Transcript Slide 1 - Econsult Botswana

Recovery from the
Crisis and Looking to
the Future: Economic
Performance and
Prospects
Keith Jefferis
29 June 2011
The Botswana economy is …
 Highly dependent on mining for …
 GDP (40%)
 Government revenues (40-50%)
 Exports (85%)
 Highly dependent on government (which is dependent on mining) for
 Employment
 Investment
 Spending
 Very open to international trade (exports + imports > 80% of GDP)
 Hence highly geared to international economic developments,
especially in mining – both boom and crisis
Economic Growth
2010 – recovery from recession
 Annual growth in 2009 was
minus 5%
 Severe recession – first since
data series started in 1975
 Recovery to 7% growth in
2010, driven by diamonds
Annual sectoral growth
 Reasonably
broad-based
recovery in 2010
 Strong growth in
export sectors
badly hit during
the recession
(manufacturing,
mining, tourism)
 Slower growth in
government –
cutting back after
expansion during
recession
Growth forecasts - recovery
projected to continue
 IMF forecasting growth of 6%-
7% for 2011 & 2012
 Government forecasts around
7% growth
 Driven by continued mining
sector recovery, power sector
investments
Trade & Exchange Rates
DTC Diamond Sales
 Continued recovery in
DTC diamond sales,
with improved prices
and volumes
 Almost back to precrisis levels in value
terms
 Driven by retail market
recovery and restocking of inventory
 Supply restrictions also
suporting prices
Exports & imports .. both growing
 Exports fell dramatically
during the crisis .. but now
recovering
 Almost back to pre-crisis levels
 But imports have continued to
grow rapidly
 Rising oil & food prices
 Diamond imports
 Capital goods imports for
mining & power projects
 Imports still exceeding exports
Trade balance .. big deficits
 Trade surplus was
generally strongly
positive pre-recession
 Collapse of diamond
exports led to
unprecedented deficits
from 2008Q4
 Large deficits still
persisting even with
export recovery, due to
higher imports
Exchange rates – BWP vs ZAR,
USD
 Bilateral rates
quite volatile
 More volatile
against USD
than ZAR
 Short-term
movements
against USD and
ZAR tend to be
in opposite
directions
 BWP-ZAR
approaching
parity, but not a
policy objective
Nominal Effective XR (Pula
basket)
 Exchange rate policy
governed by pula
basket composition
and rate of crawl
 Both not disclosed
 Basket is broadly
trade weighted
 Crawl gradually
downward – approx
2.5% at present – to
maintain
competitiveness
 No change as a result
of global crisis
FX Reserves
 FX reserves peaked in
2008 – have since been
depleted by BoP deficits
resulting from global
crisis
 Supplemented by
external borrowing (AfDB
& World Bank) in 2009
Import cover
 FX reserves well below
their peak but still
respectable in terms of
months of import cover
Inflation and Interest rates
Inflation … a nagging problem
 Inflation has




stubbornly above
upper end of BoB’s
3%-6% target range
Inflation to 8.3% in
May
Underlying inflation
remains low
Upside risk from
international oil prices
Inflation forecast to
fall to 6% by mid-2012
Monetary policy – easing with
large cuts in interest rates
 Interest rates sharply lower in





response to declining inflation
Bank rate cut by 6% since Nov
2008
Last cut by 0.5% in Dec 2010
Interest rates now at 20 year
low
BoB likley to pause and watch
inflation developments
Lower interest rates helped to
cushion impact of recession
Government Budget
Fiscal policy – stimulus helped the
economy, but at the cost of large deficits
 Govt spending rose sharply in
2009 – helped to maintain nonmining economy
 Turnaround from fiscal surplus
to substantial deficit, driven by
both increased spending and
falling revenues
 Recent deficits estimated at
10% of GDP - unsustainable
 Revenues recovering slowly –
but further fiscal adjustment
needed to restore budget
balance
Impact of deficits on Govt
finances
 Net financial position – govt.
deposits & reserves at BoB less
public debt (foreign &
domestic)
 Peaked at P41bn in 2008
 Cumulative deficits in 3 yrs
2008-2011 = P25bn
 Continuation of deficits will
lead govt to become net
debtor
Summary and Outlook
Summary
 Headline GDP growth hit hard by recession – but concentrated on
mining/exports
 Non-mining growth held steady – hence limited impact on employment
 Fiscal stimulus helped – but deficit/debt problems resulted – with the crisis
compounding adverse longer-term trends
 Growth recovered strongly in 2010
 External sector: exchange rate steady, BoP deficit, but FX reserves helped
to stabilise, with modest drawdown
 Inflation – substantial decline, monetary easing helped to cushion impact
of crisis, but still a nagging problem
Prospects
International
 Improving global growth
prospects – but still volatile
 Shifting of global economic
balance to emerging markets
 Commodity markets strong –
good for mining
 Uncertainties remaining over
govt debt, withdrawl of fiscal
stimulus, de-leveraging, eurozone stability
Domestic
 Growth rotation in place :
 2009 – mining/exports weak,
non-mining/domestic demand
strong
 2010 – opposite
 Weakness in household
consumption and fiscal spending
as export markets recover
 Trade, balance of payments
should continue to improve –
but not back to normal
 Fiscal sustainability the
overriding issue
Thank You
[email protected]
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