BoB Governor calls for reduced gov spending
Despite the decline in the country’s Gross Domestic Product (GDP) and diamonds being out of favour, the Bank of Botswana (BoB) Governor, Cornelius Dekop remains optimistic.
Although he warned it will not happen overnight, especially with a slightly lower global output growth projected for both 2024 and 2025, the BoB boss is confident Botswana will ride the wave and bounce back.
Addressing members of the media at a Monetary Policy Committee (MPC) meeting in Francistown last week, Dekop declared that what the nation is experiencing is not a crisis but a normal cash flow challenge – something the majority of us can relate to!
He explained the country is facing a trade imbalance deficit.
“This simply means we import more than we export!”
The Governor added that because the trade balance is skewed towards Botswana’s trading partner, the cash inflow is not enough to cover government’s needs.
Data released by Statistics Botswana has shown a further contraction in economic activity due to several factors, chiefly: the impact of lower diamond sales as well as weaker performance of the non-mining sectors.
Dekop explained this has led to reduced export earnings, which is constraining government spending and its impact on economic activity.
Highlighting the current disparity, Statistics Botswana figures for August show that imports stood at P8, 639.5 million while goods going the other way fetched P2, 897.2 million.
It was a similar scenario in July, when the import bill set the country back P7, 084 million while exports were worth P3, 549.9 million.
According to the October 2024 World Economic Outlook, global output growth is forecast at 3.2 percent for both 2024 and 2025, slightly lower than 3.3 percent recorded in 2023.
For Botswana, the International Monetary Fund projects domestic economic growth of one percent for 2024, down from 2.7 percent in 2023. This decline is partly due to the diamond industry’s struggles, driven by weak global demand and high inventory levels.
Although he confirmed the country is in a technical recession [two consecutive quarters of negative economic growth], Dekop insisted that’s a far-cry from a financial crisis.
“The country is not broke. I know broke. It means no lights, no salaries. I’ve seen broke. The fact that the country has a high import bill means we can pay,” he said.
The Governor, however, cautioned it can’t be business as usual, warning there’s a dire need to cut government’s expenditure and find other sources of revenue.
“We can’t continue as if nothing is going on. The well is not dry; something is dripping in, but we can’t keep on spending!” he warned.
Dekop added he was confident BoB can navigate the challenges through targeted initiatives meant to stimulate the economy, pointing to the recent slashing of the policy rate from 2.15 percent to 1.9 percent as proof of his optimism.
Having cut its lending rate in June, the central bank did so again for the second time in August, saying there was scope to ease monetary policy as the economy continued to operate below capacity.
Dekop said reduced lending rate means borrowing money becomes more affordable, which in turn helps stimulate the economy.
