We expect GDP growth of 3.9% y/y in 2022 and 4.5% y/y in 2023. We expect that the C/A deficit to reach 0.8% of GDP and then a surplus of 4.4% of GDP in 2022. We see the pair USD/BWP around 11.80 at year-end.

GDP growth – driven by domestic demand 

2022 GDP will likely post growth of 3.9% y/y due to easing domestic demand, after which it  is expected at 4.5-5.0% in the medium term, underpinned by a stronger mining sector and  growing investment in mining, as well as by the non-mining sector, which includes a  recovering tourism sector.

Diamond production may post strong growth. De Beers cites Q1:22 production as up 25%  y/y due to increased processing at Orapa and Jwaneng.  Mining should also be boosted by copper production from the Khoemacau and Motheo  copper mines. Khoemacau has been reopened, with production starting in Q3:21. Copper  production was at 3,293 tonnes in Q4:21, from 7,517 tonnes in Q3:21. Khoemacau  operations should achieve full production by Q4:22 (full production capacity is between  60,000 and 65,000 tonnes/year). Moreover, the Motheo Copper Mine, where development  commenced in FY2021, with plans to extract copper and silver deposits located in the  Kalahari Copper Belt, aims to have production commence by 2023. Government investment in the water sector too should boost GDP through the construction  sector, and, ultimately, the water and agricultural sectors.

Balance of payments – C/A may switch to a surplus from 2023
Despite robust diamond and copper exports, which respectively contribute 90.0% and 2.5%  to total exports, the C/A deficit might widen to 0.8% of GDP in 2022 before turning into a  surplus of 4.4% of GDP in 2023. Were it not for the Ukraine war spill-over effect on  Botswana’s import bill, a surplus might’ve been possible this year.  2022 imports growth may overshadow the positive impact from exports. Although Botswana  does not import wheat from either Russia or Ukraine, it having ties with South Africa implies  some spill-over. Also, high commodity prices may still affect the import bill regardless of the  source market.

Monetary policy – still accommodative

We still expect inflation to stick above the objective range of 3- 6% in the near term,  averaging 8.7% y/y, and ending Dec at 7.5% y/y. Monetary policy may nevertheless remain  accommodative to support a durable economic recovery. However, the MPR may be tightened to tamp down inflation expectations.  We pencil a further 100 bps increase, after the 50 bps increase in Apr. This hiking cycle will likely be smooth, not aggressive.

FX outlook – in line with the ZAR

We see USD/BWP at 11.80 by Dec, in line with USD/ZAR movements. The exchange rate  regime is a crawling peg against a basket of currencies that comprises the ZAR (45%  weight) and the SDR (44% weight). The rate of crawl is determined by the difference  between domestic inflation and trading partner inflation (currently set at a 2.87% downward  rate of crawl).

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