Botswana’s household debt slows down

Botswana’s household debt slows down

• Bank rates remain at 7,5 percent
• Inflation ease marginally to 4,5 percent in July

The International Monetary Fund (IMF) has praised Botswana for a slowdown on household debt, despite Botswana’s interest rates remaining at their lowest ever to encourage borrowing.

The annual IMF Article IV surveillance mission and subsequent report which was published just after the end of the quarter (April-June 2014), raised concern about the rapid growth of household debt and rising arrears on bank lending although from a lower base. On Friday, Bank of Botswana decided to maintain bank rates at 7,5 percent, a move that is widely seen as encouraging borrowing.

According to the Managing Director of eConsult Dr Keith Jefferies, the second quarter of 2014 showed a welcome slowdown on household credit growth.

Responding to Voice Money inquiry, Jefferies observed that “growth rate of credit to households declined from 23.8% in January to 18.4% in April. These trends are encouraging, as there has been a concern about high levels of unsecured household debt and slow growth in business credit.”

The IMF report also notes the success in bringing down inflation to historically low levels, and the country’s low levels of domestic and foreign debt, while concluding that more efforts are necessary in addressing inequality and to removing the structural bottlenecks to sustained future growth.

On inflation, Bank of Botswana Monetary Policy Committee meeting indicated that inflation forecast remains within the 3-6 percent objective range. According to eConsult economic reviews, headline inflation increased slightly during the second quarter of 2014, from 4.4% in March 2014 to 4.6% in June.

Jefferies said, “Inflationary pressures generally remain benign, with the main drivers of inflation being tax increases (on alcohol) and prices of non-tradeables (health and education). Barring any shocks from fuel prices, we expect inflation to increase marginally and end the year at about 5.0%, before falling back in the first half of 2015,”

In a statement the Central Bank spokesman Andrew Sesinyi said, “Inflation eased marginally to 4.5 percent in July 2014.” He also said weak domestic demand and the projected benign external price developments result in a positive inflation outlook for the medium term.

However, this outlook according to the Central Bank, could be adversely affected by any unanticipated large increase in administered prices and government levies as well as international oil prices that are higher than currently forecast.

In other areas of the economy, Botswana’s overall GDP growth remains moderate, with subdued demand and capacity underutilization in major economies, as well as high unemployment rates that continue to constrain worldwide inflation.

Global output is estimated to have grown by 3 percent in 2013 and is projected to increase by 3,6 percent in 2014 and 3,9 percent in 2015, buoyed by improved growth in advanced economies and continuing strong performance in emerging markets.

Sesinyi also said non-mining economic activity will be below potential in the medium term. He said, “The impact domestic demand on economic activity is projected to be modest largely indicating trends in government expenditure and personal income

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