The Monetary Policy Committee (MPC) met in August 2020 to look at advances that will come in 2021 after the ruins of Covid-19. The virus has spread to more than 200 countries around the world, having more negative impact on social and economic activity in the first half of 2020 than anticipated.
The year 2020 is a year of downfall according to the projections by the Ministry of Finance and Economic Development and the International Monetary Fund (IMF) which suggest a deterioration in economic growth for Botswana in 2020. The Ministry of Finance estimates that the economy will decline by 8.9 percent in 2020. The IMF forecasts the domestic economy to contract by 9.6 percent in 2020. The April 2020 World Economic Outlook sees a contraction of 5.4 percent before the domestic economy can bounce back to a growth of 8.6 percent in 2021.
According to the June 2020 WEO Update, global output is forecast to contract by 4.9 percent in 2020, 1.9 percentage points lower than the April 2020 projections, markedly worse than the 2008/09 financial crisis, and it is expected to be the worst economic crisis since the Great Depression of the 1930s. For the first time, all regions are projected to experience negative growth in 2020, with recovery projected to be more gradual than previously forecast. For advanced economies, output growth is forecast to contract by 8 percent in 2020, from 1.7 percent in 2019. Overall, risks to global output growth remain skewed to the downside. They include possible recurrence of outbreaks in places that have gone past peak infection, requiring the reposition of some containment measures, a prolonged decline in economic activity leading to firm closures and tightening financial conditions.
The recovery of 2021 will be like the economy falling in an inevitable bottomless black pit because the 2020 contraction is almost equal to a twoyear loss of output. These sentiments were suggested by Bank of Botswana Governor, Moses Dinekere Pelaelo, in the central bank virtual meeting with journalists. “The disparity in forecasts attest to the challenges of making forward projections when there is uncertainty about the duration of constrained economic activity, the resultant adverse impact on productive capacity, as well as the speed of resumption of production and pace of recovery in demand,” Pelaelo told journalists after the MPC meeting. According to financial statistics, inflation was constant at 0.9 percent between June and July 2020 and remained below the lower bound of the Bank’s objective range of 3 – 6 percent. However, inflation is forecast to revert to within the objective range in the third quarter of 2021, according to the central bank. MPC Statement said the COVID-19 pandemic and consequent containment measures have severely throttled economic activity globally and domestically as production, supply chains, project implementation and provision of goods and services are constrained. “Similarly, consumption and spending are disrupted, hence domestic demand pressures and foreign prices remain subdued. Consequently, overall risks to the inflation outlook are skewed to the downside. However, inflation may rise above current forecasts if international commodity prices increase beyond current projections and in the event of upward price pressures occasioned by supply constraints due to travel restrictions and lockdowns,” said MPC.
The Real Gross Domestic Product (GDP) grew by 2.6 percent in the 12 months to March 2020, compared to a faster expansion of 4.5 percent in the corresponding period in 2019. The central bank explained that the lower increase in output is attributable to the contraction in mining output and deceleration in output growth of the nonmining sector. Mining output contracted by 6.1 percent compared to a growth of 5.5 percent in the corresponding period in 2019, mainly due to weaker performance of the diamond, soda ash, copper and coal subsectors. On the other hand, non-mining GDP grew by 3.6 percent in the year to March 2020 compared to 4.3 percent in the corresponding period in 2019. BoB explains that the lower growth in non-mining GDP was mainly due to a deceleration in output growth of the trade, hotels and restaurants, transport and communications, construction and manufacturing sectors. Lockdowns and closures of borders or disruptions in business operations and consumerism is a mirror of the contraction in GDP which also reflects the substantial curtailment of economic activity at large. “The resultant decrease in global demand and disruption in supply chains, as well as curtailed economic activity locally, has affected several sources of economic growth for Botswana. Notably, these include exports, such as minerals and tourism as well as non-food retail economic activity,” said Pelaelo.
A broader view is that the global economy is projected to contract by 4.9 percent in 2020 but to rebound to 5.4 percent in 2021, Bank of Botswana says this will be anchored by unprecedented policy and resource support by individual countries and multilateral institutions. “However, the recovery projections are fraught with uncertainty with respect to several critical factors, namely, the intensity and effectiveness of containment measures; the extent of supply disruptions; fiscal and market financing constraints; shifts in spending patterns; trends in commodity prices; and, ultimately, business and consumer confidence. A similar pattern of developments pertains with regard to Botswana,” the Bank of Botswana Governor said. “These would generally be positive for economic activity in the medium term. Therefore, the MPC decided to continue with the accommodative monetary policy stance and maintain the Bank Rate at 4.25 percent,” Pelaelo said.