BoB wary as Omicron shakes global economies

Pelaelo PIC. THALEFANG CHARLES
Pelaelo PIC. THALEFANG CHARLES

The Bank of Botswana (BoB) is cautioning that the economic threat posed by the new Omicron variant is eating into the room available to respond through fiscal and monetary policy.

When the COVID-19 pandemic first reached Botswana last March, the central bank responded through several interventions, including lowering the prudential capital adequacy ratio for banks, reducing banks’ cost of accessing overnight funding, raising the limits on mobile money transactions, among others. The BoB also cut interest rates to a record low of 3.75 percent in order to support economic recovery.

The United States, the United Kingdom and the European Union are among numerous countries to have imposed travel bans on Botswana in the wake of the Omicron variant’s discovery, posing a threat to the key sectors of mining and tourism.

Last Thursday, BoB governor, Moses Pelaelo told BusinessWeek that unlike in March when COVID-19 first broke out, the room for policy responses to any new economic threat was 'significantly reduced'.


“When COVID-19 first indicated a contraction of economic activity, there was a need to respond and when you looked at the fiscal positions like debt levels and monetary policy, there was legroom for policy action and you saw those actions,” he said, responding to questions in a briefing. “What happened in the 19 months since then has reduced that policy space significantly both in terms of the public finance position given where the deficits are today and also in terms of monetary policy. “One complicating story is the short-term developments in inflation even though they are supply-side driven, but there are complications in where things are today.”

Pelaelo told BusinessWeek that the central bank would continue to monitor all developments, adding that the situation added urgency to the need for structural reforms required to rebuild the country’s fiscal buffers.

He said the reforms, which touch on areas such as internet connectivity, water, electricity, education and digitisation, were necessary to enhance capacity and efficiency in the economy to build resilience.

“We have talked about economic diversification being very important in building resilience because some of the difficulties we are seeing are because of the narrow economic base,” he said. “We have to look at our export and industrial policies and the idea here is to diversify sources of export earnings.

He said it was 'clearly important' that the country remains focussed on sustainable budgeting and also making sure spending is on capacity enhancing development projects.

On monetary policy responses, the BoB’s Research and Financial Stability director, Lesedi Senatla said the central bank could never 'run out of ideas' to respond to shocks to the economy.

“We have interest rates to work with and we are not at zero percent yet. “But beyond that, there are other tools such as an unconventional monetary policy that could include bond or asset purchases. “That will be determined by what we see on the ground, what the sources of the problem are and we will have to identify where the weaknesses are.”

On Tuesday, President Mokgweetsi Masisi told the BBC that the travel bans would hurt sectors such as mining and tourism, which the economy was dependent on.

“The travel ban has had a deleterious effect on our economy, particularly that we are largely diamond mining-driven and tourism comes second in importance,” he said. “These two are correlated in the sense that travel to the destination sites for tourists and travel to procure the diamonds, is going to be affected negatively. “With these two affected, the Botswana economy is throttled.”

The travel bans come as the local economy is recovering from a record slump last year. Fiscal authorities had projected that the economy could expand by 9.7 percent this year and even grow by beyond 10% based on the performance of diamond mining.

Major economies have said they will review their travel bans based on the ongoing research into the transmissibility of the Omicron variant and its effect on hospitalisations and deaths.

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