasts, aggressive action by governments (for example Economic Recovery and Transformation Plan) and major central banks to bolster aggregate demand including the successful roll out of vaccines,” said the Governor.
Pelaelo further said the persistent supply constraints due to lockdowns and travel restrictions could also lead to higher prices.
“Additional domestic factors relate to second-round effects of the recently announced increase in administered prices,” he said.
The Governor, however, said these risks are moderated by the possibility of weak domestic and global economic activity, which could be exacerbated by periodic lockdowns and other forms of restrictions due to the emergence of new COVID-19 variants and slow rollout of vaccines, and the possible decline in international commodity prices.
“Furthermore, the emergence of implementation capacity constraints, if any, could hinder the effectiveness of policy stimulus and Economic Recovery and Transformation Plan initiatives, thus resulting in lower inflation.”
Meanwhile, the Governor has also cautioned that the lingering adverse effects of the COVID-19 pandemic containment measures pose uncertainty and challenges given Botswana’s high vulnerability to external shocks, notably, on diamond prices and demand, tourism, and delays in the importation of supplies.
“Nonetheless, the economy is projected to have performed better in the first quarter of 2021 compared to the fourth quarter of 2020, given the gradual easing of COVID-19 movement restrictions and vaccine rollouts in the first quarter,” he noted.
The Ministry of Finance and Economic Development and the International Monetary Fund (IMF) have projected a rebound in economic growth for Botswana in 2021.
The Ministry projects a growth rate of 8.8 percent in 2021, compared to the earlier estimated growth rate of 7.7 percent, before moderating to a growth rate of 5.5 percent in 2022.
IMF on the other side projects the domestic economy to register an 8.3 percent growth in 2021 compared to an earlier projection of 8.7 percent in the January 2021 World Economic Outlook Update.
This is expected to moderate to a growth rate of 6.4 percent in 2022.
The Governor said the growth outcome will largely depend on the successful vaccine rollout as it will enable opening up the economy to align with the projections.