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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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