IMF upgrades forecast for Botswana growth

MBONGENI MGUNI
Staff Writer | Friday September 23, 2011 00:00

 

According to a September update of the IMF's authoritative World Economic Outlook (WEO), Botswana's GDP should grow by 6.2 percent this year, slowing to 5.3 percent in 2012. The forecast for 2012 is lower than the 6.6 percent projected by the April WEO.

The forecasts for 2011 and 2012 in the latest WEO, however, are both higher than the projected sub-Saharan averages of 5.2 and 5.8 percent for this and next year, respectively.

The IMF's latest projections are slightly lower than government's expectations of 6.8 percent growth for 2011, followed by 7.1 percent for 2012, which are based on the already witnessed historic highs in diamond mineral exports thus far this year.

According to the September update of the bi-annual WEO released on Tuesday, the economy's projected growth in 2011 will be the highest among sub-Saharan middle-income countries, with Cape Verde coming in second at 5.6 percent. Botswana's projected GDP growth ranks sixth highest in Africa after Ghana, Ethiopia, Equatorial Guinea, Angola and Uganda, ranked in descending order.

With the exception of Ghana and Ethiopia, projected growth for 2011 for the top five in Africa is coming from a lower base than Botswana, with Equatorial Guinea having recorded -0.8 percent growth in 2010, Angola 3.4 percent and Uganda 5.2 percent. By comparison, Botswana's economy grew by 7.2 percent last year, powered by a rebound in both mining and non-mining sectors of the economy.

'The global slowdown has not significantly affected the region thus far, but downside risks have risen,' IMF researchers said in a commentary accompanying the latest WEO. 'Inflation has increased perceptibly in a number of countries in the region.

'Under the baseline scenario, with a strong recovery underway, this is an opportune time to return to the region's long standing priorities of improving policy and institutional frameworks, building resilience to commodity price swings and developing financial markets. All of these would help lift the region's potential growth and alleviate poverty.'

The rising inflation noted by the IMF is evident locally where it recently reached its 2011 high of 8.7 percent in August. Thus for this year, inflation's highs and lows have ranged between 7.8 percent recorded in July and 8.7 percent for August, averaging 8.2 percent. This is compared to the average of 6.9 percent in 2010.

Inflation has been driven largely by upward pressures from international fuel and food prices, as well as increases in domestic electricity tariffs and other levies.

The IMF's latest outlook expects inflation to average 7.8 percent this year, declining to 6.2 percent in 2012. At this level, Botswana's projected inflation for 2011 will be the second highest in sub-Saharan middle-income countries after Swaziland and the eight highest in sub-Saharan Africa as a whole. Botswana's projected inflation will also be higher than the Special Drawing Rights (SDR) countries and South Africa, against which the pula is valued in the crawling peg exchange rate system used by the Bank of Botswana. The rand is projected to average 5.9 percent in 2011, the UK pound 4.5 percent, the euro 2.5 percent, the US dollar three percent and the Japanese yen -0.4 percent, with the last four currencies comprising the SDR.

It is likely expected that the crawling peg system will keep the pula comparatively weaker than the SDR currencies and the rand for 2011 in order to support the country's competitiveness, particularly in the backbone mineral export sector.