MONETARY POLICY
STATEMENT | 2024
STRATEGIC INTENT STATEMENTS
VISION
The Bank aspires to be a world-class central bank with the highest
standards of corporate governance and professional excellence.
MISSION
The mission of the Bank is to contribute to the sound economic
and financial well-being of the country. The Bank seeks to promote
and maintain:
• monetary stability;
• a safe, sound and stable financial system;
• an efficient payments mechanism;
• public confidence in the national currency;
• sound international financial relations; and to provide:
-efficient banking services to its various clients; and
-sound economic and financial advice to Government
MONETARY POLICY
STATEMENT
2024
Mr Cornelius K. Dekop
Governor
February 21, 2024
17938, Khama Crescent, Gaborone, Botswana
Tel: 360 6000| Website: www.bankofbotswana.bw

TABLE OF CONTENTS
1. Introduction.................................................................................................1
2. Monetary Policy Framework ...........................................................................2
3. Implementation of Monetary Policy and Related Economic Developments
in 2023.......................................................................................................3
Box 1: The Pula Exchange Rate Framework Explained.......................................10
4. Output and Inflation Outlook..........................................................................18
5. The 2024 Monetary Policy Stance...................................................................21
6. Conclusion.................................................................................................22
APPENDIX.................................................................................................23
Table A1: 2023 Monetary Policy Decisions.......................................................23
Table A2: Credit to the Private Sector by Banks (Percent of GDP).........................25
1. INTRODUCTION
1.1 The Monetary Policy Statement (MPS) is published at the beginning of the year to
inform stakeholders about the framework for the formulation and implementation of
monetary policy by the Bank of Botswana (the Bank). In this regard, the Bank, through
the MPS, reviews inflation trends, outlook, as well as policy performance and
articulates the policy choices for the ensuing year. The MPS, together with the
subsequent Monetary Policy Reports (MPRs) published during the year, and the
Media Briefings after each Monetary Policy Committee (MPC) meeting, also serve to
fulfill the public's expectation of a transparent and accountable central bank in pursuit
of the monetary policy mandate, as enshrined in the Bank of Botswana (Amendment)
Act, 2022.
1.2 The 2024 MPS, therefore, reports on the previous year's economic and policy
developments and evaluates the determinants of changes in the level of prices and
their impact on inflation in Botswana. In turn, there is an assessment of economic and
financial developments that are likely to influence the inflation path in the medium
term and the Bank's policy choices in 2024. Thus, price developments and policy
options are evaluated in the context of a forward-looking monetary policy framework,
that entails policy responses to projected deviation of inflation from the Bank's
medium-term inflation objective range of 3 - 6 percent or any anticipated adverse
impact on financial stability. In this respect, the MPS promotes an understanding of
prospective conduct of monetary policy to anchor and align public expectations to
the objective of a low, predictable and sustainable level of inflation.
1.3 In 2023, the global economy continued to recover from the lingering effects of the
COVID-19 pandemic and the Russia-Ukraine war. In addition, global economic
performance was adversely affected by the impact of high inflation on the cost of
living; the increase in the debt burden, due to the resultant high interest rates;
reduction of fiscal support; and extreme weather events. Consequently, growth
remained low and uneven across countries and regions. Thus, according to the
International Monetary Fund (IMF)'s January 2024 World Economic Outlook (WEO)
Update, global economic growth is estimated to have expanded by 3.1 percent in
2023, lower than the 3.5 percent in 2022. The subdued growth was more pronounced
in advanced economies (particularly in the euro area and United Kingdom (UK), than
in emerging market and developing economies. Meanwhile, global inflation is
estimated to have decreased from 8.7 percent in 2022 to 6.8 percent in 20231,
consistent with the slowdown in economic activity.
1.4 In Botswana, the Ministry of Finance estimates the economy to have expanded by 3.2
percent in 2023, a slowdown from 5.5 percent in 20222. Inflation has generally been
on a downward trajectory since September 2022 and was mostly within the objective
range from May 2023, averaging 5.2 percent in 20233. Contributing to lower inflation
were the dissipating impact of the increase in prices controlled by government
(administered prices) in 2022 (base effects); downward adjustment of domestic fuel
prices in 2023; the decrease in foreign prices, particularly food and fuel, thus a decline
in trading partner countries' inflation. Going forward, inflation is forecast to remain
within the Bank's 3 - 6 percent objective range into the medium term and risks to the
inflation outlook are assessed to be balanced.
1.5 The Bank eased monetary policy at the end of 2023 in view of projections for inflation
remaining within the objective range of 3 - 6 percent, and closer to the 4.5 percent
mid-point, into the medium term, and the associated indications of entrenched
expectations of lower levels of inflation. The Monetary Policy Rate (MoPR), which is
the yield on the 7-day Bank of Botswana Certificate (BoBC), was, therefore, reduced
by 25 basis points to 2.4 percent in December 2023, following a cumulative 151 basis
points policy rate increase in 2022.
1.6 Regarding exchange rate policy, the Pula basket comprised 45 percent South African
rand and 55 percent Special Drawing Rights (SDR) and an annual downward rate of
crawl of 1.51 percent of the nominal effective exchange rate (NEER) was implemented
during 2023. On the other hand, the real effective exchange rate (REER) depreciated
by 1.8 percent in 2023, due to the depreciation (rate of crawl) of the NEER (1.5
percent), and a negative inflation differential between Botswana and trading partner
countries.
2. MONETARY POLICY FRAMEWORK
2.1 The primary objective of the Bank's monetary policy is to achieve price stability,
which is defined as a sustainable level of inflation that is within the
mediumterm objective range of 3 - 6 percent. Subject to attaining its primary mandate,
the Bank shall contribute to the stability of the financial system and maintain a
stable, sound and competitive market-based financial system. A low and
predictable level of inflation and conducive monetary and financial conditions
foster effective savings mobilisation, productive investment and international
competitiveness of domestic producers, which, in turn, contribute towards the
broader national objectives of sustainable economic development and
employment creation.
2.2 The monetary policy framework is forecast-based, with the medium-term
outlook guiding the Bank's response to projected movements in inflation, while
considering developments relating to stability of the financial system and
prospects for economic growth. To this end, in formulating an appropriate
policy stance, the Bank factors in projections of real monetary conditions4,
relevant domestic and international economic and financial developments, and
their impact on the output gap5 and, ultimately, inflation.
2.3 The Bank recognises the importance of communication in sustaining and
reinforcing transparency, predictability and accountability with respect to the
policy framework and actions; thus, fostering market participation, influencing
expectations, policy credibility and, consequently, effective policy
transmission. In this regard, besides the MPS, which is published in February,
the Bank publishes three MPRs annually, following the April, August and
October MPC meetings. Furthermore, the Bank publishes MPC meeting dates
for the year ahead and the Governor delivers a statement at a Media Briefing,
which is circulated to media houses, after each meeting of the MPC to
disseminate the Bank's policy stance and allow for the engagement with the
media.
2.4 Monetary policy formulation and conduct entails determination of the MoPR,
the Standing Credit Facility (SCF) and the Standing Deposit Facility (SDF) - the
latter two, constituting the Interest Rate Corridor - at each of the six MPC
meetings during the year. In turn, the MoPR (yield on the 7-day BoBCs) is used
to conduct monetary operations, and banks also accessing the Standing Credit
and Deposit facilities at their discretion, in addition to the interbank market.
3. IMPLEMENTATION OF MONETARY POLICY
AND RELATED ECONOMIC DEVELOPMENTS
IN 2023
(a) External Developments
3.1 At the global level, many central banks continued to tighten monetary policy to
tame inflationary pressures and anchor inflation expectations. In view of
moderating inflationary pressures, most central banks that tightened monetary
policy, raised policy interest rates by a lesser magnitude in 2023 compared to
2022. Thus, policymakers focused on reining in inflation towards their
respective targets (Appendix, Table A1). Furthermore, in advanced countries,
central banks continued with tapering the asset purchase programmes that
were introduced in 2020 to support the financial sector and, in some instances,
these have been completed (Appendix, Table A1). However, some central
banks decreased their policy rates to stimulate economic activity amid the
uncertainty, for example, China and Brazil, while some left the policy rates
unchanged in 2023.
3.2 Overall, in 2023, global growth remained low but uneven across countries and
regions. Global GDP is estimated to have expanded by 3.1 percent in 2023,
lower than the 3.5 percent in 2022 (Table 3.1). For advanced economies,
economic growth slowed from 2.6 percent in 2022 to 1.6 percent in 2023,
mostly due to subdued economic activity in the euro area and UK because of
high inflation, which continued to restrain household spending. Furthermore,
output expansion in 2023 was also restrained due to supply chain constraints.
Meanwhile, growth in economic activity in emerging market and developing
economies remained restrained at 4.1 percent in 2023 as in 2022, due to
negative spillover effects from the Russia-Ukraine war and continued
withdrawal of fiscal support.
Table 3.1: Real GDP Growth Rates (Percent)
Estimates Projections
2022 2023 2024 2025
Global 3.5 3.1 3.1 3.2
Advanced economies 2.6 1.6 1.5 1.8
USA 1.9 2.5 2.1 1.7
Euro area 3.4 0.5 0.9 1.7
UK 4.3 0.5 0.6 1.6
Japan 1.0 1.9 0.9 0.8
EMDEs 4.1 4.1 4.1 4.2
China 3.0 5.2 4.6 4.1
Brazil 3.0 3.1 1.7 1.9
India 7.2 6.7 6.5 6.5
Russia -1.2 3.0 2.6 1.1
South Africa 1.9 0.6 1.0 1.3
4.1 (4.2) 4.3 (5.4)
Botswana 5.5 3.2
Source: IMF WEO Update January 2024 and Ministry of Finance (MoF) for Botswana.
Note: EMDEs stands for emerging market and developing economies, while figures in parentheses are forecasts by the
MoF.
3.3 Global inflation is estimated to have decreased from 8.7 percent in 2022 to 6.8 percent
in 2023, mainly due to relatively lower food and oil prices, monetary policy tightening,
and squeezing of household budgets (reduced demand). The decrease in oil prices
was mainly driven by restrained demand resulting from continued interest rate hikes by
most central banks, particularly in advanced economies, and subdued economic
activity in China, the world's largest crude oil importer. Furthermore, the increase in
shale oil inventories in the US exerted downward pressure on oil prices. Thus, the price
of the Organization of the Petroleum Exporting Countries (OPEC) reference crude oil
basket, Brent crude and West Texas Intermediate (WTI) decreased by 16.7 percent,
16.8 percent and 17.3 percent to an average of USD83.10 per barrel, USD82.95 per
barrel and USD77.93 per barrel, respectively, in 2023 (Chart 3.1).
3.4 Similarly, international food prices declined by 13.7 percent in 2023, reversing the 13.3
percent increase in 2022 (Chart 3.2), driven by lower prices of vegetable oils, cereals,
dairy products and meat. The decrease was attributable to among others, the Black
Sea grains export deal between Ukraine, Russia, Turkey and the United Nations which,
however, ended on July 17, 2023, as well as modest demand due to global economic
slowdown and easing of international oil prices, an input in food production. Moreover,
the slowdown in food prices was underpinned by increased seasonal supply from
some commodity exporting countries6. Overall, international oil and food prices
exerted downward pressure on domestic inflation in 2023.
3.5 Inflation in the SDR countries (USA, UK, Japan, Eurozone and China) fell significantly
from 6.9 percent in December 2022 to 2.8 percent in December 2023. Similarly,
headline inflation in South Africa decreased from 7.2 percent in December 2022 to 5.1
percent in December 2023 (averaging 6 percent in 2023) and reverted to within the
country's target range of 3 - 6 percent in June 2023. Consequently, the trade weighted
average inflation7 for Botswana's trading partner countries decreased from 7.1 percent
in December 2022 to 3.8 percent in December 2023 (Chart 3.3).
Chart 3.2: Food Price Index
Chart 3.1: Oil Prices (Monthly Averages)
170
120
110
100
90 150
80
barrel
70
per
60
130
50
(2014-2016=100)
USD
40
30
110
Index
20
10
Jul Jul Jul
Apr Oct Apr Oct Apr Oct Apr Oct Apr Oct
July July
90
2021
2019 2020 2022 2023
Jul Jul Jul Jul Jul
Apr Oct Apr Oct Apr Oct Apr Oct Apr Oct
2021
OPEC BRENT WTI 2019 2020 2022 2023
Source: OPEC and US Energy Information Administration. Source: Food and Agriculture Organization.
Chart 3.3: Botswana and Trading Partners Inflation (January 2019 - December 2023)
16
14
12
10
8
6
Percent
4
2
0
-2
Jul Jul Jul Jul Jul
Mar Sep Mar Sep Mar Sep Mar Sep Mar Sep
May Nov May Nov May Nov May Nov May Nov
2021
2019 2020 2022 2023
Botswana Trading partners
South Africa SDR countries
Source: Statistics Botswana and Bloomberg.
(b) Monetary Policy Implementation in Botswana
3.6 During 2023, monetary policy in Botswana was conducted in the context of projected
lower inflation in the short to medium term, associated with dissipating impact of the
increase in administered prices in 2022 (base effects), impact of the reduction in fuel
prices during the year, subdued domestic demand and declining inflation in the trading
partner countries, while the economy operated below potential. These conditions
provided scope for an accommodative monetary policy in support of stronger output
growth. Hence, the MoPR was reduced by 25 basis points to 2.4 percent in December
2023, following a cumulative 151 basis points policy rate increase in 2022.
Consequently, the prime lending rate (PLR) of commercial banks declined from 6.76
percent in December 2022 to 6.51 percent in December 2023 (Chart 3.4)8 . However,
deposit interest rates generally increased (Chart 3.5) mainly because of competition for
corporate deposits that are volatile and form an important component of the deposit
base for many of the commercial banks.
Chart 3.4: Interest Rates (January 2016 - December 2023)
8
6
4
2
Percent
0
Jul-21
Jul-16 Jul-17 Jul-18 Jul-19 Jul-20 Jul-22 Jul-23
Apr-21
Apr-16 Apr-17 Apr-18 Apr-19 Apr-20 Jan-21 Oct-21 Apr-22 Apr-23
Jan-16 Oct-16 Jan-17 Oct-17 Jan-18 Oct-18 Jan-19 Oct-19 Jan-20 Oct-20 Jan-22 Oct-22 Jan-23 Oct-23
3-Month BoBC Rate Bank Rate
14-Day BoBC Rate 7-Day BoBC rate (MoPR)
Prime Lending Rate 1-month BoBC Rate
Source: Bank of Botswana and commercial banks.
Note: The 7-day BoBC was introduced on April 30, 2019, replacing the 14-day BoBC, while the issuance of the 91-day
BoBC rate was discontinued in October 2020.
Chart 3.5: 32-88 day, 91-day, Fixed up to 12 months and Fixed over 12 months Deposit Rates
5
4
3
Percent
2
1
0
Jul Jul Jul Jul Jul
Mar Sep Nov Mar Sep Nov Mar Sep Nov Mar Sep Nov Mar Sep Nov
May May May May May
2021
2019 2020 2022 2023
32-88 day 91-day
Fixed up to 12 months Fixed over 12 months
________________________
8
Notwithstanding the decision to allow banks to set their own PLRs, there continues to be a common PLR.
However, effective lending rates linked to the PLR may vary across banks, based on products and customer
profiles.
3.7 Open market operations continued to be the main liquidity management tool in the
domestic market, as well as in implementing decisions of the MPC. This entailed the
use of BoBCs to mop-up excess liquidity9 in order to maintain interest rates that are
consistent with the monetary policy stance. Open market operations, in 2023, were
conducted in an environment of increased market liquidity, supported mainly by
government spending and repatriation of pension funds to align to the new pension
fund rules10. Outstanding BoBCs amounted to P6 billion in December 2023, an
increase from P3.275 billion in December 2022, due to an increase in liquidity resulting
mainly from government spending. With the expansionary budget announced in
February 2024, liquidity is expected to increase further.
3.8 The Bank evaluates its monetary policy implementation framework on a regular basis
for effectiveness, with a view to introduce refinements where necessary. In this regard,
the 2022 monetary operations reforms (see page 3 of the 2023 MPS for details) are
now embedded in the Bank's monetary policy operations. There has been some
noticeable improvement in policy transmission while the interest rate structure is
operating as expected. In addition, the interbank market rate consistently trades within
the interest rate corridor, although it tends to trade closer to the floor (SDF Rate) of the
interest rate corridor due to structural excess liquidity in the market. However, the
funding structure of banks, which is uneven across individual banks and mostly
dominated by large mobile corporate deposits and those managed by asset
managers, has the effect of raising wholesale deposit rates and suppressing interest
rates on retail savings deposits.
3.9 With effect from April 1, 2023, commercial banks were allowed to independently
determine their own PLRs. This move is expected to contribute positively to banking
sector developments through promoting competition within the banking industry.
Commercial banks report their PLRs to the Bank where a market average is published
to the market for transparency and to promote competition. It is, however, worth noting
that all commercial banks have maintained their PLRs at MoPR plus 411 basis points.
As a result, the average PLR was 6.51 percent in December 2023.
3.10 Meanwhile, use of the Primary Reserve Requirement Averaging (PRRA) for
management of liquidity by banks is not universal. While there are banks that actively
use the averaging tool, others prefer to maintain full adherence throughout.
3.11 The yield curve, anchored on the 7-day BoBCs rate, is upward sloping, albeit steeper
at the shorter end (transition from the one-month BoBCs to the 3-month Treasury Bills
(T-Bills). The government securities market improved in 2023 with less upward
pressure on yields than in the past, with noticeable improvement in the uptake of
government securities at auctions. A comparison of BoBC, T-Bill and Government
bond yields (yield curve) as at the end of December 2022 and December 2023
indicates that yields generally decreased across the maturity spectrum. The
improvement in the inflation trajectory also helped in keeping yields relatively lower.
The institutional and operational changes, including enhanced transparency and
market innovations appear to be contributing to the improvement. Specifically, the
Government Annual Borrowing Plan and Issuance Calendar were launched and
published in June, while switch auctions11 were introduced to manage liquidity and
refinancing risk. The decrease in the yields was also on the back of increased liquidity
in the market emanating from government spending and the decline in the inflation rate
(Chart 3.6).
Chart 3.6: Yield Curves for December 30, 2022 and December 29, 2023
10
9
8
7
6
(Percent)
5
4
Yield
3
2
1
0
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
Years to Maturity
December 29, 2023 Yield Curve December 30, 2022 Yield Curve
Source: Bank of Botswana.
3.12 In a continuing effort to promote the use and effectiveness of the interbank market, the
Bank signed a Memorandum of Understanding with Front Clear, a financial markets
development company, to address obstacles in the money market. Some of the
impediments to interbank activity relate to the lack of legal certainty on the enforceability
of international standards, such as the Global Master Repurchase Agreements and
International Swaps and Derivatives Agreements, as well as the netting protocols in the
Botswana market. Addressing these obstacles should enhance a more participatory
interbank market and secondary bond market, thereby, contributing to a holistic
development of the money and interbank market and, by extension, the capital market.
(c) Implementation of Exchange Rate Policy
3.13 Implementation of the exchange rate policy in 2023 was in line with the objective of
maintaining a stable and competitive inflation-adjusted trade-weighted exchange rate
of the Pula (See Box 1 for more details). For 2023, the Pula basket weights were
maintained at 45 percent South African rand and 55 percent for the SDR, depicting
Botswana's trade pattern. A downward rate of crawl of 1.51 percent per annum was
adopted, based on the projected differential between Botswana's inflation rate and
that of its trading partner countries, and with a view to promoting Botswana produced
goods' competitiveness, domestically and internationally.
3.14 Consequently, the trade weighted NEER of the Pula depreciated by the same
magnitude in 2023. Meanwhile, the REER depreciated by 1.8 percent in 2023, due to
the depreciation (rate of crawl) of the NEER (1.5 percent), and a lower inflation in
Botswana (3.5 percent) than the average for the trading partner countries (3.8 percent),
suggesting a gain in international competitiveness of domestic firms.
Chart 3.7: Nominal and Real Effective Exchange Rates (January 2019 - December 2023)
104
102
100)
=
100
2018
98
96
(December 94
92
Index
90
Jul Jul Jul Jul Jul
Oct Oct Oct Oct Oct
Apr Apr Apr Apr Apr
2021
2019 2020 2022 2023
NEER REER
Source: Bank of Botswana.
3.15 The current exchange rate policy framework is anchored on a strong performance of
foreign exchange reserves, which improved from P54.5 billion (representing 7.6
months of import cover) in December 2022 to P65.7 billion (representing 9.1 months of
import cover) in November 2023, due to a more favourable diamond export market and
higher Southern African Customs Union revenue. The economic disturbances
generated by the COVID-19 pandemic and Russia-Ukraine war demonstrated the
importance of maintaining adequate levels of foreign exchange reserves to support the
economy, undertake economic stabilisation and maintain policy discretion, including
with respect to the exchange rate. Moreover, the exchange rate policy framework
encompasses an inherent flexibility that enables adjustments that may be necessary
to generate improvements in international competitiveness of the domestic industry.
BOX 1: THE PULA EXCHANGE RATE FRAMEWORK EXPLAINED
These are additional notes to the Press Release on Pula Exchange Rate, of December 28, 2023,
issued by the Ministry of Finance.
Definition of Exchange Rate
The exchange rate of a currency is how much one currency can be bought for each unit of another
currency or, put differently, the rate at which domestic currency can be converted into a foreign
currency or vice versa.
Exchange Rate Policy Frameworks
The exchange rate policy framework refers to the manner in which a country manages its own
currency in relation to foreign currencies and the foreign exchange market.
Exchange rate policy frameworks range from flexible to fixed and variations in between. In a
flexible exchange rate framework, the exchange rate is freely determined by the market on the
basis of demand and supply, and sentiments about the economy. In a fixed exchange rate regime,
the domestic currency is linked to another currency or a basket (combination) of other currencies.
In between flexible and fixed exchange rates, there is a range of, usually managed, exchange rate
frameworks, such as a crawling band or peg.
Botswana's Exchange Rate Policy Framework
Since 2005, Botswana adopted and implemented a crawling peg exchange rate policy framework
that has three key attributes.
First, the Pula is fixed to a basket of foreign currencies, namely the SDR (comprising, the US dollar,
British pound, euro, Japanese yen and Chinese Renminbi) and the South African rand.
Second, is the weight of these currencies in the Pula basket (proportions that each of these
currencies contribute to the value of the Pula).
Third, is the annual rate of crawl, which is the amount (rate) at which the exchange rate is allowed
to gradually depreciate or appreciate. This amount reflects the inflation differential between
Botswana and its trading partner countries. For example, 1.51 percent downward crawl for 2023;
from the downward rate of crawl of 2.87 percent from May 2020 - December 2022).
Botswana's Exchange Rate Policy Objective
The policy objective is to maintain price competitiveness of local producers for similar products, in
both the domestic and international markets by equalising the exchange rate-adjusted prices. In
general, this is done through adjusting the nominal Pula exchange rate by an amount that is equal
to the differences in inflation between Botswana and the trading partner countries. That is, the
rate of crawl.
For example, if a bag of potatoes is currently P100 in Botswana and R130 in South Africa at an
exchange rate of P1 = R1.30, and assuming transport costs are not embedded in the pricing,
Botswana's producers face similar market price as South African producers and, therefore,
competitive. If, however, inflation in Botswana rises to be 5 percentage points higher than in South
Africa, Botswana producers will be disadvantaged as it would be cheaper to purchase the same
bag of potatoes in South Africa, holding all other things constant. Therefore, the Pula exchange
rate needs to adjust downward by 5 percent (rate of crawl) to maintain competitiveness of
producers in Botswana; technically, maintenance of a stable real effective exchange rate (REER).
The exchange rate and competitiveness also have to relate to countries that Botswana trades with,
in terms of goods and services, but also the flow of investments. It has been determined that these
are mostly South Africa and the SDR countries (the USA, UK, euro area, China and Japan). This
explains the fixing of the Pula to currencies of these countries. The 45 percent South African rand
and 55 percent SDR proportions are based on observed historical trade pattern and are also
reviewed semi-annually. In addition, the fixing to a basket rather than a single currency helps to
moderate volatility of the Pula against any single currency. This explains why during the times when
the South African rand and other currencies are volatile, the Pula remains relatively stable.
2024 Pula Exchange Rate Parameters
In the context of Botswana's crawling band exchange rate arrangement for the Pula, the Ministry
of Finance in conjunction with the Bank of Botswana, reviews the parameters for the Pula exchange
rate semi-annually; being the currencies in the Pula basket and their weights, as well as the rate of
crawl. This is done to assess the alignment of the Pula exchange rate with the policy objective of
maintaining a stable and competitive REER of the Pula; that is, retaining competitiveness of
Botswana producers against imports and exports in international markets, thus promoting growth
prospects.
For 2024, it was determined that inflation in Botswana would be on average 1.2 percent higher than
in the trading partner countries, suggesting maintenance of a downward rate of crawl of 1.51
percent for 2024. The annual downward crawl would be implemented through small daily
adjustments that would equal 1.51 percent over twelve months. It was also determined that the
trade patterns remain largely unchanged and, therefore, maintained at 55 percent SDR and 45
percent South African rand.
The Benefits of the Crawling Band Framework for Botswana
The benefits of the current crawling band framework are therefore as follows:
(a) it affords flexibility for adjustments to address deterioration in international price
competitiveness of the domestic industry;
(b) any adjustment is gradual and, therefore, not disruptive nor destabilising;
(c) the rate of adjustment is preannounced and retained for a year and, therefore, enables
planning for economic decisions;
(d) the framework is broadly in alignment with the price stability objective (inflation objective
inherent in the monetary policy framework;
(e) and the basket composition moderates fluctuations of the Pula exchange rate against any
individual currency.
In contrast, alternative arrangements could have disadvantages as follows:
(a) With a small undiversified economy such as Botswana with irregular and lumpy foreign
exchange flows, a floating exchange rate regime would imply large exchange rate
fluctuations that could be debilitating to price determination and economic activity. In
addition, there could be sustained movement of the exchange rate, especially appreciation,
that can undermine competitiveness of the non-mining sector and, therefore, diversification
efforts;
(b) as demonstrated in the past, a fixed hard peg would often require adjustments that are
large and discrete with a destabilising disruptive impact. For example, a large devaluation
with significant inflationary impact; and
(c) a peg to a single currency would imply the Pula being subject to fluctuations and shocks
to the currency to which it is pegged and, in turn, policy responses that may be inimical or
inconsistent with the needs of the domestic economy at the time.
Limits of Exchange Rate Adjustments on Industry Competitiveness
While there are short-term benefits of deliberate exchange rate adjustments to maintain price
competitiveness, for it to have the desired long-term impact there should be adequate production
capacity and productivity improvements by the domestic industry. In addition, for government
institutions, there should be effective implementation of plans and programmes. Overall, therefore,
there is need for generalised entrenchment and traction of structural transformation and policy
reforms as being fundamental to industrialisation and productivity improvements that would
enhance competitiveness of domestic producers in a low inflation environment.
It is recognised that, in the main, sustained (need for) downward adjustment of the currency is a
reflection of weak production capacity and productivity of the economy; and is also inflationary
(ultimately affecting price competitiveness).
Transparency and Market Information
The announcements of the Pula exchange rate parameters and any adjustments are intended to
enhance transparency and integrity of the framework. In this regard, knowledge of the Pula basket
weights, and rate of crawl enable the market and the general public to plan for investments and
transactions on the basis of publicly available information that can be used as an input to any
economic decisions.
(d) Fiscal Policy
3.16 Botswana's 2023/24 fiscal budget aimed to drive sustainable domestic economic
growth while managing both domestic and international challenges. The revised overall
budget deficit as announced in the 2024/25 Budget Speech, is a deficit of P7.1 billion
(2.6 percent of GDP), down slightly from the P7.6 billion (3.6 percent of GDP) in the
original budget. Total expenditure in the revised budget of 2023/24 Public Spending
includes the 5 percent salary increment for public service employees effected in April
2023, which supported households' income. Specific to development spending, the
budget was used to fill infrastructure gaps (implementation of delayed projects from the
previous financial year) in order to unlock economic growth. Consequently, the
projection for expenditure and net lending has been revised upwards by 1.6 percent to
P88.8 billion, which is equivalent to 31.8 percent of GDP