BoB says the monetary policy stance they have adopted remains key to economic growth and stability, reports KOOBONYE RAMOKOPELWA
Executives at Bank of Botswana (BoB) this week remained steadfast that the current monetary policy they have adopted, together with a number of instruments they use to contain money supply will bear fruits in the near to medium term. Under the tutelage of governor Linah Mohohlo, the bank has often come under immense criticism from some economists that the current monetary policy has to some extent constrained growth.
Inflation rate set by the bank has also been described as too ‘ambitions’ based on the current economic situation. At a press conference held at the bank’s boardroom on Wednesday, director research, Dr. Kealeboga Masalila explained at 9,5 percent the bank rate would support sustainable growth of the economy contrary to what some analysts have said. “I think the rate has and it will continue to be supportive of the economic growth especially the non-mining sector,” he said citing recent statistics. Botswana’s economy is expected to grow by 5,9 percent in 2013, down from 6,1 percent in 2012. Available Gross Domestic Product (GDP) statistics shows that preliminary data for four quarters through September 2012 indicate that in real terms GDP grew by 7,7 percent, compared to 7,3 percent over the same period. The mining sector declined by 12,5 percent, while the rest of the economy (non-mining) grew by 11,6 percent. Some analysts have said that the current bank rate is ‘high’ hence it will constrain growth especially in the non-mining sector that depends largely on commercial banks for finance. The bank has held the bank rate steady since December 2010.
Just like Finance and Development Planning minister Kenneth Matambo, the bank has forecast the economy to grow by 5,9 percent down 0,2 percent from 2012 figures. “We are confident on the growth rate. It is more or less the same from what we predicted last year (growth rate), “said Mohohlo, a University of Exeter graduate. The central bank has also come under pressure on why they have continued to hold on to the 3-6 percent inflation target, which some analysts such as Prof. Haile Taye have said is not achievable in the medium term. Inflation, currently at 7,5 percent has not reached expected rate for close to a year. The bank defended this position.
Masalila said a lot of factors, which they do not have control over, have added pressure to inflation over the years. The devaluation of Pula by former President Festus Gontebanye Mogae in 2005, unforeseeable adjustment in administered prices such as water and electricity, have been cited as major hindrances to the bank’s target. The introduction of Value Added Tax (VAT) in 2006 has also been cited. “These are all things we do not have control over, but they do have effects on us,” he pointed out. The last time inflation climbed to the upper level of the bank's target was in March 2010 when it reached 6 percent. Masalila added that the monetary policy they have adopted largely promotes savings, economic growth and competitiveness.
Credit extension to household, private sector
Extension of credit by commercial banks to both household and companies has increased sharply in recent years. According to the bank, household lending grew by 28,5 percent (from 18,8 percent in December 2011) in the 12 months to December 2012. Lending to business grew 17,8 percent, albeit at a slower pace when compared to 36,9 percent in 2011. The bank is aware of concerns over household credit. “It is more desirable for a growth in credit for productive purposes. But some of these household borrowings go to fund investments such as shares,” said Masalila.
Price bubble in property
Last year, an expert Jess Cleland from Investment Property Databank told a local weekly that Botswana’s property market (which is also financed by commercial banks) might face problems of mortgage repayments in the long term. Local banks have taken part in some of the bigger properties that are currently being built in Gaborone-both office and residential. The bank said they continue to monitor the situation to ensure stability. Said Andrew Motsomi, director, banking supervision: “We constantly monitor banks’ loan book and quality. We are aware that there is currently property development in the Central Business District (CBD) that might lead to a migration from other properties that might affect repayment, which is what we don’t want.”
Construction to ease
BoB warned this week that construction, which is regarded, as a real puller of the economy will ease after years of excellent performance. Construction sector, which is largely controlled by the Chinese companies, depends on the government. With some of the major government projects such as Morupule B and dams almost completed, there will be fewer benefits in the medium term, said Masalila. P1, 77 billion has been awarded to the maintenance of existing government assets in the 2013-14 fiscal year. Latest data released by Statistics Botswana indicates that in the third quarter (Q3) of 2012, the sector increased marginally to P1, 722 billion, a marginal growth of P198 million when compared to Q3 2011 figures when the sector had led a sterling recovery, increasing by a convincing P302 million to sit at P1, 524 billion from P1, 222 billion in the same period in 2010.