El Niño: A drought-sized headache

The Bank of Botswana expects inflation to average 5.4 percent in 2027 and return to its target range, but says it cannot yet quantify how a potentially severe El Niño-linked drought could affect food prices and the broader inflation outlook.

While the central bank has incorporated climate risks into its forecasts, officials acknowledge that the full economic impact of a poor agricultural season remains uncertain.

At its October 29 Monetary Policy Committee briefing, the Bank projected inflation would average 5.4 percent in 2027, down from an estimated 8.1 percent this year.

Dr Matlhodi Serero, acting director of research and financial stability, told The Business Weekly & Review that the Bank had taken available climate information into account when preparing its forecasts.

“What we don't do yet is to quantify it, but in the future we should be able to do that when our model of inflation encompasses those factors, climate-related factors,” Serero said.

Asked where inflation could land under a severe drought scenario, Serero said poorer harvests and livestock losses would likely push food prices higher.

Because food accounts for a significant share of household expenditure, those increases would eventually feed through into headline inflation.

Deputy Governor Dr Kealeboga Masalila said this is why the Bank looks beyond Botswana when assessing inflation risks.

He noted that El Niño affects producing regions differently and that analysts consider international forecasts on food production, food prices and inflation, including assessments by the Food and Agriculture Organization.

“The El Niño impact, because it is not only localized, has been factored into our forecast,” Masalila said.

Government had already raised concerns about a potentially powerful El Niño event months before the MPC meeting.

Addressing Parliament on August 7, Minister of Environment and Tourism Wynter Mmolotsi said official forecasts indicated a greater than 90 percent probability of a very strong El Niño dominating Botswana's October-to-March rainfall season.

According to Mmolotsi, prolonged dry spells during the growing season could significantly reduce maize and sorghum yields.

For livestock farmers, deteriorating grazing conditions and shrinking water supplies could force earlier decisions on buying supplementary feed or reducing herd sizes.

Mmolotsi reminded Parliament that Botswana has experienced comparable challenges before.

He cited the 1982/83 and 1991/92 El Niño episodes, which caused significant declines in traditional grain production and ultimately required government-supported food relief programmes.

“The 2023/2024 cycle was declared an extreme agricultural drought year. These occurrences led to severe budgetary strain from urgent adjustments in national spending, agricultural losses,” he said.

The global outlook has since strengthened concerns.

On November 9, the World Meteorological Organization said El Niño had intensified since August and was expected to become the strongest on record by December.

The organisation forecast that conditions would continue into early 2027, increasing risks for communities dependent on rain-fed agriculture.

In Pandamatenga, commercial grain farmers are already adjusting their plans.

The Pandamatenga Commercial Farmers Association says the Department of Meteorological Services indicated the area could receive approximately 400 millimetres of rainfall this season, compared with its long-term average of 650 millimetres.

“These conditions increase the risk of drought, prolonged dry spells and heat stress on crops. Record-high temperatures could be even more damaging than reduced rainfall,” the association said.

Although grain output is expected to decline, farmers are entering the season with one significant advantage.

Storage facilities remain well supplied following favourable rains last season, while residual soil moisture may help support crop production.

“Some are reducing planting density, choosing drought-resistant crops and planting a little later in the hope that conditions improve towards the end of the season,” the association noted.

Economist Dr Keith Jefferis told The Business Weekly & Review that Econsult had not yet formally incorporated El Niño into its inflation forecasts.

He noted that regional food prices are largely influenced by developments in South Africa.

“Fortunately SA has very large foodgrain stockpiles carried over from last year's very good harvest season, which will limit potential price increases,” Jefferis said.

A regional drought, he estimated, would add “perhaps 0.5 percent” to inflation.

Natasha Phuthego, principal economist at Maatla Advisory, similarly believes inflation could still return to the Bank's target range during the second quarter of 2027.

However, she said much would depend on how long dry conditions lasted, how much grain South Africa could make available for export and whether neighbouring countries were competing for the same supplies.

“A poor Botswana harvest would not necessarily result in an immediate shortage of food. The more immediate concern may be the cost of replacing lost domestic production,” she said.

Phuthego noted that Botswana's food import bill could rise even if grain prices remained stable, simply because the country would need to import larger quantities.