Moses D Pelaelo: Welcome remarks - 2021 Media Economic
Briefing
Welcome remarks by Mr Moses D Pelaelo, Governor of the Bank of Botswana, at the 2020 Media
Economic Briefing, Gaborone, 29 June 2021.
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Good morning; it is a pleasure to welcome you, Distinguished members of the Press to this
annual economic briefing, which also serves as the launch and dissemination of the contents of
the 2020 Bank of Botswana Annual Report. This started with a briefing of His Excellency The
President and Cabinet yesterday. In this regard, the dissemination of the Bank's Annual Report is
the primary vehicle for accountability to the nation on the operations and financial performance of
the Bank of Botswana.
As we are all aware, the Covid-19 pandemic is still with us with devasting impact on the
economy and social welfare. While some advanced economies are at advanced stages of
reopening as a result of access to vaccines and successful rollout of vaccination programmes.
Regrettably, in other parts of the world including in our region and here at home, we have
witnessed a resurgence of infections and, consequently, a surge in COVID-19 active cases. In
this regard, besides potential adverse impact on economic growth profile and estimates for 2021,
I have to acknowledge the challenging effect of COVID-19 on work arrangements, where given
the status of the Bank as a key national institution and an essential services provider, mainly
currency and related security operations as well as domestic and international payments, we had
to readjust resource deployment to ensure business continuity and uninterrupted service to the
nation, while attending to staff welfare and strict observance of the disease containment
protocols.
As my colleagues will indicate in their presentations, the Bank also made the requisite policy
adjustments, that is, monetary and exchange rate policy, financial sector policies and injection of
liquidity into the banking system, including working with the banking industry to be fully aligned on
the measures designed to address the national economic challenges occasioned by the
COVID19 pandemic. Together with coordinated fiscal and government response measures, these
interventions helped with stabilisation and, more significantly, preparing the country's economy
for strong, durable and sustainable recovery.
In addition to the immediate responses to the shock occasioned by the pandemic, the Bank
continues to focus on long-term prospects for the economy, that is, inclusive, sustainable growth
and transition to high income status as well as attainment of the Vision 2036 aspirations.
Therefore, while 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
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. I will shortly
sketch out elements of this in my remarks, while my colleagues will, in their presentations,
address the details.
We have three presentations this morning, namely, the highlights of the Bank's financial position
and performance in 2020 and updates, where relevant by Chief Financial Officer, Mr Daniel
Loeto. Mr Loeto will indicate that the Bank recorded net income of P8.8 billion in 2020, of which
P2.9 billion was net distributable income paid to Government. This will be followed by a review of
performance and outlook for the foreign exchange reserves by Director of Financial Markets
Department, Mr Lesego Castor Moseki. Mr Moseki will show that notwithstanding the near
collapse of commodity prices in 2020 (notably diamonds) as well as net capital outflows, the
country relied on accumulated government savings and relatively strong external position to
supply the economy with foreign exchange. While the country is exploring external borrowing as
one of the options for financing the "twin deficits", that is trade and fiscal deficits, it is doing so in
an orderly and coordinated manner, in the context of a prudent and sound debt management
strategy.
The third presentation by Dr Lesedi Says Senatla, Director, Research and Financial Stability
Department will review economic developments in 2020 and provide relevant updates under the
theme topic, "The Impact of COVID-19 Pandemic on Botswana Economy, Policy Responses
and Opportunities". Admittedly, it is early days to provide conclusive empirical evidence on the
extent of the damage done by COVID-19 pandemic and the necessary containment measures
on the economy and society in general given the continuing uncertainty and paucity of data in
some areas.
Aligned to the key lessons that you will hear from the presentations by my colleagues, allow me
to rehash and reinforce some of the key messages from the previous economic briefings. I
believe that these should continue to underpin the thought processes around policy and
institutional reforms as well as economic transformation; as recently announced by His
Excellency, The President, "the Reset Agenda" or "Reinventing Government" as one American
President once put it. In this respect, it is significant that both the internal and external
assessments, for example, by the sovereign credit rating agencies (S&P Global Ratings and
Moody's Investor's Service), 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.
I will briefly summarise four of these issues. First, Botswana's economy is at a critical juncture
where mineralled and public sector-led growth model can no longer generate sufficient growth, at
least an average of 8 percent per annum over the next 15 years, to address the current
development imperatives. Furthermore, a key driver of economic and welfare prospects for
Botswana, namely, the export potential has, over the last few years, faltered and shrunk as a
proportion of GDP; therefore, there is an urgent need to diversify sources of growth, including
redesigning the country's industrial and trade policies to promote exports in non-traditional
sectors, attraction of foreign direct investment specifically targeted and linked to integration into
regional and global production value chains; and strengthening export and investment promotion
agencies.
This requires a transition towards sufficient scale of industrialisation to generate diversified
economic base and exports as well as better articulation of import substitution with performance
incentives, the goal being to enhance international competitiveness of domestic firms and
fostering productivity gains. Comparative country studies and experiences suggest that
deliberate promotion of largescale industries and dedicated implementation of industrialisation
policies are instrumental to a successful escape from the middle-income trap and transition to
highincome status.
The second aspect relates to prospective transition to structural fiscal deficits and depletion of
the official foreign exchange reserves. In this regard, and with an eye on slowing the depletion of
external and fiscal buffers, there is need to enhance domestic resource mobilisation, by
broadening the tax base and coverage, streamlining incentives and rationalisation of distortionary
subsidies. The country needs to grow a vibrant middle-class; and have more tax-paying citizens
by investing more on innovation, empowerment and home ownership.
The aspect relates to financial deepening and inclusion. This requires sustained financial
third
sector focus and dedication to the transformation and development agenda involving both the
private and development finance institutions in financing infrastructure, green economy, digital
and outward-looking industrialisation. This also requires clarity of roles of development finance
institutions, namely, BDC, NDB, CEDA and BSB, with respect to alignment of their respective
mandates to strategic sectors. 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. As 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. As at that date, this was more
than the official foreign exchange reserves at P55.8 billion.
In this regard, the "reset agenda" needs to continue to prioritise sufficient and diversified
mobilisation of financial resources by Government for funding infrastructure and cost-effective
and, increasingly digital provision of services while ensuring budget sustainability and rebuilding
of fiscal and external buffers which, hitherto, anchored the country's economic resilience. In this
regard, the Bank is fully aligned to, and agrees with the multi-pronged financing strategy adopted
by the Ministry of Finance and Economic Development for financing National Development Plan
11. Given the prevailing low interest rates environment and relatively low public debt matrices, it
is indeed propitious to access global credit markets for funding growth-friendly and capacity
building infrastructure, health eco-systems and rebuilding of the external buffers in readiness for
the next negative external shocks including droughts.
Fourth, with respect to the Vision 2036 aspirations, notably to achieve high-income status and
inclusive diversified growth, a sustained focus on structural and economic transformation
remains necessary. This requires harnessing opportunities offered by ICT as a singular sectoral
growth area as well as an effective and influencer of economic activity. The country will need to
continue to upscale investment on digital infrastructure to improve availability and affordability of
IT equipment, internet and development of a critical mass of digital skills.
At this juncture, I would like to ask the Chief Financial Officer, Mr Daniel Loeto to kickstart the
Economic Briefing with a presentation on financial performance and highlights of the Bank's
operations in 2020, with updates where appropriate.