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VAT increase to fuel inflation growth

Ricardo Kanono by Ricardo Kanono
March 4, 2021
in Business
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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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  • Dr Sikhulile Moyo named to TIME’s annual TIME100 list of the 100 most influential people in the worldMay 23, 2022
    TIME  has  named  Dr  Sikhulile  Moyo  to  the  2022 TIME100, its annual list of the 100 most influential people in the world. Dr. Moyo is the Research Laboratory Director at the Botswana Harvard AIDS Institute Partnership (BHP), a health […]
  • VACANCIES: BR PropertiesMay 17, 2022
    INTERNSHIP OPPORTUNITY Finance and Administration Closing date: 18th May 2022.
  • BANANA CLUB HOSTS FIRST MAUN EDITIONMay 17, 2022
    The artist-led collective, Banana Emoji Productions in collaboration with the European Union Delegation in Botswana hosted the beloved BANANA CLUB dialogues in Maun on the 14th of May 2022.  The multi-disciplinary creative group is committed to working with artists […]
  • Orange Botswana CEO among Africa’s most inspirational women in leadershipMay 12, 2022
    – Declares House of Rose House of Rose Professional Pte. Ltd (HORP) has announced its 2022 List of Africa’s Most Inspirational Women in Leadership. The list included over 100 inspirational leaders and was curated by House of Rose Professional […]
  • Unions ‘consider’ a Workers PartyMay 12, 2022
    Masisi snubbed trade unions on Workers Day, chose Khawa BOFEPUSU warn Masisi that Khawa could cost him elections Opposition will be top beneficiary of a Workers Party -Analyst BAKANG TIRO editors@thepatriot.co.bw Aggrieved trade union federation, Botswana Federation of Public, […]
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