IMF slashes Botswana growth forecast
Brian Benza | Friday April 11, 2014 16:02
Last October the IMF forecasted growth in Botswana to pick up slightly to 4.4 percent in 2014 supported by the base effect of increased electricity production and a recovery in the mining sector. The Fund supposed that it would subsequently stabilise at around four percent.But in the World Economic Outlook (WEO) report released this week, the IMF said that Botswana’s economy is seen growing at 4.1 percent this year before rising to 4.4 percent in 2015.
On the other hand average annual inflation is seen declining to 3.8 percent this year from 5.8 percent in 2013. The Bretton Woods institution forecast are lower that the Ministry of Finance and Development Planning (MFDP) projections which estimates that the economic growth rate to pick up to 4.9 percent in 2014 from 4.4 in 2013.
Local economists on the other hand say growth is likely to be restricted to lower than five percent in 2014, in part due to the prevailing water and electricity shortages that have disrupted production across all economic sectors. Powered by a rebound in diamond production, the economy beat analyst’s expectations to grow by an impressive 5.9 percent in 2013 reversing a three-year streak in which the economy grew at a slowing rate.
Economists who spoke to Business Week last week pointed to a lower economic growth rate forecast for 2014 as ongoing power and water could curtail economic activity.
“Annual real GDP growth for 2013 came in at 5.9 percent, which was ahead of expectations which were generally in the range of four to five percent. This is entirely due to annual growth of 10.6 percent in the mining sector, which was ahead of expectations, and seems to be due to a strong recovery in diamond output. In 2014, it is expected that mining would continue to grow but not at the same rate. “We also expect non-mining growth to slow marginally, in part due to the disruptive effects of power and water shortages. Hence overall GDP growth in 2014 is likely to be lower, at around 5 percent,” said economist Keith Jefferis. According to figures released by Statistics Botswana last week there was a significant decrease in the value added to the economy by the water and electricity sector in the fourth quarter of last year.
The sector recorded a decrease of 205.5 percent in the fourth quarter of 2013 compared to a decrease of 60.5 percent recorded in the same quarter of the previous year. In an effort to inject some life into the economy, Bank of Botswana (BoB) backed by a favourably low inflation rate, cut interest rates by a cumulative two percentage points in 2013.
At its February sitting, BoB Monetary Policy Committee left the bank rate unchanged at 7.5 percent citing a favourable inflation outlook.
According to the central bank, moderate domestic demand and the forecast benign external price developments contribute to the positive inflation outlook in the medium term.
However a rebound in the South Africa economy is expected to export inflationary pressure to Botswana. According to RMB Global Markets Research risks to the Botswana’s inflation outlook come from South Africa where inflation has been contained by weak economic growth thus far, preventing a spillover into Botswana.