Bittersweet outcomes as Pula swings high and low

MBONGENI MGUNI
Staff Writer | Tuesday June 4, 2013 00:00

Yesterday, the Pula was valued at P8.66 to the Dollar and P0.86 to the Rand according to Bank of Botswana opening rates, compared to P8.65 to the Dollar and P0.85 to the Rand on Friday.Barclays Bank Botswana was quoting the greenback at P9.15 for cash sale before commission yesterday, while First National Bank Botswana was quoting P8.89 before commission on Friday.

Experts have said the latest trends reflect the downtrend in the South African currency, itself weighed down by fears of a wage-price spiral triggered by mining sector labour unrest. In addition, a general strengthening of the US Dollar has seen it gain against both the Pula and the Rand in recent months.Econsult economist, Thabelo Nemaorani has said the current trends in the Pula values against the Rand and the greenback had been noted from the middle of last year. 'The latest trends are positive for rough diamond exports which are priced in US Dollars, but there is another angle,' he told Mmegi Business. 'The loans Botswana received from the African Development Bank were in USD ($1.5 billion) and when the Pula weakens against that currency, government's repayments rise. Thus, the country's indebtedness increases but on the other hand, revenues received from diamond exports increase. Another angle is that most of our imports are from South Africa and a weaker Rand versus the Pula is positive in that imported inflation will be restrained,' he explained.

In an economic commentary on the first quarter of the year, Nemaorani and Keith Jefferis noted the risk of higher fuel prices in Botswana as a result of the Pula's depreciation against the Dollar.Motswedi Securities' analyst, Garry Juma noted both risks and benefits in the Pula's trends against the Rand and the Dollar.'Further Rand weakness, if prolonged, has contagion implications for Botswana in the form of imported inflation given that the bulk of the country's goods are imported from South Africa,' he said.

'However, the marginal appreciation of the BWP against the Rand will help absorb the effects of a weaker Rand.'Last Wednesday, Bank of Botswana research director, Kealeboga Masalila said the Pula's fall against the Dollar would boost the Pula's value of foreign reserves while also increasing dollar-based exports, which are mainly diamonds.Other BoB officials said the Pula's gains against the Rand would lower the Pula value of the country's imports from South Africa, which make up more than 70 percent of the monthly import bill.The experts also say prolonged weakness of the South African Rand against the greenback would result in inflation triggered by higher wages in manufacturing and higher values for imports of inputs. In addition, Eskom would likely raise electricity prices in response to higher import costs of infrastructure for new stations.

Such higher inflation and electricity prices would then harm Botswana's economy despite the healthier Pula versus Rand relationship.This year, the Pula has gained 6.52 percent against the Rand, while losing 11 percent against the Dollar. In May alone, the Pula gained five percent against the Rand and lost 6.3 percent against the greenback. The Rand and the Dollar are key components of the weighted basket of currencies the Bank of Botswana uses to gauge the Pula's value. Generally, weakness against one (Rand or US dollar) is associated with gains in the other.