- Fitch Solutions says spillover from Russia-Ukraine war, weaker external demand for diamonds and forecast poor cereal harvest in SA will come to bear on the economy
With the Russian invasion of Ukraine expected to hit the country’s economy, Botswana’s annual GDP growth forecast has been lowered from 5.3 percent to 4.8 percent.
Fitch Solutions has revealed that indirect spillover from the war is expected to be significant and that economic headwinds have already risen due to inflationary pressures and weaker external demand resulting from Russia’s invasion of Ukraine.
The United Kingdom rating and research firm says the war has resulted in a significant increase in energy and food prices and a more downbeat outlook for the global economy in 2022. “These factors will lead to stronger inflationary pressures and a weaker trade outlook,” the firm said.
It noted prices of oil and wheat – together accounting for roughly 14 percent of Botswana’s imports – have surged, and will put upward pressure on price growth over the coming months. “That said, we still expect Botswana growth to come in above the pre-pandemic (2015-2019) average of 2.8 percent, supported by the further easing of lockdown measures and continued growth in the country’s diamond sector,” the firm added.
“Indeed, citing soaring global oil prices, the Botswana Energy Regulatory Authority (BERA) increased the retail price of petrol and diesel by P1.26/litre (USD0.11) and P1.49/litre (USD0.13) respectively on March 29. “Taking the above into account, we have slightly revised up our 2022 inflation forecast for Botswana from an average of 8 percent to 8.2 percent, which will put downward pressure on household purchasing power.” Fitch Solutions believes elevated inflation is likely to weigh on business profit margins over 2022, which will cap fixed investment growth at 4.9 percent.
“While the government is aiming to increase Botswana’s diamond production following the economic sanctions imposed on Russia, we believe there is limited scope to do this, with De Beers – which shares a 50 percent stake with the government in diamond mining company Debswana – unlikely to scale up output in order to prop up diamond prices,” the firm said. It said while Botswana’s trade exposure to both Russia and Ukraine is negligible, knock-on effects via weaker demand from key trading partners will provide some headwinds to exports. The firm said its risks to its Botswana 2022 growth outlook are weighted to the downside, mostly stemming from inflation.
Fitch Solutions noted that locust swarms in South Africa pose a risk to the country’s May-June harvest and that with Botswana importing 95 percent of its cereals from South Africa, this has the potential to push food prices higher over the coming months. “While we expect COVID-19 curbs to ease further over 2022, we are cognisant that new vaccine-resistant virus variants may be identified, which could result in the re-implementation of restrictions,” it warned.
