Economy forecast to grow at 5%
Brian Benza | Friday January 17, 2014 16:52
In the bi-annual Global Economic Prospects (GEP) report released on Wednesday, the World Bank said growth in Botswana along with other Sub-Saharan countries will be supported by domestic demand. The GEP report released in June last year marginally revised Botswana's forecasts in 2014 and 2015, from 4.9 percent and 4.8 percent to 5.1 percent and 5.2 percent respectively.
World Bank projections are slightly more optimistic than estimates from both government and the IMF.
According to the IMF, growth in Botswana is expected to pick up slightly to 4.4 percent in 2014 supported by the base effect of increased electricity production and a recovery in the mining sector and subsequently stabilise at around four percent.
Government estimates the economic growth rate to pick up to 4.9 percent in 2014 from 4.4 in 2013. While the World Bank suggests growth in Sub-Saharan Africa will be supported by domestic demand, fiscal consolidation in Botswana has slowed down the activity within the private sector, which is usually dependent on government projects.
In an effort to inject some life into the economy, the Bank of Botswana, backed by a favourably low inflation rate, cut interest rates by a cumulative two percentage points in 2013.
Worldwide, rates are cut to spur economic growth through increased consumer demand for goods financed by cheaper personal loans while businesses increase supply to meet the demand by resorting to cheaper business and manufacturing loans.
However, analysts feel the rate cuts alone are not sufficient to reignite the flagging economy. They argue that such reviews are usually effective in countries like the USA where a big part of the demand comes from consumers.
'The main expenditure in Botswana was coming from government all along. Now the expenditure has been significantly reduced and no further fiscal measures have been initiated.
'The rate cuts in Botswana have not been successful to increase credit for productive purposes because the producers are not finding effective demand.
'Consumer demand is not sufficient for the producers who have all along been seeing large demand from government and consequently have set up facilities which are now under-utilised due to lack of demand. There have been several rate cuts from 15% in February 2009 to 7.5 percent now. How much economic activity has increased?' quizzed one analyst.
In the 2014 report, the World Bank says developing economies need robust blueprints to sustain growth.
Sub-Saharan GDP is projected to strengthen to 5.3 percent in 2014, rising to 5.4 percent in 2015 and reaching 5.5 percent in 2016. Inflation, on the other hand, is expected to continue its downward trend as food and energy prices remain low, which combined with steadily rising remittances, should stimulate household consumption and permit a continued rapid expansion of domestic demand.
The World Bank also project modest fiscal consolidation to start in 2014 but fiscal deficits are expected to remain elevated as governments maintain their investment programmes while revenue stays low.
The report forecasts growth in developing countries to pick up from 4.8 percent in 2013 to a slower than previously expected 5.3 percent this year, 5.5 percent in 2015 and 5.7 percent in 2016.
'We expect developing country growth to rise above five percent in 2014, with some countries doing considerably better, with Angola at eight percent, China 7.7 percent, and India at 6.2 percent. But it is important to avoid policy stasis so that the green shoots don't turn into brown stubble,' said Kaushik Basu, senior vice president and chief economist at the World Bank.
The Bretton Woods institution raised its forecast for global growth for 2014 to 3.2 percent for the first time in three years as advanced economies started to pick up pace, led by the United States.
The rosier outlook suggests the world economy is finally breaking free from a long and sluggish recovery after the global financial crisis.