October 17, 2002

Call for Action As Botswana's Inflation Hits 10,1%

Botswana’s business community bellowed for urgent action from the central bank, to restrain spiralling prices as September's inflation edged up to 10,1%, the highest figure in more than two years. The Central Statistics Office (CSO) blamed the grim figures on domestic workers' wage increase, housing, household consumables, food, VAT and the currency crisis affecting the region. "This is bad because it is eroding the purchasing power of the people, especially the poor. It is bad for a country with high unemployment like Botswana," said Elias Dewah, CE of the Botswana Confederation of Commerce and Industry.

One out of two of Botswana's 1,6-million people live in abject poverty, and the unemployment rate is said to be 15%. Dewah said that if the inflation rate was not contained, it would affect the bank rate and investment funds which were supposed to create the much-needed jobs. "High inflation will affect the bank rate and as a result the investment fund," he said. The central bank should try to identify the main causes of the upsurge in inflation, Dewah said.

The inflation report painted a dreadful picture of the prices of basic commodities. The report also blamed rising food, health and personal care costs, which were largely driven by the effects of HIV/AIDS. About 40% of Botswana's people are said to be HIV positive.

Rupert McCammon, CE of Capital Securities, said that the high inflation rate reflected the effect of VAT and the exchange rate carnage, which had been badly affected by the weakness of regional currencies, especially the South African Rand. However, he was optimistic that the VAT factor would stabilise soon while the fluctuations in the currency would probably take about six months to level out. "The imported inflation is likely to remain high for at least for the next six months. Most of these figures reflect the impact of VAT which is likely to stabilise soon, but the rest is all about the depreciation of currencies, especially the rand." McCammon said that the central bank might not respond by adjusting interest rates.

The bank last resorted to an interest rate adjustment in October 2000 after inflation hit 10,4% in July. Then the Botswana Housing Corporation's increase in rentals and high fuel prices on the international markets spurred the bank into action. The rate was adjusted by 50 basis points from 13,75% to 14,25%. At present there was a fear that oil prices would climb beyond the 30 a barrel level as a result of the US and British threats of a military strike against Iraq. "Oil prices will negatively affect the global economy and I hope the political leaders will try to find a peaceful solution to the Middle East political upheavals," Dewah said. McCammon noted that Brent crude oil prices were reasonably stable despite the political problems in Iraq, but he said that the prices were likely to hike once the US and its partners had actually embarked on a military offensive. (BUSINESS DAY)

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