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VAT increase to fuel inflation growth

Ricardo Kanono by Ricardo Kanono
March 4, 2021
in Business
237 15
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VAT increase to fuel inflation growth

BOB Governor Moses Pelaelo

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  • Govt adjusts VAT to 14% from 12%
  • BoB cautions of high inflation risks
  • Economy to grow by 8.8% in 2021

BAKANG TIRO

editors@thepatriot.co.bw

The central bank, Bank of Botswana (BoB), forecasts that government’s decision to increase the Value Added Tax (VAT) from 12% to 14% will increase inflationary pressure by 1.44% in Q2 of 2020.

Statistics Botswana’s (SB) Consumer Index Data showed that inflation increased from 2.2% in December 2020 to 2.3% in January 2021, representing 0.1% growth amid a trembling economy.

But, BoB says inflation is forecast to revert to within the objective range in second quarter of 2021.

This, according to BoB, is as a result of taking into account the expected increase in the domestic demand in response to the accommodative monetary conditions such as the increase in VAT.

Bank Governor Mose Pelaelo while presenting bank’s Monetary Policy Committee (MPC) decision on Thursday said the risks to the inflation outlook are assessed to be balanced.

“Upside risks relate to the potential increase in international commodity prices beyond current forecasts, aggressive action by governments and major central banks to bolster demand as well as the anticipated supply constraints due to travel restrictions and lockdowns, though abating,” he said.

Domestically, Pelaelo said accelerated implementation of the Economic Recovery and Transformation Plan (ERTP) or additional rise in government levies and taxes could lead to higher inflation.

“These risks are moderated by weak domestic and global economic activity, which could be exacerbated by the periodic lockdowns and other forms of restrictions due to emergence of new COVID-19 variants and the possible decline in international commodity prices,’’ he added.

Furthermore, BoB cautions that implementation capacity constraints could hinder the effectiveness of policy stimulus and ERTP initiatives, thus resulting in lower inflation.

The Ministry of Finance and Economic Development and the International Monetary Fund (IMF) projected a sharp deterioration of economic growth for Botswana by 7.7% in 2020, compared to the earlier contraction of 8.9% before rebounding to significant growth of 8.8% in year 2021.

The IMF forecasts the domestic economy to contract by 9.6 percent in 2020 compared to the decline of 5.4 percent in the April 2020 World Economic Outlook, before rebounding to a growth of 8.6% in 2021.

But BoB says that even with recovery projected in 2021, the contraction in 2020 equates to more than a year’s loss of output growth.

“Economic activity in South Africa also remains subdued and the South African Reserve Bank projects GDP to have contracted by 7.1 percent in 2020, but to rebound to the growth of 3.6 percent in 2021. Global output is estimated to have declined by 3.5 percent in 2020 but to also rebound to a growth of 5.5 percent in 2021, on account of expectations of a vaccine-powered strengthening of activity and additional policy support in major economies,” Pelaelo buttressed. Meanwhile, Bank of Botswana decided to maintain the Bank Rate at 3.75 percent again.

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  • Killings of journalists up 50% in 2022, half targeted off duty    January 25, 2023
    Eighty-six journalists and media workers were killed around the world in 2022 – one every four days, according to UNESCO data, highlighting the grave risks and vulnerabilities that journalists continue to face in the course of their work.   […]
  • Judge Tau; please don’t stifle public scrutiny of the Court of AppealJanuary 25, 2023
    Her utterances are misplaced and must be condemned with the contempt it deserves ADAM PHETLHE The Patriot on Sunday dated 15 January 2022 carried an article titled ‘Judge Tau defends CoA Integrity’, with sub-headings “Complains of discrediting reckless statements; […]
  • Miss Botswana 2022 is the Face of KGK DiamondsJanuary 19, 2023
    Its been an exciting first week back to her MBW duties and we kick off the year with an official announcement that Our Queen is The face of KGK Diamonds. Lesego Chombo alongside Nigel Amos was the show stopper […]
  • Executives to watch in 2023January 19, 2023
    A year is often too short to demonstrate your worth, yet that’s exactly what the newly appointed Chief Executive Officers (CEOs) have to do to show that they deserve their enviable roles. PATRIOT BUSINESS looks at CEOs who shall […]
  • BLP TEST AP/BCP UNITY TALKSJanuary 19, 2023
    BAKANG TIRO editors@thepatriot.co.bw The new entrant in the cooperation talks between Alliance for Progressives (AP) and Botswana Congress Party (BCP) – Botswana Labour Party (BLP) has thrown spanner in the works by demanding that both AP and BCP yield […]
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