President Mokgweetsi Masisi and the Governor of the Bank of Botswana Moses Pelaelo are perturbed by the trail of destruction that the COVID-19 pandemic is leaving in its wake in a country whose economy is at a crossroads.
But the Governor is hopeful of better days after the storm has passed. President Masisi’s fears were expressed earlier this year when he introduced his Reset Agenda that he said will guide economic transformation following the devastating effects of COVID -19.
Since March 2020, Botswana has struggled financially as revenues declined due to low diamond sales at international markets. The country was compelled to seek a $250 million (P2.9 billion) loan from the World Bank that was approved in the month just past. It is hoped that the loan will go a long way in supporting economic revival after the pandemic.
At the Bank of Botswana (BoB), Governor Moses Pelaelo has said the coronavirus has dented prospects of economic revival but is still optimistic about the potential for developing momentum for sustainable growth and Botswana’s transition to a high income status economy and aspirations of Vision 2036.
“Therefore, while the COVID -19 pandemic may, potentially, have damaged the country’s productive capacity in sectors such as, for example, tourism and related hospitality industries, there is a limited window of opportunity to build economic resilience underpinned by embracing of innovation and technology upgrade; entrenchment of policy and institutional arrangements necessary for durable welfare enhancements and improvements in livelihoods,” Pelaelo told journalists this week.
Speaking at a virtual press conference organised by the central bank to give an economic update, the Governor said the recent surge in cases meant a more adverse impact on the economy and estimates of its growth profile.
Pelaelo noted that the country faces “twin deficits” in trade and its fiscus. Botswana has been experiencing dwindling fiscal buffers because of a near-collapse of commodity prices in 2020, especially on the diamond market, compelling reliance on accumulated government savings and Botswana’s relatively strong external position, to supply the economy with foreign exchange.
Noting this, the Governor nevertheless saw a light at the end of the tunnel. “It is significant that both the internal and external assessments, for example, by the sovereign credit rating agencies (S&P and Moody’s), as well as the recent IMF Article IV Missions, converge: one, on the evaluation and prognosis of the country’s recent economic performance and challenges; and two, on the reforms and innovation needed for structural adjustment, economic transformation and a return to faster rates of economic growth, this time in a more inclusive economy,” Pelaelo said.
To deal with depletion of fiscal buffers, the country has to fast-track domestic resource mobilisation, he added. “The country needs to grow a vibrant middle-class and have more tax-paying citizens … investing more on innovation, empowerment and home ownership,” the Governor said.
“This requires sustained financial sector focus and dedication to the transformation and development agenda involving both the private and development finance institutions in financing infrastructure, the green economy, digital and outward-looking industrialisation.”
According to Pelaelo, development finance institutions should have clearly defined roles. DFIs in Botswana include NDB, BDC and CEDA, to name a few. To set the President’s Reset Agenda, the Governor recommends developing domestic capital markets to leverage on existing pension funds.
“Furthermore, a sustained focus on the development of the domestic capital market, underpinned by the right governance architecture and macroeconomic stability, is critical to internally orientate and tap into resources accumulated by pension funds, annuity providers and other institutional funds, the bulk of which are currently invested offshore in search of yield,” he said.
He noted that at February 2021, pension funds assets amounted to P106.1 billion, of which P68.3 billion or 64.4 percent of the total, were invested offshore. Pelaelo added that that the President’s Reset Agenda should prioritise digital service provision while building fiscal and internal buffers.
To attain the goals of Vision 2036, Pelaelo said the country has to tap into ICT as a sector that can influence economic activity.