calibrated and timely manner to sustained high level of inflation and threats to financial stability. overall, while pursuing its policy objectives and mandates, the bank is committed to ensuring that macroeconomic policies are aligned and, accordingly, the policy choices and responses to promote price and financial stability are undertaken in the broader context and interest of fostering inclusive economic development and a building a broad - based, resilient economy. honourable minister, distinguished guests, against the backdrop of this outline of the monetary framework and objectives, i will now address, in turn, first, the global trends that have influenced inflation in botswana ; second, i will report on the conduct of monetary policy in 2021, internationally and here at home ; and third, the medium - term inflation outlook and the likely policy stance in 2022. i will, thereafter, outline the reforms to monetary operations i alluded to earlier. external economic developments in 2021 the global economic performance and sentiment strengthened in 2021, amid improving demand resulting from the easing of the pandemic containment measures and consequent opening of economies. the reopening of economies was made possible by the effective roll - out of the covid - 19 vaccination programmes, especially in advanced economies, even as there was uneven distribution and supply of vaccines across the globe. the global economy is estimated to have expanded by 5. 9 percent in 2021 from a contraction of 3. 1 percent in 2020. however, the pandemic took a turn for the worst in some parts of the world in the second half of the year, with emergence of the new variants, delta and later in the year, omicron. given the economic recovery that involved imbalance between demand and supply and a surge in commodity prices, inflation increased globally, from an average of 3. 2 percent in 2020 to 4. 3 percent in 2021 ; and from 0. 5 percent to 5. 1 percent for the special drawing rights ( sdr ) countries and, regionally, from 3. 1 percent to 5. 9 percent in south africa. consequently, the weighted average inflation for botswana ’ s trading partner countries increased from 1. 7 percent in 2020 to 5. 5 percent in 2021. domestic economic developments in 2021 for botswana, gross domestic product is estimated to have expanded by 8. 6 percent in the twelve months to september 2021, compared to a contraction of 7. 3 percent in the year to september 2020. this was made possible by a combination of lesser movement restrictions in 2021 compared to 2020,

changes. in a market - based economy such as botswana ’ s, monetary policy influences inflation indirectly through its effect on interest rate changes, which then influence credit as a key means of financing expenditure on both consumption and investment. the effectiveness of interest rates in controlling credit is monitored closely. the bank also recognises that the rate of growth of government spending is an important component of domestic demand, since the government allocates large amounts of funds to finance public consumption and investment. the fact that the government plays a large role in the economy underscores the need for complementarity between fiscal and monetary policies in achieving the inflation objective. this is the policy framework that provides a backdrop to the bank ’ s assessment of the economic and financial environment over the past year, in which inflation or price developments took place. developments in inflation in 2002 as you will no doubt recall, the monetary policy statement for 2002 set an inflation objective range of 4 - 6 percent. in setting this objective, the bank was aware that headline inflation would be influenced by a number of transitory factors, especially the introduction of the 10 percent value added tax ( vat ) in july 2002. before the introduction of vat, annual headline inflation stabilised at around 6 percent during most of the first half of 2002. however, following the introduction of vat, and as you will recall, inflation started rising, and increased from 5. 9 percent in june 2002 to just over 11 percent by the end of the year. the bank had anticipated a temporary increase in headline inflation arising from the introduction of vat, of between 4 percent and 6 percent over and above underlying inflation. this prospect was conveyed in a press release in june 2002. it was pointed out, at the time, that the vat - related price increases would be a one - off temporary adjustment and that, in the absence of any significant second - round price effects, due for instance to compensatory wage increases, the impact of vat would not result in a sustained rise in inflation. in the event, and in line with the bank ’ s expectations, the effect of vat was that the month - on - month rate of change in prices rose from an average of 0. 5 percent over the twelve months to june 2002, to 3. 2 percent a month later in july 2002. thereafter, the monthly rate of price increases progressively slowed down to reach 0. 4 percent in october. the monthly price increase was then higher in november, primarily due to