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Speech by Ms Linah K Mohohlo, Governor of the Bank of Botswana, at the mid-term review of the 2008 Monetary Policy Statement, Gaborone, 24 July 2008.	Linah K Mohohlo: Monetary policy framework and objectives in Botswana Speech by Ms Linah K Mohohlo, Governor of the Bank of Botswana, at the mid-term review of the 2008 Monetary Policy Statement, Gaborone, 24 July 2008. * * * Introduction This year, the mid-term review of the 2008 Monetary Policy Statement (MPS) has more significance, given the changes to the monetary policy framework announced earlier this year in February. You will agree that it is time that we follow up and provide further information and explanation. Since the new framework was announced, the worst of the financial market crisis that developed in the last months of 2007 may have passed. But aftershocks continue, and the current consensus is that the worst is over. However, concerns about the health of the world economy have multiplied, as slower growth in many economies has coincided with the unrelenting increase in the price of oil and food. The scale of these challenges and the policy choices are abundantly clear, albeit onerous in the short term. You are aware that many central banks have already acted decisively against the risks of inflation by tightening monetary policy. Botswana does not have any major influence on global monetary conditions. Nevertheless, the Bank of Botswana remains responsible for preserving monetary and financial stability in the country, and this requires a clear and measured response that is relevant to Botswana’s specific situation. Monetary policy framework and objectives The changes made to the monetary policy framework are meant to enhance policy formulation in support of the objective of achieving a sustainable, low and predictable level of inflation. Additional factors are now considered more systematically to assess the future path of inflation, indicators of domestic demand and inflation expectations. This assessment involves both statistical and expert analysis and, in view of improved analytical capacity, the Bank decided to discontinue the use of the rate of growth of commercial bank credit as an intermediate target. Furthermore, in recognition of the fact that monetary policy is inherently forward-looking, and can realistically be successful in the medium term, the Bank now only specifies a mediumterm inflation objective (3-6 percent) and reviews inflation projections regularly. Inflation in the first half of 2008 In the first half of 2008, inflation continued the trend that commenced last October; it rose from 8.1 percent in December 2007 to 14.5 percent in June 2008, which is far above the Bank’s medium-term inflation objective range of 3-6 percent. Both measures of core inflation (16 percent trimmed mean and exclusion method) also registered an upward trend. Rising inflation, both domestically and elsewhere, is attributable mainly to the international price of oil-based products and food. In Botswana, inflation for the category of the consumer price index that includes petrol rose from 2.9 percent in September 2007 to 56.1 percent last month in June, accounting for about three-quarters of the total increase in headline inflation. Food price inflation has remained more stable but high, while for most other items inflation has remained much lower and generally within the medium-term objective. In June, there was some indication of a more widespread acceleration of prices which could, in turn, indicate the emergence of second-round effects. Pressures from domestic demand abound, as indicated by growth rates of credit and government expenditure, as well as strong output expansion. The real growth of GDP in 2006/07 is estimated at 6 percent, while more recent estimates indicate that economic growth excluding mining and government accelerated further in the second half of 2007. Monetary policy implementation in the first half of 2008 For the first four months of 2008, the Bank Rate, which had last been changed in June 2007, was at 14.5 percent. At the time, while a short-term deterioration in the outlook for inflation was anticipated, the medium-term projection indicated a sustained improvement. It was also appreciated that there were upside risks arising from the escalating food, fuel and other administered prices, as well as the impact of a wage-induced increase in demand. Hence the Bank’s Monetary Policy Committee concluded that the bias was towards monetary policy tightening going forward. Subsequently, it was clear from the Bank’s analysis that the outlook for inflation had deteriorated, with revised forecasts estimating annual inflation to peak at a higher level than previously indicated. Hence the successive increases of 50 basis points each in May and June brought the Bank Rate to 15.5 percent. It is widely believed that interest rates have only a limited influence on domestic demand in Botswana, as borrowers appear not to respond to interest rate changes. This is based primarily on the observation that growth in bank lending has remained high, despite high interest rates. This argument is weak in several respects, as it does not acknowledge factors such as income growth and the broadening reach of the banking sector, both of which should be expected to encourage more borrowing. Even if borrowing was unresponsive to interest rate changes, it goes without saying that increased costs of borrowing must be accommodated elsewhere in household budgets. Therefore, there has to be an impact in terms of dampening demand overall. Inflation outlook in the medium term (2008-2010) Inflation outlook in the medium term is influenced by domestic economic activity, imported inflation and international economic and financial developments. For instance, in South Africa, there are upside risks to inflation due to the increase in food, oil and electricity prices and the forecast depreciation of the rand against international currencies. Hence inflation in South Africa is projected to remain above the upper end of the South African Reserve Bank’s 3-6 percent target to the end of 2009, thus necessitating the maintenance of the current tight monetary policy stance. The situation in Botswana’s other trading partner countries (SDR countries) is also characterised by high inflation and, in some cases, the threat of recession looms large. Domestically, output growth is expected to remain above the long-term trend, and this means that Botswana is not currently facing the dilemma that policy tightening is unduly restricting economic growth. The balance of risks, which the generally tight monetary conditions aim to moderate, is towards domestic demand adding to inflationary pressures. To the extent that the current monetary policy stance is maintained, inflation is expected to reach the Bank’s objective range by the end of 2009, all things being equal. The rate of crawl of the exchange rate is not expected to result in a substantial nominal exchange rate adjustment during 2008. This should not add significantly to inflationary pressures, especially in an environment of a relatively restrictive monetary policy. The latest Business Expectations Survey points to a deterioration in inflation expectations, and this underscores the importance of staying the course in fighting inflation. Monetary policy stance Against this background, there is a need to maintain the current restrictive monetary policy stance going forward, in order to restrain second-round effects and refocus inflation expectations. Otherwise a vicious circle of mounting pressures could make inflation increasingly hard to control, thus requiring more severe policy measures at a later stage. I hasten to add that the Bank recognises the need to balance the trade-off between the need to control inflationary pressures and the desire to support output expansion; to this end, the impact of the current policy stance on economic growth will be monitored carefully. It is important to stress that monetary policy is not by itself sufficient to attain price stability. Complementary fiscal policy and the implementation of structural reforms, such as skills development, that can yield significant productivity gains, are also critical, as they help to enhance the resilience of the economy. I thank you for your attention.	bank of botswana	2,008	8
Remarks by Ms Linah K Mohohlo, Governor of the Bank of Botswana and a member of the African Progess Panel (APP), on behalf of the APP Chairman at the meeting on "The financial crisis: impact on Africa", Tunis, Tunisia, 12 November 2008.	Linah K Mohohlo: The financial crisis – impact on Africa Remarks by Ms Linah K Mohohlo, Governor of the Bank of Botswana and a member of the African Progess Panel (APP), on behalf of the APP Chairman at the meeting on “The financial crisis: impact on Africa”, Tunis, Tunisia, 12 November 2008. * * * I wish to begin by tendering profound apologies from the Chairman of the Africa Progress Panel, Mr Kofi Annan, who is unable to be a part of this meeting due to overlapping commitments. He is particularly disappointed by his inability to attend as today’s meeting is taking place partly as a result of conversations between him and the President of the African Development Bank (ADB), Dr Kaberuka. I have, therefore, been asked and accepted to speak on his behalf and on behalf of the other members of the Africa Progress Panel. 1 For those who may not know, the Africa Progress Panel exists to monitor, encourage and support African countries and their development partners in taking specific steps to advance social, economic and political progress in Africa. In this context, this meeting is both significant and timely, and President Kaberuka deserves commendation for taking the initiative to get us together. The Africa Progress Panel welcomes, in particular, the collaborative approach being taken by the ADB, the African Union and the Economic Commission for Africa. This will underpin the meeting’s capacity to provide input for upcoming critical events, such as the G20 meeting that is tenable in Washington DC on November 15, and the Doha meeting on International Finance scheduled for the end of November. To that end, the Africa Progress Panel would be delighted if this meeting resulted in a “Tunis Communiqué” which would provide guidance on how the global financial crisis can be managed in a manner supportive of progress in Africa and its achievement of the Millennium Development Goals. It is to be hoped that such a communiqué would recognise the Africa Progress Panel’s main concerns. First, it is worth noting that when crises of the nature currently unfolding occur, it is always the least responsible that are usually the worst affected and the least able to cope. In other words, it is the poor who end up paying the heaviest price for the mess they had no hand in creating. Hence we must encourage a stronger and shared understanding, in both Africa and in global fora, of how the financial meltdown might affect our continent. At the same time, we must recognise that the impact will vary according to the specific circumstances of each region and country. One thing for sure is that the current financial crisis is unprecedented in modern times for its scale and catastrophic dimensions, and its full impact has yet to unfold. Another defining feature of the crisis has been the pace and dynamism of its development, often in unexpected directions. It is less than two months since the collapse of Lehman Brothers on September 15, 2008, but it is not much of an exaggeration to say that this seems like a life time away. Africa had initially appeared relatively insulated, both for its financial system and economic development more widely. But the continent can no longer be lulled by any sense of security that this is a crisis only for the developed world, and its banks in particular. Globalisation has many benefits, but there are associated risks and, as the International Monetary Fund has repeatedly come up with lower forecasts for global economic growth, it is increasingly clear that developing economies will feel the chill of the looming recession. The commodities boom has come to an abrupt halt, and this is of particular concern to many African economies given the negativeimpact of reduced trade on Balance of Payments. Panel Members: Mr Kofi Annan (Chair), Mr Tony Blair, Mr Michel Camdessus, Mr Peter Eigen, Mr Bob Geldof, Ms Graça Machel, Ms Linah Mohohlo, Gen Olusegun Obasanjo, Mr Robert Rubin, Mr Tidjane Thiam, Prof Muhammad Yunus, Mr Michael Keating (Director). Slowing world demand also undermines African countries’ efforts towards diversifying economies away from primary sectors. As we are witnessing in Botswana, even when investors wish to proceed with new developments, they are increasingly constrained by lack of access to credit. The so-called “flight to quality” where risk averse investors concentrate their investments in the short end of the yield curve, can destabilise financial flows. In the face of global financial markets, Africa’s banking practices as well as related regulatory and oversight regimes cannot continue to remain local and, in many instances, ineffective. Needless to add, investing foreign exchange reserves in volatile markets is an additional challenge which requires the establishment of prudent investment policies and guidelines, depending on whether the reserves are the minimum necessary for short-term import cover, or represent an accumulated stock of national savings (e.g. Sovereign Wealth Funds). It is also important to ensure that Africa’s interests and priorities are represented in the review or design of any new global financial architecture relating to, for example, the role of the Bretton Wood Institutions. We must also ensure that the financial crisis is not used as a pretext for relaxing or abandoning the hard-won commitments by Africa and its development partners, at least in four main areas: - sustainable economic growth, including food security, climate change, infrastructure and/or trade; - social development, notably health, education and the more important gender issues; - good governance, and its associated financial and political accountability; and - financing for development, including levels of development aid. The Africa Progress Panel believes that the growing sense of mutual accountability between Africa and its partners, whether traditional or new, needs to be encouraged and supported. While it would be unwise to make any predictions, the election of Mr Barack Obama bodes well for not only the maintenance but also, it is to be hoped, the further evolution of commitments to Africa by the United States of America. However, we should be aware that both Africa’s traditional and new partners are under enormous pressure to cut expenditure, and this makes aid levels highly vulnerable. Therefore, we should do everything possible to encourage them to live up to their commitments by, among others, reaffirming our side of the bargain. Notably, this involves committing to the maintenance of fiscal and broad macroeconomic discipline, investing domestic resources with a view to achieving specific human development objectives, and strengthening political accountability at national and regional levels. To this end, the Chairman and members of the Africa Progress Panel would like to support, in any way we can, the ADB President, Dr Kaberuka, the Chairman of the African Union Commission and the Executive Secretary of the Economic Commission for Africa as they ensure that Africa’s interests are well understood and represented in critical discussions, some of which will take place in the next few months. African leaders are encouraged to network among themselves to forge a common position on these issues, in the best interests of the continent and its populace. On behalf of Chairman Kofi Annan and other members of the Africa Progress Panel, I thank you for your attention.	bank of botswana	2,009	1
Speech by Linah K Mohohlo, Governor of the Bank of Botswana, Gaborone, 23 February 2009.	Linah K Mohohlo: 2009 Monetary Policy Statement Speech by Linah K Mohohlo, Governor of the Bank of Botswana, Gaborone, 23 February 2009. * * * Honourable Speaker of National Assembly Honourable Minister of Finance & Development Planning & your Colleagues in Cabinet & Parliament Your Excellencies, Members of the Diplomatic Corps Chairman of the House of Chiefs PSP, Senior Government Officials & Heads of Parastatal Organisations Members of the Board of the Bank of Botswana Members of the Banking Fraternity, representatives of the wider financial sector & Captains of Industry Distinguished Ladies and Gentlemen Good evening. By way of introduction, I welcome you to this ceremony, marking the launching of the Monetary Policy Statement for 2009. As you know, the Monetary Policy Statement is a means through which the Bank informs the nation and other stakeholders about the monetary policy framework and its implementation. In doing so, we seek to reinforce the credibility of the Bank’s determination to anchor expectations of low, predictable and sustainable level of inflation. This is the primary objective of the Bank, and rightly so. I hasten to stress that the focus on controlling inflation should, in no way, be taken to imply that other considerations concerning the health of the domestic economy are ignored. As always, on this occasion the Bank reviews economic and inflation developments in the past year, and explains the actions taken in response to those developments. This includes an assessment of the success or otherwise of meeting the medium-term inflation objective. The Statement also updates the economic and financial outlook, and proposes a possible strategy for addressing the challenges in the period ahead. You may recall that, last year, the Bank introduced important modifications to the policy strategy, which reinforced then medium-term as the time horizon in which to meet the inflation objective. This approach is based on more rigorous inflation forecasting. Before I delve into the main business of this evening, I feel it is always useful, even for those who regularly attend this event, to highlight the other core functions of the Bank, in addition to keeping inflation in check. The other major function of the Bank is to provide financial and economic advice to the Government, which is done through regular consultations with the Ministry of Finance and Development Planning. It is, of course, appropriate that, in most cases, this advice is provided on a privileged and confidential basis. The supervision and regulation of the banking sector, which is essential for maintaining a sound, stable and efficient financial system, is another critical function of the Bank. Prudential supervision and monitoring of licensed financial institutions ensure that they comply with the regulations designed to protect the interests of customers and the financial system for the benefit of the economy as a whole. The Bank is also responsible for designing, printing and distributing currency to the wider economy to facilitate payment for transactions, usage as a unit of account and store of value. Related to this function is ensuring that Botswana has a secure and efficient payments and settlement system, which is critical for the stability of the financial sector and its ability to promote economic activity. Moreover, as Banker to the Government and commercial banks, the Bank of Botswana serves as the lender of last resort. Yet another important function of the Bank is operating a foreign exchange market with commercial banks, so that residents can engage in transactions with the rest of the world. The Bank also manages the exchange rate in order to ensure international competitiveness of domestic exports, by stabilising the real effective exchange rate through a crawl of the nominal effective exchange rate. When domestic inflation is higher than the forecast inflation of trading partner countries, a downward crawl is implemented; the reverse is true when the inflation objective is lower than forecast trading partner countries’ inflation. Last but not least, the Bank is responsible for investing a portfolio of the country’s foreign exchange reserves, which is a major part of the country’s wealth. This involves buying and selling a wide range of investment instruments in international financial and capital markets, while strictly observing acceptable risk parameters. In carrying out all these functions, which contribute to the sound economic and financial wellbeing of the country, the Bank is committed to maintaining the highest level of corporate governance and professional excellence. Before I share with you a summary of this year’s Monetary Policy Statement, I wish to make some observations on the rapidly unfolding global financial and economic crisis. This is a matter of national importance and, inevitably, it forms a backdrop for the review of monetary policy; it also has an impact on the policy strategy in the period ahead. The Bank has been monitoring the deteriorating outlook for the world economy since the emergence of the crisis in late 2007, and we have willingly shared our thoughts at regular economic briefings and in the Bank’s publications; please be assured that this process will continue in the course of this year. Crises have been, and will continue to be a feature of the global economy. Almost 250 years ago, Adam Smith, who is known as the father of capitalism, wrote perceptively about the dangers of speculative excess. Indeed in a system that encourages dynamic development, imbalances requiring correction are inevitable; but the severity of the current economic slowdown is the worst since the Great Depression of the 1930s, in part because of globalisation of national economies. That is why the International Labour Organisation has warned that some 50 million jobs worldwide could be lost; that is why all countries including Botswana are affected; and that is why the responses have to be coordinated, to some extent. It is now widely acknowledged that the current crisis can be attributed to three major factors. First, the sharp rise in commodity prices, especially oil and food, was always likely to put a brake on economic expansion. Second, the uneven global growth resulted in unsustainable huge deficits in some countries and corresponding chronic surpluses in others. Therefore, painful adjustment was inevitable. Third, risk management in financial sectors of major economies was lax, so much so that some of the most respected names in banking accumulated large volumes of non-performing assets. These factors were also substantially interlinked. The virtual disregard for prudential lending by the financial sector led to the emergence of unsustainable macroeconomic imbalances and rising commodity prices. Central Banks, too, were on the wrong side of the action, as their formulation and implementation of monetary policy paid insufficient attention to the risks of over-valuation of assets, particularly in the housing market(s). In the event, the consequences have been traumatic, especially since September 2008, when the global banking system risked collapse starting with the erstwhile US headquartered Lehman Brothers. Although this has been averted through unprecedented action by governments and central banks, the subsequent curtailment of lending has aggravated economic slowdown. The seriousness of the “credit crunch” is such that the International Monetary Fund has revised its economic growth forecast for 2009 repeatedly, from 3.8 percent to only 0.5 percent. The economies of advanced countries are forecast to shrink by an average of 2 percent this year. For sub-Saharan Africa, the 2009 outlook has fallen from 6.8 percent to 3.5 percent, and the volume of global trade is expected to fall for the first time since the early 1980s. To address the problems, many central banks have reduced interest rates to historic levels, while governments have undertaken unprecedented spending and financial support of private sector entities. It is not surprising, therefore, that the G20 and similar groupings are considering proposals to coordinate revisions to financial sector regulation. So far, efforts to stabilise the banking system have not resulted in a resumption of bank lending; for this reason, it is feared that economic recovery may take longer, possibly way into 2010. There is also concern that countries will increasingly resort to protectionist trade policies, a trend that would be self-defeating since no economy can resolve its problems in isolation. Fortunately, commercial banks in Botswana are not yet impaired by the impact of the “credit crunch” that is afflicting other countries. Bank deposits far exceed loans; and banks have generally avoided accumulating unmanageable risk. In this connection, it is worth mentioning that Batswana should learn from the mistakes of over-borrowing, the dire consequences of which have hit households elsewhere in the world very hard. Nevertheless, the Bank of Botswana is monitoring possible situations of exposure to offshore parent financial institutions on an ongoing basis. While the domestic financial sector is, to some extent untroubled, international diamond markets have deteriorated rapidly and unexpectedly. As highlighted by the Honourable Minister of Finance and Development Planning in this year’s budget speech, this development has adversely affected government revenue. As at the end of January 2009, which is three months after diamond exports were seriously curtailed, the foreign exchange reserves amounted to 69.7 billion Pula (provisionally), which is a 19 percent growth from the December 2007 level of 58.5 billion Pula. When the effect of the Pula depreciation is excluded, the reserves fell by 6.4 percent in terms of Special Drawing Right (SDR) and by approximately 12 percent in US dollar terms. The decrease in reserves was due to the fall in equity market prices, a slowdown in diamond export receipts and payments for government and other transactions. The pressure on the reserves is expected to continue during 2009, although at the level equivalent to 27 months of import cover, they should remain relatively adequate. I believe it should take little persuasion to acknowledge that managing the country’s reserves prudently has served the country well, given the current severe financial and capital markets difficulties. I now turn to the core business of this evening’s event: the Bank’s monetary policy framework and strategy for 2009. As I said earlier, last year’s modifications to the framework focused on the medium-term, a period considered appropriate for monetary policy to take effect and anchor the inflation objective, based on rigorous inflation forecasting that is now taking root at the Bank. For the sake of emphasis, the Bank’s monetary policy objective is to achieve a sustainable, low and predictable level of inflation within a range of 3-6 percent over the medium term. Maintaining inflation within this range supports broader national objectives of sustainable economic growth and development, through promoting savings mobilisation and productive investment, as well as sustaining international competitiveness of domestic producers. However, the process of keeping inflation in check is not in one direction; for instance, sustained periods of low or rapidly falling inflation could indicate subdued economic activity; in which case, monetary policy would need to be eased to stimulate economic growth, without re-igniting inflationary pressures. It is well known that Botswana’s inflation is affected by domestic demand conditions and other factors such as foreign inflation, the exchange rate, as well as changes in administered prices and taxes. Public expectations of rising or falling inflation also influence pricing behaviour of businesses and wage adjustments. The Bank then responds by adjusting the Bank Rate and conducting open market operations to affect demand conditions in the economy and, ultimately, the rate of price changes. Therefore, the Bank estimates the impact of various factors in forecasting inflation over the medium term which, in turn, informs monetary policy. I wish to stress that, in this regard, the Bank’s response to inflation forecasting is not mechanical; rather, it takes account of expert judgement and supplementary analysis. For more information, I suggest you read the technical annex to this year’s Monetary Policy Statement, copies of which will be made available at the end of my remarks. With respect to inflation trends and related developments in 2008, you will recall that, for the first half of the year, global inflation was mostly driven by the steep increase in oil and food prices; the same applied to Botswana. To put the situation in perspective, global inflation increased from 4.3 percent in 2007 to 6.4 percent in 2008; this affected the outlook for global economic growth, which slowed from 5.2 percent to 3.4 percent. As a result, international oil prices fell sharply in the latter half of the year, especially following the escalation of the global financial and economic crisis in September. The combined effect was that, thereafter, international inflation began to decline. Here at home, inflation rose during most of 2008, and far exceeded the medium-term inflation objective of 3-6 percent at 15.1 percent in August, before declining to 13.7 percent at year-end. Although the average trade-weighted inflation in Botswana’s trading partner countries was unchanged between 2007 and 2008 at 6.5 percent, inflation in South Africa rose from an average of 6.5 percent in 2007 to 11.3 percent in 2008, and was well above the target range of 3-6 percent. Successive increases in fuel prices contributed about 4.4 percentage points to domestic inflation between February and June 2008, but this was virtually reversed following fuel price reductions. Since August, inflation has fallen by less than expected due to a further increase in food prices and lingering second-round effects arising from the earlier period of oil price increases. Bilateral exchange rates too had an impact on inflation in the year to December 2008. The Pula depreciated by about 20 percent against the Special Drawing Right (SDR), but it appreciated by 10 percent against the rand. There was also rapid growth in government expenditure, which had accommodated the sharp increase in prices. With the higher development spending and the increase in civil service emoluments, it is estimated that fiscal year 2008/2009 will see government expenditure rising by approximately 43 percent over that of 2007/2008, which is triple the estimated initial spending increase of 14.7 percent. In turn, the higher government expenditure and personal incomes led to an increase in private sector spending and credit. In the event, credit rose by about 32 percent in the year to September 2008, before slowing to 28 percent in December. Household borrowing increased by approximately 22 percent, while credit expansion to businesses more than doubled at 37 percent, thus reflecting the robust growth in the non-mining private sector during most of 2008. On the whole, however, overall GDP growth slowed due to the fall in mining output, a trend that continued into the first quarter of 2008/2009. It is against this background that the conduct of monetary policy in 2008 took account of various factors that influenced prices. For this reason, monetary policy action was not expected to have an immediate impact on inflation. Instead (and this is key), the policy focused on containing second-round price increases arising from the shock of food and oil prices; it also focused on keeping inflation expectations anchored around the price stability objective in the medium-term. Accordingly, as inflation rose in the first half of the year, the Bank Rate was increased by half a percentage point each in May and June 2008 to 15.5 percent. With improvement in the inflation outlook, the Bank Rate was reduced by the same magnitude to 15 percent in December. Correspondingly and as appropriate, commercial bank prime lending interest rates mirrored the Bank Rate adjustments; in addition, the management of excess bank liquidity reinforced the policy stance. Nevertheless, high inflation resulted in lower real interest rates, some of which, unfortunately, became negative in real terms. With respect to the Bank’s outlook for inflation for this year and a reasonable period ahead, both domestic and global inflation is expected to abate, as a result of lower economic activity and subdued demand. Commodity prices, including the cost of oil, are likely to be low, and world inflation is forecast to decrease from 6.4 percent in 2008 to 3.1 percent in 2009. In South Africa, inflation is expected to decline to 5.5 percent in 2009, and fall within the 3-6 percent target range. Therefore, foreign prices will dampen domestic inflation. Since the Bank’s inflation objective is 3-6 percent and trading partner countries’ inflation is forecast at 3-5 percent, the downward crawl of the Pula should be marginal in 2009, and the real effective exchange rate should be stable. Overall, economic performance is expected to slacken significantly, due to the depressed mining activity. It is also anticipated that despite the decline in government revenue, due to a fall in mining production, public spending will increase in support of economic growth. Nevertheless, it is estimated that output will be below trend, particularly in the short term. This should put downward pressure on inflation. In this environment, it is unlikely that increased government spending will be inflationary, particularly in the absence of a public sector wage increase. However, it is worth mentioning that any large increase in administered prices, such as electricity tariffs and Botswana Housing Corporation rentals, would be inflationary. Be that as it may, the probability is that price increases will be subdued in 2009 compared to 2008. It is, therefore, anticipated that, by the end of the year, inflation will be closer to, if not within, the medium-term objective range of 3-6 percent. Honoured Guests: You may very well ask: What about the monetary policy stance in 2009 in the circumstances! Well, we at the Bank consider that monetary policy action this year will take into consideration the following scenarios: first, the increase in government spending is unlikely to be inflationary; second, the exchange rate is expected to be stable; and third, it is hoped the inflation trend will continue to be downward. These developments suggest that there is scope for easing monetary policy alongside fiscal expansion, in order to address the imminent decline in economic activity. It is also important to entrench expectations of low and sustainable inflation by containing the secondary effects of any transitory price shocks. Furthermore, care will have to be taken to ensure that the foreign exchange reserves remain sustainable. Distinguished Ladies & Gentlemen: Let me conclude by reiterating that monetary policy in 2008 was conducted in conditions of international volatility of unprecedented dimensions. Accelerating inflation in the first half of the year was replaced by the spectre of financial meltdown and global recession, and as a small open economy, this situation presented enormous challenges for Botswana in 2008 and will continue to do so this year. Fortunately, the task of meeting the inflation challenge has been made easier by the adoption of a more comprehensive medium-term framework for policy implementation, which has been made possible by ongoing capacity building in inflation forecasting. Once again, I would like to reassure you, and all stakeholders, that the Bank of Botswana is committed to the maintenance of medium-term price stability due to its benefits for the country as a whole. In this regard, the key lesson from the current difficult international situation is that it pays to be prudent in financial and economic management. Otherwise, the Government would not have been able to accumulate savings in the form of foreign exchange reserves, which should enable the country to weather the unfolding storm. Honourable Speaker, Honourable Ministers, Honourable Members of Parliament, Your Excellencies Members of the Diplomatic Corps, Distinguished Guests, that prudence; that strategy; will continue to guide the conduct of monetary policy this year and in the period ahead. I thank you for your attention.	bank of botswana	2,009	4
Address by Mrs Linah K Mohohlo, Governor of the Bank of Botswana, at the Global Expo Botswana 2009, Gaborone, 4 November 2009.	Linah K Mohohlo: Global economic developments impacting Botswana Address by Mrs Linah K Mohohlo, Governor of the Bank of Botswana, at the Global Expo Botswana 2009, Gaborone, 4 November 2009. * * * It is my honour and privilege to be a part of the festivities marking the 2009 Global Expo Botswana, which is the country’s premier international business-to-business exhibition. At the outset, let me extend a special welcome to exhibitors and visitors from overseas and those from sister countries in the region. Please feel at home in our midst. This year’s Expo comes at an opportune time when the state of the global economy is on a stabilization phase, and, therefore, calling for closer economic, trade and entrepreneurial interaction in order to sustain recovery. At this moment of optimism in the global recovery, this year’s Global Expo assumes greater importance more than ever before. The Expo presents an opportunity for exploring new avenues for investment and trade, so that we can continue to uplift and improve our collective standard of living. It is, therefore, my hope and desire that potential investors will seek opportunities for investment on their own or by partnering with their domestic counterparts. At the same time, domestic entrepreneurs should be able to widen their horizon and acquire new ways of doing business; they should learn from their foreign and domestic counterparts and develop market networks. It is also my desire that you will in, the end, develop life-long personal friendships that will enrich your experiences as individuals and families. I find it appropriate, therefore, that the theme for Global Expo Botswana 2009 is “Unlocking Opportunities in the Current Global Recession”. This theme calls on us to reflect on the current weak global economy, it call on us to reflect on the lessons learned as well as on emerging trends; it also affords us the opportunity to prevent history from repeating itself from an economic perspective, here at home and globally. As part of addressing the theme, I believe it is relevant that I highlight some global economic developments, as they impact on our economy. Since last year, the world economy has experienced the worst recession since the Great Depression of the 1930s. Although the immediate cause of the economic recession was the 2007 collapse of the mortgage market in the United States of America, its depth and spread reflected deeper global economic and trade imbalances that had not been addressed. The recession was particularly severe in advanced economies which, as a group, are forecast to decline by an overall 3.4 percent this year. Fortunately, the emerging and developing economies are expected to register a growth rate of 1.7 percent in 2009; this is, nonetheless, a much slower rate of expansion compared to the 6 percent achieved the previous year. The global recession has severely affected international trade. According to the International Monetary Fund, the volume of trade will decline by a steep 11.9 percent this year. The reason for this is simple. Rapid economic growth in many countries, especially during the last two decades since the end of the cold war, depended on export performance. When the importing countries began to experience an economic downturn, their demand for exports declined at a faster rate than the slowdown on growth. That is why there is now a global consensus that at a time of economic recession, all efforts should be made to Bencourage, and not restrict, trade so that countries can bail each other out. Global Expo Botswana answers this call. The good news is that, while it has been severe, the recession has been less deep and lasted a shorter period than many had initially feared. This fortunate outcome is due to the unprecedented coordination of fiscal and monetary policies that were put in place by all the major economies. It is now clear that these efforts have begun to bear fruit, to the extent that a 3.1 percent global economic expansion is forecast for next year. Such is the optimism for global recovery that policy makers are now discussing how best to wind-down the stimulus packages, as the international economy progressively returns to more normal performance. In fact, countries that were moderately in recession – Australia and Norway – have begun to tighten monetary policy. France and Germany have realised positive economic growth for almost two successive quarters. Similarly, the world’s largest economy, the United States of America, grew at an estimated annualised 3.5 percent in the third quarter of 2009, a significantly faster rate than expected, and it was the first economic expansion in two years. Thanks to China for continuing on its robust economic growth path. All these economic expansion statistics are encouraging, even for the domestic economy, as luxury sectors such as diamond mining and tourism should derive benefit. Unfortunately, the United Kingdom continues to experience constraints to economic recovery, but it is expected to be out of the woods in due course. With respect to developments in the domestic economy, you are aware that Botswana did not escape the effects of the global recession. However, the on-going global economic recovery has led to a rebound of economic activity, particularly in the third quarter, compared to the first half of the year, when there was no diamond production. In addition to the beneficial effect of the on-going recovery of the world economy, government spending and the easing of monetary policy contributed to a strong expansion of the non-mining sector, which enabled the overall economy to grow by 1.3 percent in the third quarter of this year. This suggests that the underlying trend in economic activity remains positive, partly because the Government was able to implement a fiscal stimulus by drawing on the savings that were accumulated when revenues were buoyant. As a result of the world economic upturn, diamond production has resumed in response to a steady revival of overseas demand for rough diamonds; and it is expected that this trend will continue in the second half of the year. The resumption of diamond exports has also led to surpluses in the current account of the balance of payments in recent months, so much so that the foreign exchange reserves are now increasing after months of consistent decline. As intimated earlier, the Bank of Botswana lent support to the domestic economic recovery by easing monetary policy. To this end, the Bank Rate was reduced from 15.5 percent in December 2008 to the current level of 11 percent. It is important to emphasise that the Bank remains vigilant in monitoring inflation trends, to ensure that the medium term inflation objective of 3–6 percent is adhered to, despite some transient spikes in prices, which pushed inflation to 7 percent in September. After all it is the Bank’s policy to stabilise inflation at a low and sustainable level in order to promote long-term economic growth and diversification. Needless to add, the world economy remains fragile. For a strong rebound in economic activity to be sustained, there is need to learn from the current crisis and to take corrective measures, if we are to avoid a recurrence of the recent economic and financial turmoil. At a global level, there is discussion of the need to create a new economic order. Towards this end, the G20 is no longer an obscure talking shop for finance ministers and central bank governors of advanced economies. Although there is practically no developing country participation, we should take comfort from the fact that it has now been transformed into a serious forum for world leaders to take collective global decisions. It is also expected to assume the responsibility for policy coordination, a role that has, until now, been played by the G8. After years of virtually fruitless discussions, there are now signs of progress in the long overdue reforms to the governance and functions of the Bretton Woods institutions, the World Bank and International Monetary Fund. However, less progress has been made on reforms of the regulation and supervision of financial institutions. And yet, there is a need to curb the excessive risk-taking by these institutions. After all, it was their behaviour which threatened the collapse of the global financial system in 2008, that then triggered the recession. Similarly, there is little sign of reviving the global trading system under the Doha Round of trade talks. And yet it is clear that even-handed trade relations that could emerge through these negotiations could boost world trade and fulfill the G20 commitment to discourage countries from pursuing policies that restrict trading through protectionist measures. Here at home, one of the main lessons derived from the global financial turmoil and economic recession is that reliance on the one dominant sector is far from safe. Clearly a concerted effort towards diversifying the economy is even more urgent, and the Government needs to partner with the private sector in this endeavour. Many of the building blocks are already in place for diversified investment and development. We have macroeconomic stability; we have strong and robust structures for sound policy formulation; we have no exchange controls; and the banking system is stable, soundly managed and offers diverse products. These positive attributes have been consistently recognised by the sovereign credit rating agencies and other international organisations. At international level, the country scores highly in indicators of international competitiveness, such as The Heritage Foundation’s “economic freedom”, the World Bank’s “ease of doing business”, the World Economic Forum’s “global competitiveness“, and Transparency International’s “corruption perception index”. As you will readily agree, despite these impressive scores, there remain challenges in attracting foreign direct investment outside the mining sector. Therefore, the time has come to address the remaining constraints to broadbased investment. In particular, the cost of doing business in Botswana is high compared to other landlocked countries. Businesses should lobby for necessary changes that reduce production costs, but not seek generous subsidies or clamour for imposition of additional obstacles that favour a particular interest group. Equally important, businesses should not always look up to the Government for solutions to their problems, as such an approach tends to entrench a culture of dependency. All-in-all, business should embrace the benefits that accrue from increased productivity in a global economic environment. It is only this path that will sustain our country’s long-run broad-based economic and social prosperity. I had the pleasure of touring the exhibits earlier today, and was very impressed by the wide range of products on display. I am also encouraged that, despite the current difficult economic conditions, organisers are optimistic that transactions will surpass last year’s fifty million Pula mark by an estimated ten million Pula. This suggests a rebound of consumer confidence in the region. Of equal importance, the organisers have appropriately arranged an investment forum, buyer-seller meetings, and several workshops. These events will contribute significantly to the achievement of the objectives of Global Expo Botswana 2009. I would like to take this opportunity to encourage exhibitors and visitors to patronise and participate in the events. I also wish to encourage members of the public to patronise the exhibition especially on Saturday when, I am reliably informed, there will be cultural performances, various delicious cuisines and other complementary activities that will, no doubt, make Global Expo Botswana 2009 a memorable experience. Director of Ceremonies, Distinguished Ladies and Gentlemen, I wish to conclude by wishing all exhibitors and visitors fruitful business negotiations in the next four days of the Exposition. I also commend the organisers for a sterling job in putting together this event; you make the city of Gaborone and the country proud. The Acting President, Honourable Ministers, Distinguished Ladies and Gentlemen, it is now my honour and privilege to declare Global Expo Botswana 2009 officially open. I thank you for your attention.	bank of botswana	2,009	12
Speech by Mrs Linah K Mohohlo, Governor of the Bank of Botswana, at the launch of the Monetary Policy Statement for 2010, Gaborone, 25 February 2010.	Linah K Mohohlo: 2010 Monetary Policy Statement Speech by Mrs Linah K Mohohlo, Governor of the Bank of Botswana, at the launch of the Monetary Policy Statement for 2010, Gaborone, 25 February 2010. * * * Once again, it is my pleasure to welcome you to the launch of the Monetary Policy Statement for 2010. As you are aware, the Statement is the principal means through which the Bank informs the nation and other stakeholders about the monetary policy framework and its implementation. This is done in order to foster policy credibility and anchor public expectations of a low, predictable and sustainable level of inflation. The Statement also reviews current economic trends; it evaluates policy implementation in the past year, and attempts to foresee prospective developments that may influence the inflation outlook. In this way, the validity of the policy framework can be assessed objectively, and the Bank’s consequent policy intentions for the coming year can be appreciated. You will recall that two years ago, the Bank adopted a new forward-looking monetary policy framework which rightly expects policy effectiveness in the medium-term. The framework is based on a model of inflation forecasting which incorporates a wider set of economic indicators. Indeed, with the benefit of continuous technical refinements, the actual domestic inflation has broadly been in line with the model projections. Before I present the Monetary Policy Statement for 2010, I consider it useful to restate the other core functions of the Bank which, when taken together, provide synergies for monetary policy, for the promotion and maintenance of monetary stability, and for the efficiency of the payments system as well as the soundness of the financial sector. In addition to the formulation and implementation of monetary policy, the regulation and supervision of banks, is another critical function of the Bank. The Bank is also responsible for designing, producing and issuing currency, which is a means of payment for transactions and a store of value. Towards this end, you will recall that, in August last year, the Bank launched a new family of banknotes to replace those that had been in use for many years. The banknotes are more fortified against counterfeiting; they update the country’s special characteristics and celebrate our heritage. Yet another key function of the Bank is the management and investment of the foreign exchange reserves, which are a major part of the nation’s wealth. Due to the global financial and economic crisis, this particular area of the Bank’s responsibilities has recently come under close scrutiny. I wish to take this opportunity, therefore, to reassure the nation that, despite the turmoil in major financial and capital markets, the Bank’s prudent investment policy and strategy have served the country well. The purchasing power of the reserves has been maintained and, despite very low export receipts and the high import bill, the reserves remain relatively sizeable at approximately USD9 billion (P59 billion), which is equivalent to 20 months of imports of goods and services. The Bank is also the banker to the Government and commercial banks, for which it serves as the lender of last resort. In addition, as economic and financial advisor to the Government, the Bank worked very closely with the authorities throughout the year in addressing the challenging external and domestic macroeconomic environment. Honoured Guests: I now return to the main agenda of this evening, which is the anticipated direction of the Bank’s monetary policy stance during 2010. As I mentioned earlier, the Bank’s monetary policy objective is to achieve price stability, as defined by a sustainable, low and predictable level of inflation. This objective is set as a medium-term inflation objective range of 3–6 percent. In order to attain price stability within this parameter, the Bank uses interest rates and open market operations to affect demand and supply conditions in the economy and ultimately the rate of price changes. You will know that low inflation contributes towards the broader national objective of sustainable economic growth by making saving attractive and investment return predictable, while fostering international competitiveness of domestic producers. In addition, maintaining the purchasing power of money by controlling inflation contributes to the welfare of all economic agents, particularly households. Apart from interest rates and credit availability, domestic demand and economic activity are also influenced by other factors, especially fiscal policy as well as trade and exchange rate developments. Excessive domestic demand in relation to available goods and services contributes to inflationary pressures; so too do foreign inflation, changes in administered prices (such as government levies and utility tariffs) and public expectations about the future level and direction of inflation. In its application, however, monetary policy responds to a sustained deviation of the inflation forecast from the objective range in the medium-term. The Bank’s responses are based on an assessment of the factors that impact on inflation, including public expectations which could, in turn, be influenced by monetary policy. For example, interest rates would be increased to pre-empt a potential rise in inflation and the consequent erosion of incomes and financial savings. Conversely, the Bank would reduce interest rates in the event of sustained low or rapidly falling inflation. In particular, the Bank’s reactions are informed by the performance of the economy in relation to potential output. A sustained level of economic performance above a production trend or potential tends to be inflationary and could suggest the need to raise interest rates to dampen inflationary pressures, while economic performance below output trend could require a reduction of interest rates to stimulate economic activity. However, this policy response is not mechanical; it takes account of expert judgement and supplementary analysis in order to accommodate other factors that may not be fully incorporated in the forecasting model. At the regular meetings of the Monetary Policy Committee, economic developments and key indicators of the inflation outlook are monitored and reviewed, so that a timely policy response can be taken, if necessary. After each Committee meeting, the decisions, the reasons for those decisions and the inflation outlook are disseminated to the public through press releases. This approach helps to influence inflation expectations and contributes towards fostering policy credibility, which is critical in achieving long-term price stability. Distinguished Ladies & Gentlemen: It will come as no surprise to you that this year’s Monetary Policy Statement is launched in a substantially different global and domestic macroeconomic environment than was the case last year. Twelve months ago, I had little good news to report. We had foreseen a difficult 2009 due to the unfolding global economic downturn. Botswana’s diamond mines had temporarily halted production as the full force of the global recession descended on the country. A substantial portion of my remarks at the time was devoted to assessing the impact of the crisis on the domestic economy. We saw no end to the economic recession, as forecasts for global growth were repeatedly revised downwards. As the year progressed, diamond exports had slowed to a trickle, and impacted negatively on government revenue, the Balance of Payments and the foreign exchange reserves. In the circumstances, work on the tenth National Development Plan had to be postponed so that the budget could be re-worked to ensure the maintenance of long-term fiscal sustainability. That was then. As we meet today, the picture is considerably more positive, despite uncertainties and challenges posed by the fragile economic recovery in many parts of the world, particularly in Portugal, Ireland, Italy, Greece and Spain (the so called PIIGS). The International Monetary Fund has forecast global output to expand by 3.9 percent this year. This performance reflects the resilience of key emerging economies, and the impact of the stimulus packages that were implemented in most advanced economies. In fact, the challenge for monetary policy makers in major industrial countries is to design and implement a proper winding down of the stimulus packages that have supported economic recovery, while avoiding generating inflationary pressures. This process will need to be gradual and internationally coordinated within a transparent framework. Be that as it may, it is recognised that low interest rates and large budget deficits are likely to be maintained during the course of 2010 and beyond. This policy posture is intended to sustain economic recovery that remains sluggish and fragile; it will also help to reduce the risk of the so-called “double dip” recession. Besides the improved world economic growth, global inflation decreased from 6.3 percent in 2008 to 2.7 percent in 2009. In the four SDR countries – United States of America, Euro zone, Japan and United Kingdom – average inflation was zero. Low inflation was due to a fall in international commodity prices and subdued demand. The resulting low capacity utilisation and high unemployment exerted downward pressure on wages and other prices. In other instances, some developed economies, such as Japan, a fall in prices or deflation is once more a matter of major policy concern. The overall trade-weighted average inflation of Botswana’s trading partner countries slowed down from 6.1 percent in 2008 to 4.4 percent in December 2009. In South Africa, inflation decreased from 9.5 percent in 2008, and ended 2009 at 6.3 percent, just outside the country’s medium term target range of 3–6 percent. Here at home, inflation progressively fell in 2009 and was within the 3–6 percent objective range by the middle of the year. In fact, largely due to base effects of earlier price shocks, inflation reached 5 percent in November 2009, the lowest in decades. Thereafter, inflation rose largely due to the winding down of the favourable base effects arising from previous fuel price reductions. By the end of the year, inflation had risen to 5.8 percent, down from 13.7 percent in December 2008, before increasing further to 6.1 percent last month. Both measures of core inflation (the 16 percent trimmed mean measure and the one derived when administered prices are excluded) showed similar sharp declines during 2009; this was additional evidence of the generalised easing of inflationary pressures. Due to the impact of the global slowdown on demand for diamonds and other minerals, the lower mining production in the first three quarters of 2009 resulted in overall output decreasing by 6.7 percent. In contrast, non-mining output rose by 12.4 percent, reflecting the support extended by the Government’s spending programme, which also contributed to some recovery in business confidence last year. However, as indicated by significantly low growth rates of commercial bank credit, demand remained subdued for both businesses and households. Households were also affected by generally low wage increases, and a salary freeze for civil servants. Although the annual growth rate of government expenditure slowed significantly in 2009, it was still higher than initially budgeted. As highlighted in the recent Budget Speech, government expenditure for fiscal year 2009/10 is projected to grow by 15.5 percent compared to the original budget growth rate of 5.3 percent, which to a large extent, reflected the impact of the sizeable supplementary budget that was approved in December 2009. In order to ease expenditure constraints and finance the larger budget deficit for the fiscal year 2009/10 that is projected at P13.5 billion or 15.1 percent of GDP, the Government borrowed from the African Development Bank and World Bank. A further deficit of a similar magnitude – P12.1 billion or 12.2 percent of GDP – is forecast for the fiscal year 2010/11, and the Government’s objective of restoring fiscal balance, through a combination of robust revenue growth and rigorous expenditure control, is expected in 2012/13. Honoured Guests: I wish to emphasise that, while the large deficits in the current economic environment has been appropriate unavoidable and, to a certain extent, affordable, it is essential that the fiscal consolidation required for long-term budget sustainability is achieved going forward. It is urgent that there is increased vigilance in all aspects of macroeconomic management including policy reforms, in order to energise the country’s performance in a competitive global environment. This has been underscored by the sovereign credit rating agencies when they recently announced Botswana’s relatively intact sovereign credit ratings for 2009 of “A minus” for Standard and Poor’s and “A” for Moody’s Investors Service. More importantly, despite the marginal downward revision by Standard and Poor’s, Botswana’s ratings remain firmly in the Investment Grade, and are still the highest in Africa. It was, however, against the background of lacklustre economic fundamentals that monetary policy was conducted in 2009. In light of the positive inflation outlook and low inflation, the Bank loosened monetary policy throughout the year. The Bank Rate was reduced on five occasions by a cumulative 5 percentage points to 10 percent, and commercial bank lending rates were correspondingly reduced. This policy stance complemented the economic stimulus provided by the Government’s expansionary fiscal policy. Looking ahead, the global economic outlook is projected to improve significantly as more economies continue to emerge from recession. However, as mentioned earlier, economic recovery in developed economies is slow and, in most cases, fragile, while concerns about the build-up of government debt are growing. Furthermore, high unemployment and low growth in household incomes will contribute to weak demand. In the circumstances, global inflationary pressures are expected to remain low. However, there are risks to the inflation outlook due to uncertainty about international oil and commodity prices that tend to accompany an economic recovery. For this reason, global inflation is forecast to increase from 2.7 percent in 2009 to 3.8 percent in 2010, while inflation in SDR countries is expected to increase from zero in 2009 to 1.5 percent this year. In contrast, South Africa’s headline inflation is forecast to fall from 6.3 percent in 2009 to 5.8 percent this year, in which case it will move towards the inflation target range of 3–6 percent. In Botswana, expectations are that the exchange rate influence on import prices will be minimal. The Bank’s inflation objective range of 3–6 percent is very close to the forecast trading partner countries’ inflation range of 3–5 percent. This means that the downward crawl of the nominal effective exchange rate that is required for maintaining a competitive real effective exchange rate should be small in 2010. Overall, the effect of imported inflation on domestic inflation transmitted through foreign price increases is also expected to be minimal. Although the domestic economy is expected to grow in 2010, total output is projected to remain below trend in the medium-term, due to the lingering effects of the global recession and the planned cuts in government expenditure. In addition, growth in household disposable income and, consequently, demand for domestic goods and services, is likely to be sluggish due to the continuing wage freeze for civil servants, the planned increase in value added tax, other government levies and utility tariffs. Moreover, the improvement in business confidence that may have taken place so far due to the increase in government spending, could be dampened by the planned expenditure cuts. So far, on the basis of available information, inflation will rise modestly in the short-term, largely as a result of the increase in value added tax, but it will subsequently stabilise around the Bank’s medium-term objective range of 3–6 percent next year. Therefore, Honourable Ministers, Distinguished Ladies & Gentlemen, the outlook for inflation and output suggests a largely neutral monetary policy stance in the medium term. With prospects for low and stable inflation, and in an environment in which the Government’s contribution to economic activity is constrained by limited revenue, it is of paramount importance that coordinated and complementary monetary and fiscal policies remain the order of the day, in the best interest of sustainable economic growth. It should be pointed out that the projected short-term increase in inflation implies a need to keep inflationary expectations in check. Needless to add, uncertainties cannot be ruled out. Accordingly, therefore, as events unfold during the course of the year, the Bank will respond appropriately and timely to attain price stability and to ensure that inflation remains within the medium-term objective range of 3–6 percent, without undermining sustainable economic growth. Distinguished Guests, Ladies & Gentlemen: This concludes my Statement, and I thank you for your attention. Please enjoy the rest of the evening.	bank of botswana	2,010	4
Keynote address by Mrs Linah K Mohohlo, Governor of the Bank of Botswana, at the Botswana Institute of Accountants 6th Biennial International Conference, Gabarone, 3 June 2010.	Linah K Mohohlo: Governance beyond the financial crisis Keynote address by Mrs Linah K Mohohlo, Governor of the Bank of Botswana, at the Botswana Institute of Accountants 6th Biennial International Conference, Gabarone, 3 June 2010. * * * President of the Botswana Institute of Accountants, Mr Dixon-Warren, Deputy President of the Institute of Chartered Accountants, England & Wales, Mr Parrit CEO of the Eastern, Central and Southern African Federation of Accountants, Mr Ncube, Chief Executive Officer, BIA, Mr Majinda Heads of Private and Parastatal Organisations, Distinguished Men & Women of the Accounting Fraternity, Ladies and Gentlemen I wish to thank the Botswana Institute of Accountants for the honour bestowed on me as I officiate at the opening of this 6th Biennial International Conference. I extend a warm welcome to all the guests and delegates and, for those from places afar, I implore you to feel at home in the City of Gaborone. I am informed that this Conference coincides with the 20th Anniversary of the Institute, which will be celebrated tomorrow. Allow me, therefore, to take this opportunity to congratulate the Institute for almost coming of age at 20. You need not be reminded that with the maturity that goes with a two decade lifespan, comes increased responsibility for the greater good of all concerned and for the country. As I share some thoughts with you on the Conference theme of “Governance beyond the Financial Crisis”, I will highlight the importance of good governance, using as a backdrop, the recent experience of the global financial crisis, which was a prelude to the economic recession from which the world is cautiously recovering. I will point to the lessons derived from the crises and highlight some remedial reforms, and the expected role of the accounting profession in this endeavour. I will then make reference to the governance framework that has continued to stand the country in good stead. Before I delve into the conference theme, I wish to hazard some notable observations about the accountancy profession. As you are aware, accountants can be the butt of many a joke and often disparagingly referred to as “bean counters” or “number crunchers”. In my view, which I believe is shared by many, accountants are a lot more than that. Accounting professionals are increasingly taking on responsibilities beyond their traditional role. As technology continues to make accounting procedures more efficient, these responsibilities include line management, business strategy, workplace productivity, revenue and profit maximization, and related others. This means accountants need a far wider set of skills. This evolution comes as demand for professionals with broad based business skills and industry knowledge is rising. On top of this, interpersonal and communication skills are becoming a key advantage as businesses rely more on interdepartmental cooperation that involves all business competencies to be strategically aligned to maximise output. In many instances, an accountant has to manage these processes with senior and middle management. Therefore, although the appointment of an accounting professional is possibly the single most important decision towards ensuring business sustainability, increasingly, recruitment agencies tend to look beyond accounting qualifications. Those who have invested in their careers, developed critical business, communication and strategic skills, will stand tall in what is becoming a highly competitive environment. Accountants can no longer be grey people who remain behind closed doors lacking in social skills. They are going to have to be seen and heard as they earn their keep along with professionals of other disciplines. Distinguished Ladies and Gentlemen, The theme of the Conference – Governance beyond the Financial Crisis – is timely since most countries, Botswana included, are recovering from the effects of the global financial crisis, which precipitated the deepest recession in a generation. The theme speaks to the need for introspection; more importantly, it calls for exchange of views on the lapses in governance that originated from a few market players, particularly in the US. It is now well known that the first sign of a progressive buildup of gross disregard of the basics of good governance in the US was the asset bubble that was fueled by the virtual absence of risk management and personal financial prudence. There was also lack of transparency, accountability and supervisory oversight standards. It was forgotten that what is legal is not necessarily ethical. The asset bubble gave rise to high commodity prices with consequences for global inflation in the first half of 2008. When the bubble burst, it resulted in the financial collapse of major multinational financial institutions; then came the credit crunch and a crush in share prices; economic recession was upon us; and there was a sharp drop in international trade, that was followed by a deterioration of government finances and job losses. The consequent painful experience has given rise to an opportunity to seek remedies and avoid the possibility of a double dip recession. I am encouraged that the accounting fraternity, which had a fair share of the blame for the recent global financial and economic misery, is also alive to the need for corrective action. I have no doubt that your deliberations at this conference will advance the debate on the role that your noble profession can play in enhancing good governance in the period ahead. Work on the redesign of the global financial architecture and inclusive governance of world affairs is in progress at various fora, including at the World Economic Forum, G20 and at specialised professional bodies such as the Botswana Institute of Accountants. A common theme running through the various efforts that are expected to eventually coalesce is that “Governance beyond the Financial Crisis” should, at a minimum, enhance transparency of institutional functioning at Board and management levels, as well as at operational and technical levels. Furthermore, accountability should be the order of the day and, in particular, the hierarchy of responsibilities and roles of institutional structures should be clearly defined. This arrangement should eventually reinforce checks and balances as part of risk mitigation; it should prevent a potential conflict of interests, while ensuring fulfillment of fiduciary responsibilities and avoiding dereliction of duty. In the end, however, transparency and accountability must be buttressed by a set of institutional values and ethical codes of conduct, such as honesty, selflessness and integrity of the highest order. The importance of this Conference and its theme lie in the fact that they are part of the bigger picture of national and international efforts towards putting in place a new and more robust global financial architecture. I have no doubt that you will share views on how you can become agents of transformation. At national and international levels, each one of you is called upon to meet high standards of technical competence. You are called upon to adhere to strict and uncompromising ethical standards, adopt a broad institutional and/or corporate perspective in your work, advise on policy and operational issues, and play custodial and trusteeship roles that demand moral courage. You are challenged to be world class technical experts in financial analysis and to communicate your findings and their implications. You are also challenged to keep abreast with changes in your profession, such as the international accounting and financial reporting standards, and advise your principals in a timely manner. The benchmarks for excellence in all these areas are set by international technical standards and evolving best practices. Of all the professions, yours is no stranger to the need for lifelong learning as you update your professional skills. You are more keenly aware than most of yesterday’s expertise and knowledge is today’s ignorance. Going forward, you are called upon to get more involved in cross-cutting issues of good governance and economic development. Distinguished Ladies and Gentlemen; Now that I have dwelt on the desirability and virtues of good governance, and the expanded role of the accounting profession in strengthening good governance, let’s examine how the domestic governance framework benefited the country and the domestic banking sector generally at the time of the global recession. Without fear of being contradicted, I can confirm that the domestic banking system escaped the first round of the direct adverse effects on asset quality at the time of the international financial crisis. The reason for this can be found in the robustness of the regulatory and supervisory framework. For instance, Board and senior management of banks are vetted before appointment, and care is taken to ensure that appropriate decision-making structures and related committees are in place, including adequate risk management and mitigation strategies. The regulatory framework also ensures that lending practices are devoid of conflict of interests; and consultations are undertaken with external auditors in a bid to ascertain operational and financial propriety. Without the rigorous enforcement of strict regulatory requirements, the banking sector would have been saddled with unbearable problems of, among others, nonperforming assets. The less-than-severe impact of the global recession on the country’s economy vindicated the importance of good economic and financial governance over the years. Without the careful and prudent budgetary and overall management of the country’s resources, it would not have been possible to implement the fiscal stimulus that moderated the severity of job losses. Over time, Botswana has been able to avoid the so-called “resource-curse”; this is the inverse relationship between the vastness of resource endowments and a country’s level of socio-economic prosperity. Inflation has, by and large, been relatively low and well managed; thanks to the benign inflationary environment at a global level. Honoured Guests, I conclude by underscoring the importance of the need to redouble efforts in strengthening the existing governance infrastructure and redressing the inadequacies. History must not be allowed to repeat itself so far as the ravages of the financial and economic crises are concerned. Needless to add, the accounting profession has a lot to offer in this endeavour. Indeed government entities and the corporate world need accounting skills more and more each passing day. I have no doubt that you will respond with added enthusiasm and renewed sense of duty. It is now my honour to declare the 6th Biennial International Conference of the Botswana Institute of Accountants officially open. I wish you fruitful deliberations, and I thank you for your attention.	bank of botswana	2,010	7
Speech by Ms Linah K Mohohlo, Governor of the Bank of Botswana, to the Association of Certified Chartered Accountants, Gaborone, 17 September 2010.	Linah K Mohohlo: Post-recession role of accountants in business Speech by Ms Linah K Mohohlo, Governor of the Bank of Botswana, to the Association of Certified Chartered Accountants, Gaborone, 17 September 2010. * * * I would like to begin by thanking the Country Manager of Botswana’s Association of Certified Chartered Accountants, Ms Gwen Sabarwal, for inviting me to be a part of the Association’s Gala Dinner for 2010. I am informed that it is the Association’s tradition on this occasion to invite a notable person in the community to speak on some issue of topical interest. It humbles me, therefore, that I have been considered worthy of the platform for this year’s event. You will agree that this time round, for me, any topical issue is bound to be coloured by, and related to, the recent global financial meltdown and related deepest economic recession since the great depression of the 1930s. The causes of the difficult economic episode are now common knowledge, with sources from private and public sectors at individual and collective levels, in areas of public policy, corporate strategy and business operations. In other words, all professions, including accountancy, contributed directly or indirectly to the economic meltdown. Now, everyone is looking through the rear view mirror while at the same time focussing on the road ahead. Before delving more on the issues, I would like to commend your Association (Ms Sabarwal) for the commitment to training accountants in Botswana over the years. It is encouraging to learn that, since 1990, two years following the enactment of the relevant legislation, the membership of the Association of Certified Chartered Accountants in Botswana has grown to more than 350, and the student in-take has continued to increase. It is also encouraging to observe that the more than 96 percent membership retention level you have so far achieved is fairly comparable internationally. This should provide confidence that you will reach your 2010/2011 retention target of 98 percent with relative ease. However, I happen to know that there is a big deficit in the supply of accountants in Botswana. Apparently the demand in the market is about 3 000, while the supply is just over 1 000, the lion’s share of which are expatriates. I have no doubt that your Association shares this concern, given the fact that the shortage of professionals in accounting and related disciplines can only raise costs and, therefore, be unaffordable for many small and medium size enterprises. It could constrain business performance and deprive the economy generally of needed guidance in business governance, ethics, strategy and planning, with possible adverse consequences on sustenance of economic diversification and a relatively high growth rate for the economy. It is my hope, therefore, that steps will be taken to redress the situation, and this could include deliberate public policy intervention. Distinguished Ladies and Gentlemen, the theme I was requested to address is Accountants for Business. I believe this broad theme is currently guiding your exchange of views in your profession and, as a matter of fact, it will be addressed further at the World Congress of Accountants that is tenable in Malaysia next month. For this evening, I have chosen to put a slant to the topic and speak on The Post-Recession Role of Accountants in Business. In this case, the word “business” is broadly and loosely intended to mean institutions (corporate or non-corporate, private or public) that are engaged in production of goods and/or services. Although the global economic recession, from which we are slowly emerging, was, by and large, the result of a wide-ranging systems failure, I will confine my remarks to some of the lapses of the accounting profession that contributed to the economic meltdown. I will also highlight some lessons learned and some on-going remedial measures that should prevent a recurrence. I will then raise the issue of the need to increase the supply and quality of accountants in Botswana and urge you to be actively engaged in the area of accounting principles and reporting. This will be my main message, but at the end of my remarks, I will digress only a little and share with you some issues of public interest that fall within the purview of the mandate of the Bank, and in which accountants are undoubtedly interested. It is now clear that the financial crisis and economic recession were the result of cumulative lapses in good corporate governance, particularly with respect to transparency in management, policy formulation and operational procedures. This includes a clear hierarchy of institutional structures such as boards, management and stakeholders, with well defined functional responsibilities to ensure accountability in organisations. There were lapses in enforcing checks and balances, prevention of conflicts of interest and adherence to fiduciary responsibility. Above all, in many instances, there was a lack of honesty, selflessness, integrity, openness, ethical conduct and responsible corporate citizenry. By and large, accountants and other professionals at various levels of responsibility, and in a good number of financial and non-financial businesses, disregarded these cardinal guiding principles of good corporate governance and conveniently forgot that what is legal is not necessarily ethical. In the end, the financial and economic structure could not bear the weight of accumulated lapses; so, it collapsed. While all this is now water under the bridge, it has been recognised in some quarters that the International Accounting Standards contributed more than their fair share to the financial crisis. It is pointed out that one new standard abandoned the traditional prudent principle of historical asset valuation and replaced it with a highly subjective and pro-cyclical “fair value” concept. As a result, brokers, analysts and investment bankers abused the standard. The upward movement of stock prices immediately inflated balance sheets which, in turn, further inflated the asset price and, when the economic downturn set in, the bubble eventually burst. It was known that the paper profits resulting from inflated asset book values could not be realised; and yet banks and other non-bank institutions took inordinate debt issuance risks. In addition, the “fair-value” principle was not much understood by the market, and was not transparent. In the event, balance sheets were hardly a useful basis for decision-making by economic agents. The far reaching economic and social consequences of this accounting practice are now a matter of record. Distinguished Ladies and Gentlemen, it has been said that war is too serious a business to be left to the generals only. Likewise, it is now widely recognised that accounting is too important a profession to be left to accountants only. Indeed the United States of America and the European Union recently took measures to “soften” or dilute, as it were, the deleterious effects of “fair-value” accounting practice in financial institutions. Another emerging change is the call for more disclosures in accounting standards with which those of us outside the profession are grappling, obviously with the helping hand of accountants. Long gone are the days when accountants confined themselves to the boring ivory tower of “number crunching” or, as at times pejoratively referred to, “bean counting”. In fact, it has been said that accounting has now entered a golden age; an age of the changing role of the accountant; an age of wide-ranging roles that include professional business advice, planning, reporting, identification of value drivers and risk mitigation. In particular, it is increasingly desirable that the International Accounting Standards should incorporate disclosures of payments to governments by companies in the extraction of natural resources, especially those in the oil, gas and timber sectors. This needs to be done in both the public and private sectors to ensure that maximum revenue and other benefits accrue to the societies in which these companies operate. More generally, the accounting profession has cross-cutting socio-economic responsibility in a variety of ways including governance, business ethics, banking regulations and supervision, as well as financial stability. In this respect, climate change and its effects have opened up new horizons in which accountants can be involved in a wide range of socio-economic issues. It is my hope that accountants from developing countries will take the lead in putting in place the necessary accounting and reporting standards on costing and financing of the mitigation of adverse socio-economic effects of climate change. These were agreed on at last year’s United Nations Climate Change Conference in Copenhagen. You will agree that this is a multidisciplinary area which, I believe, will involve close consultations between your profession as accountants and other disciplines. Here at home, the Financial Reporting Bill that was passed by Parliament recently, and awaiting Presidential approval, will contribute considerably in widening the scope for the responsibilities of the accounting profession. Similarly, when the Botswana Accounting Oversight Authority is put in place, it should strengthen the professional accountability and ethical conduct of accountants. As a related matter, Ladies and Gentlemen, you will know that, in a bid to circumvent a possible repeat of the recent financial crisis, the Basel Committee on Banking Supervision reached a landmark decision on September 12, 2010. This is known as Basel III, and it translates into a more than doubling of the common equity component of capital for global banks, from the current 2 percent to 4.5 percent, plus a new buffer of a further 2.5 percent, to reach a floor of 7 percent. The effective implementation of this new capital adequacy requirement is the period 2013–2019, and it is meant to make banks resilient to financial shocks and ensure a more healthy banking sector worldwide. Any bank capital falling within the buffer zone will face restrictions on paying dividends and discretionary bonuses. We await more of these proclamations and transformations going forward as the Basel Committee on Banking Supervision continues to be hard at work. As a matter of fact, the Basel Committee is catching up with Botswana’s regulatory framework on this matter. It should be of interest that the Bank of Botswana has, for more than 10 years now, insisted that domestic banks should maintain a capital adequacy ratio of 15 percent, which is more than double the new Basel Committee’s minimum requirement. It should not come as a surprise, therefore, that, throughout the financial crisis, the domestic banking sector remained well capitalised, sound and profitable. While on the subject of the domestic banking sector, let me digress a bit into an example of the Bank of Botswana’s accountability to stakeholders on delivery of all its mandates, which include monetary policy, the objective of which is to maintain low, predictable and sustainable level of inflation. In meeting the inflation objective the Bank absorbs the banking system’s excess funds by issuing Bank of Botswana Certificates, thus containing undesirable credit growth and determining the appropriate level of the Bank Rate. There is no doubt that not issuing central bank paper in the form of Bank of Botswana Certificates to absorb excess liquidity in the banking system would be inflationary and destabilising to the economy. And yet there is a view in some quarters that the cost of absorbing excess liquidity is too high, and banks would do the right thing if left to themselves; that somehow, the Bank is enriching commercial banks. The Bank of course disagrees with these views. In fact, the “leave-banksand-their-excess-funds-alone” view runs counter to experience world-wide. On the contrary, banks cannot be left to accumulate excess money and be expected to do the right thing. In fact, it would be the height of irresponsibility if the Bank were not to intervene in the face of the continuing excess liquidity that is exclusively in the banking system. Indeed accountants, such as yourselves, would be concerned about unhealthy balance sheets resulting from, among others, the vagaries of what would no doubt be runaway inflation, as was the case for several years before BoBCs were introduced in 1991. With respect to the Banks’ responsibility of reigning in inflation by managing banking system liquidity and credit expansion, there is the related need for banks to encourage financial saving. It is well known that bank lending and investment which are a basis for the country’s development cannot increase without attracting a faster rate of accumulating savings. The Bank is concerned that household voluntary savings rates are low, while borrowing levels are high compared to countries at a similar level of development. Commercial banks must, therefore, seriously consider developing savings products that offer attractive deposit interest rates, in their own long-term interest, rather than concentrating on short-term gains by maintaining wide spreads between lending and deposit interest rates and, at the same time, charging exorbitantly for the services rendered. Rest assured, this and other related matters are receiving the Bank’s active attention. Distinguished Ladies and Gentlemen, we await the next course of the meal to be served, and I do not want to frustrate your appetite further. This, therefore, concludes my submissions. Please accept my best wishes for a pleasant and relaxing evening. I thank you for your attention.	bank of botswana	2,010	9
Acceptance remarks by Ms Linah K Mohohlo, Governor of the Bank of Botswana, for the OMFIF (Official Monetary and Financial Institutions Forum) "Lifetime Achievement Award", Pretoria, 23 August 2011.	Linah K Mohohlo: Economic understanding and integration, plus transparency and discipline in economic policy Acceptance remarks by Ms Linah K Mohohlo, Governor of the Bank of Botswana, for the OMFIF (Official Monetary and Financial Institutions Forum) “Lifetime Achievement Award”, Pretoria, 23 August 2011. * * * It is an honour and privilege to receive the Lifetime Achievement Award from the Official Monetary and Financial Institutions Forum. You will agree that what we think of ourselves may be important, but it is encouraging when observers’ thoughts of ourselves are positive. In the circumstances, I am humbled by the generous gesture of the Forum, an organisation which has now attained international stature and influence in advancing the cause of prudential management of international finance. I accept the Award with humility. I accept it on my own behalf and on behalf of colleagues at the Bank of Botswana and counterparts elsewhere; because without their support over the years, this Award would not have been within reach. I would like to take this opportunity to say a few words on the two broad areas contained in the Award citation: first, the importance of supporting “economic understanding and Integration”; second, the importance of “transparency and discipline in economic policy”. With respect to economic integration, its potential benefits are obvious. Integration enables a pooling of resources to improve infrastructure, to facilitate the movement of people, goods and services, to align regulations, and to create opportunities and incentives for investors, all of which together, accelerate economic development. This has been demonstrated by the single European market, the current problems of the euro zone notwithstanding, and there is no reason why economic integration cannot also benefit Africa. However, enthusiasm for integration, especially at the political level, has not always been accompanied by the necessary understanding of demands and sacrifices. This includes difficult political decisions and economic trade-offs in establishing mechanisms for effective alignment of national economic ambitions with common objectives. Indeed, the current European experience provides a salutary warning; the ongoing efforts to save the viability of the euro is a reminder that enthusiasm for a political agenda can obscure key economic issues. We should be grateful, therefore, that in the face of pressure to accelerate Africa’s integration process, some enlightened minds have advised caution, taking the view that good intentions are not enough. Agreements on an ambitious timetable for milestone events, such as the formal establishment of some additional pan-African institutions, are no substitute for adequately addressing the imperatives of economic integration. Similarly, there can be no dispute as to the importance of transparency and discipline in economic policy. It is noteworthy that lack of transparency in key areas contributed to the recent global financial crisis. Thanks to discernible improvements in economic governance and policy making in some parts of the continent, some African economies were generally resilient during the economic recession. Be that as it may, the pursuit of sound policies remains a challenge due, in part, to the difficult international environment and adverse weather conditions. As for my country Botswana, you will know that its rapid economic transformation from a poor undeveloped country, dependent on cattle farming, subsistence agriculture and migrant workers’ remittances, to a middle-income economy, is itself the result of a consistent commitment to transparency and discipline in economic policy. The discovery of diamond BIS central bankers’ speeches deposits, immediately following independence from Great Britain, clearly played a pivotal role in the transformation, but the role of minerals is only part of the story. As history has repeatedly shown, no matter how rich the endowment, natural resources cannot, on their own, develop a country in the absence of appropriate and effective institutions. Nor should it be forgotten that Botswana’s commitment to prudent macroeconomic policies covered not only the years of diamond-generated budgetary and balance of payments surpluses; it was maintained during difficult times, which include the early years of independence and, more recently, the global financial crisis and economic recession. While the strength of Botswana’s economic performance has been widely recognised, there can be no room for complacency if this success is to be sustained. After all, the global economic recovery is still weak, uncertainties abound, and Botswana remains exposed to the vagaries of commodity markets. In such an environment, it is imperative not only to maintain macroeconomic stability, but also to take further steps to improve the business environment so that more non-mining businesses can be attracted and can ultimately flourish. Up to this point, the country has emerged from the economic recession in not-so-bad a shape, and its sovereign credit ratings are so far largely unchanged. That said, there is nothing miraculous about Botswana’s economic performance. In fact, other African countries have increasingly been able to adopt similar, if not better, macroeconomic policies, and the benefits are self-evident. As far as my employer, the Bank of Botswana, is concerned, it has continued to contribute to the country’s economic development since its founding in 1975, by seeking to align fiscal, monetary and exchange rate policies. This is facilitated by regular consultations between the Government and the Bank, accompanied by operational and policy transparency through, among other avenues, periodic economic briefings. When I joined the Bank shortly after its establishment, I did not envisage that, 23 years later in 1999, I would head it as Governor and Board Chairman. Nor did I know that during my tenure, I would be involved in what I consider a professionally fulfilling wide range of activities at regional and international levels. Over time, I have learned the importance of the Bank continuously adapting to evolving circumstances. Indeed, the Bank is much changed from when it was first established. While still operating under broadly the same mandate of promoting monetary stability and maintaining a sound financial system, the governing legislation has been subject to a number of reviews; and there have been several reorganisations to accommodate the evolving nature of responsibilities. Monetary policy implementation is now benchmarked against international practice, and the policies and guidelines for managing the foreign exchange reserves are regularly revisited. Banking regulation and supervision are increasingly risk based and, accordingly, financial stability has also assumed centre stage. In all these endeavours, I counted and continue to rely on the support of structures at home and abroad; this includes colleagues, counterparts and bilateral establishments, such as the Official Monetary and Financial Institutions Forum. Director of Ceremonies, Chairman of the OMFIF Advisory Board, Co-Chairpersons of OMFIF, the Forum’s Award Jury, fellow Governors, Distinguished Ladies and Gentlemen, I end by reiterating my eternal gratitude for the generous acknowledgement of my work, as evidenced by the conferment on me of the Official Monetary and Financial Institutions Forum’s Lifetime Achievement Award. I embrace it. Thank you for your attention. BIS central bankers’ speeches	bank of botswana	2,011	8
Remarks by Ms Linah K Mohohlo, Governor of the Bank of Botswana, at the National Launch of the World Economic Forum 2011/12 Global Competitiveness Report, Gaborone, 7 September 2011.	Linah K Mohohlo: The World Economic Forum 2011/12 Global Competitiveness Report Remarks by Ms Linah K Mohohlo, Governor of the Bank of Botswana, at the National Launch of the World Economic Forum 2011/12 Global Competitiveness Report, Gaborone, 7 September 2011. * * * It is an honour and privilege for me to be an integral part of the launch of the Global Competitiveness Report for the period 2011/12, as compiled by the World Economic Forum (WEF), in cooperation with national stakeholders. For Botswana, the launch is spearheaded by the Botswana National Productivity Centre (BNPC), which has the responsibility not only for conducting the Executive Opinion Survey that provides much of the data, but also for organising the national launch, more or less in tandem with global launches. I would like to take this opportunity to commend the BNPC, for successfully hosting this annual event for several years. As a matter of fact, on this occasion, BNPC has broadened the scope of activities by convening a workshop. Distinguished Ladies and Gentlemen: You will know that Botswana is cited as one of the most competitive economies in Africa, but, as I will outline shortly, this year’s Report makes sobering reading, given the worrying indications that previous advantages continue to be eroded as we are failing to make headway in key areas on which future economic development will increasingly depend. The theme for this year’s Global Competitiveness Report is “Setting the Foundation for Strong Productivity”. I consider this is a timely theme at a time when future prospects for the world economy appear increasingly uncertain. This is reflected in major challenges facing policy makers, as economic conditions have deteriorated in recent months. Although these conditions differ widely across regional and national economies as circumstances vary, I believe the Report is right to stress the need for policy makers not to lose sight of the longterm fundamentals that underpin successful economic development, even in the face of a myriad of shorter term political pressures. For this reason, the emphasis on productivity, as the foundation of sustainable economic growth prosperity, is to be welcomed. The World Economic Forum can itself be regarded as a case study of the benefits of productivity, not measured merely in terms of effort and hard work, but also in terms of its effective deployment of resources to meet the ever changing requirements of its growing number of clients. The Forum is of special professional interest to me, as I have been privileged to work closely with it for a good number of years, including presiding over some of its major proceedings. I can, therefore, attest to its evolution; and here follows a snapshot of it. The World Economic Forum was established in 1971 in Switzerland. It initially focused on the needs of European business leaders, but it now has a truly global outreach, encompassing both the private and public sectors in more than 140 countries. The Forum has encouraged pursuit of appropriate economic, fiscal, trade and social policies by bringing together major corporate and political leaders, NGOs, multilateral financial institutions and social observers. The Forum’s annual meeting, that takes place in Davos (Switzerland) is, of course, the most well-known and well attended gathering; the regional meetings also have increasingly high profiles. Furthermore, the Forum facilitates policy discussions through a wide-ranging research programme that includes reports and surveys covering a variety of topical issues such as economic growth, environment, finance, technology, health and social development. Among these, the Global Competitiveness Report is the best known, having been first published in 1979, at which time there was a coverage of only 16 countries. This has successfully given birth to a growing family of related reports that focus on specific regions, sectors and issues. BIS central bankers’ speeches The objective of these reports is to provide a benchmarking tool for policy-makers and business leaders, and the principal means of doing this is through rankings of participating countries according to a range of relevant criteria, which are aggregated into an overall index. In this case, the Global Competitive Index (GCI) looks at a wide range of factors that contribute to performance of key pillars. The pillars are institutional effectiveness, infrastructure, macroeconomic environment, health and education, markets for goods, services and labour, financial development, technology, as well as innovation. Information from the Executive Opinion Survey is supplemented with a range of measurable factors. Similar methodologies are employed in other rankings such as the World Bank’s Ease of Doing Business and in Transparency International’s reports on corruption. There are also similarities with the Human Development Index of the United Nations Development Programme (UNDP). I hasten to stress that these various products, which often overlap in their coverage, should be seen as complementing, rather than competing with, each other. Indeed, in calculating its rankings, the World Economic Forum makes significant use of data collected by the World Bank. I now turn to the overall results of this year’s Report as drawn from the information contained therein. As I highlight my impressions of the main issues, I know you will appreciate that my condensed remarks should not be taken as a substitute for a thorough review of the Report. I, therefore, commend it to you. The Report began to include an Index in 2006, at which point it covered 122 countries, out of which Botswana was ranked 57th. For my purposes this morning, I will use, as my base, the 2008 rankings, when Botswana attained a modest improvement of 56 out of 134 countries. Since then, the story has been one of overall decline, to the extent that, out of 142 countries covered in the 2011/12 Report, Botswana is ranked 80th. Clearly this is not good news, and it is incumbent on all of us to arrest the situation before it degenerates. It is disappointing that we also show signs of slippage among a group of middle income economies that are classified by the World Economic Forum as making transition from resource dependency towards development that is based more on factors related to efficiency and productivity. Due to their similarities, these economies are close competitors in the global export market and in attracting foreign direct investment. They face similar global challenges, and have a similar set of policy tools for addressing economic stabilisation and structural reforms on their path to the next level of development. In this group of 24 countries, Botswana features in the top 10 in less than half of the major categories. I need not remind you that Botswana is currently emerging from an economic downturn that has underscored the need to diversify the economy away from the dominant mining sector. The fact is that we cannot afford any more economic performance slippages. Let me highlight some of the key features of the country’s performance. My first observation is that, despite the dramatic headline fall, it is remarkable that little has changed in the period under review. For half of the 12 pillars covered by the index, movement is less than five positions in either direction in the three-year period to 2011/12, which is of relatively little importance when considering a cumulative fall of 24 places; this is the difference between the 2008/09 overall ranking of 56 and that of 2011/12 (rank 80). We can, however, derive confidence in the strength of Botswana’s “public institutions” and “relative sophistication of the financial sector”, both of which remain ranked in the top 50. At the same time, it is a matter of concern that the country continues to make only slow progress in areas such as “innovation” and “business sophistication”, both of which are expected to be key to meeting future developmental objectives. Furthermore, it should be acknowledged that, even when the changes have been significant, they are not all negative. In particular, it is encouraging that there is significant progress in the “goods market efficiency” category, where the rank has improved markedly, from position 93 in 2008 to 68, although it is a deterioration from last year’s rank of 58. This can be seen as a reflection of the early gains from recent initiatives to improve the business climate. Since BIS central bankers’ speeches these reforms remain work-in-progress, we should be able to maintain momentum so that further advances can be anticipated with some degree of confidence. The Report further indicates that the decline in the overall ranking is concentrated in five areas. These are: infrastructure, macroeconomic environment, health and primary education, labour market efficiency, and technological readiness. I have decided to focus on only three of these pillars, in part because the lacklustre rankings are glaring for the three-year period to-date. First, “infrastructure”: the steep decline from 52 in 2008/09 to 92 is worrying, especially at a time when government spending in this particular area has been so extensive. Hopefully, this investment will soon bear fruit when the beneficial externalities of upgraded roads and improved electricity supply unfold. Nevertheless, this serves as a timely reminder of the importance of both investment and adequate provision for maintenance. This includes a contribution by both the public and private sectors, and is especially important if we are to overcome the constraints associated with land-locked economies. Second, “macroeconomic environment”: the decline in the ranking is even more pronounced than that of “infrastructure”, from 22 in 2008/09 to 82. I would, however, suggest that this probably exaggerates any underlying deterioration. I have reason to believe that this assessment is driven largely, if not entirely, by recent trends in the fiscal budget which, as you very well know, has registered substantial deficits in recent years, and this is coupled with an accumulation of public debt. We can take comfort in the fact that the Government has initiated a medium-term programme of fiscal consolidation which, all things equal, should help reverse the deficit. Indeed the relatively small decline from last year’s ranking of 74 indicates that this may already be taking effect. It might further be suggested that the way the index is constructed, using annual data rather than period averages, may make it overly sensitive to short term volatility, which is not, in itself, necessarily a sign of deterioration. However, the 2008/09 high ranking of 22 is unlikely to be regained while significant public debt remains outstanding. Indeed the country’s sovereign credit ratings have been experiencing downward pressure for more or less similar reasons, as they can no longer rely on the strength of the government balance sheet. Third, “technological readiness”: the current ranking of 101 compares with 89 of three years ago, which was itself a deterioration from the 2007/08 rank of 71. The slower rate of decline from last year’s 99 (to 101) is clearly related to the importance of internet access and usage, where the country has been lagging behind. The importance of usage cannot be overemphasized; after all, the Government has recently made a significant investment in improving available internet bandwidth, but this has yet to be translated into widespread uptake, especially among households. Finding ways to effectively bridge the digital divide is increasingly recognised as having potential for improving opportunities for low income households. In addition, this is an area which is extremely dynamic and improved rankings can only be maintained by a business environment that facilitates continuous improvement. The rest of the decline in the country’s overall competitiveness is accounted for by the very low and deteriorating rankings in “health and education”, at 112 in 2008/09 and now 120. I will not comment further on this aspect of the rankings, not because I do not attach importance to these issues, but because they are so important as to merit a separate analysis. Distinguished guests: As I approach the end of my remarks, I submit that, overall, the World Economic Forum’s 2011/12 Global Competitiveness Report features large movements in a few categories, and these movements can be associated with specific circumstances at a given point in time and, in some instances, there may already be indications of future improvements. To this end, the headline movement of the overall index could be seen as exaggerated. But I should stress that this should not be taken as an excuse for continued complacency. As it will become clear in the more detailed presentations, the overall assessment portrays a situation characterised by drift and little change. BIS central bankers’ speeches Similar sentiments have emerged from other reports, such as those of the World Bank and more detailed sectoral reviews undertaken by the World Economic Forum. A case can be made that Botswana’s policy tools have become either blunt or outdated or both, compared to those of other countries in its league. For an open economy such as that of Botswana, benchmarking performance against peer countries is an unavoidable imperative. Indeed it must be recognised that increased dynamism of many of these peer countries risks leaving Botswana behind as it may not be easy to catch up. It is, therefore, encouraging that several initiatives are in place to improve the country’s competitiveness going forward. The implementation of the Competition Law that was passed in 2009 and the formation of the Competition Commission will discourage complacency in the private sector. There are also complementary efforts of the Human Resource Development Council and the Labour Market Observatory in improving labour skills. For its part, the Bank of Botswana is reviewing a recent study which proposed further reforms to enhance the efficiency and broaden activities of the financial sector. It is also hoped that the more open and consultative approach, such as that of “Pitso” will result in improvements to respective policies. These developments provide cautious grounds for optimism. But more remains to be done, and this may require the Government to take tough decisions in order to make Botswana genuinely business-friendly. The Global Competitiveness Report also contains a ranking of factors that businesses in each country perceive as most problematic. I have yet to see what this year’s Report has to say on this, but I do not expect any surprises. There is also the question of attitudes, which I have deliberately left unexplored. What I know is that for the last four years at least, the most common concern among Botswana businesses was “poor work ethic in the national labour force”, closely followed, in some cases, by “an inadequately educated workforce”. So it is not hard to see where the main problems lie. But this is not just a matter that affects workers, the education system and policymakers; it is as much a responsibility of supervisors, managers and, ultimately, chief executive officers and corporate boards, to accept that there is a problem, and then set out to redress it. You will readily agree that Government policy can only do so much in such crucial areas. More broadly, I wish to add that a lingering culture of entitlement among businesses, and to some extent individuals too, can further undermine progress. Surely, we can all earn our keep. Directors of Ceremonies, Distinguished Ladies and Gentlemen: This concludes my remarks. It is now my privilege to declare the World Economic Forum’s 2011/12 Global Competitiveness Report duly launched. I wish you fruitful deliberations at the workshop, and thank you most sincerely for your attention. BIS central bankers’ speeches	bank of botswana	2,011	9
Remarks by Ms Linah K Mohohlo, Governor of the Bank of Botswana, at the launch of the Monetary Policy Statement for 2012, Gaborone, 20 February 2012.	Linah K Mohohlo: Botswana’s Monetary Policy Statement for 2012 Remarks by Ms Linah K Mohohlo, Governor of the Bank of Botswana, at the launch of the Monetary Policy Statement for 2012, Gaborone, 20 February 2012. * * * I welcome you to the launch of the Monetary Policy Statement for 2012, which is the 15th in a series since the inaugural launch in 1998. The Monetary Policy Statement and its mid-term review are of central importance to the Bank, as they are a vehicle for conveying to stakeholders all pertinent information relating to the formulation and implementation of monetary policy. Those familiar with the contents of past years’ Statements will recall that they contain analysis of recent and prospective economic developments, here at home and abroad, which enable stakeholders to objectively assess the Bank’s policy stance and how such policy is derived from the framework. It also explains the manner in which monetary policy is conducted. This information helps to foster policy credibility; it also helps to anchor public expectations of the Bank’s commitment to maintaining a low, predictable and sustainable level of inflation. Stakeholders then use the information on inflation expectations and other factors in their saving and investment decisions, the choices which are indispensable for sustainable economic growth. Since saving and investment decisions require medium- to long-term perspectives on a broad range of economic factors that include inflation expectations, and the effect of anti-inflation monetary policy also takes a while, the inflation objectives are expected to be achieved over the medium–term horizon. For this morning’s business, Distinguished Ladies and Gentlemen, I will highlight the key elements of the Monetary Policy Statement for 2012. These are: the monetary policy framework and objectives; inflation trends; and the conduct of monetary policy in 2011. I will also outline the inflation outlook and the monetary policy stance for this year. The details are in the bound copies of the Monetary Policy Statement, which you will receive at the end of the proceedings. As a prelude to outlining the main contents of the Monetary Policy Statement, I believe it is essential to put it in perspective by briefly restating the key functions of the Bank. Although they are subject to periodic review, the statutory objectives remain unchanged. They include ensuring that commercial and other banks, which are under the regulatory and supervisory purview of the Bank, are sound and well managed. After all, they serve as conduits for payments and transmission of monetary policy. It is also the Bank’s business to ensure that the payments system, a part of which is the effective management of the national currency, is efficient and secure. Capacity in this area is continuously enhanced to respond to broader issues of financial stability, which have become important in the current environment of heightened uncertainty over the health of the global financial system. The Bank also provides both banking services and the lender of last resort facility to commercial banks. Similarly, the Bank is banker to the Government, which it also serves as economic and financial advisor. Furthermore, much of the country’s financial assets is managed by the Bank in the form of foreign exchange reserves. The reserves are invested in international financial and capital markets which, as we speak, are in turmoil due, largely, to the sovereign debt crisis in the Euro area. This turbulence is compounded by the consequent downgrading of sovereign credit ratings of a number of industrial countries which, hitherto, enjoyed high investment grade ratings. Despite these developments, I wish to reassure you and other stakeholders that the management of reserves will continue to be guided by the Bank’s well established investment policies and guidelines, as periodically reviewed. In this respect, the level of reserves as of the end of January 2012 was approximately 60 billion Pula (or 8 billion USD), BIS central bankers’ speeches which is equivalent to 18 months of imports, an improvement over last year’s 15 months import cover. Speaking of sovereign credit ratings, Botswana’s ratings, as awarded by the two main international sovereign credit rating agencies, Moody’s Investors Service and Standard & Poor’s, continue to be of the investment grade “A”, and compare favourably with those of other countries in its league. I hasten to add that, despite this good standing, Botswana’s credit ratings remain vulnerable to the vagaries of international financial and capital markets and other global economic factors over which the country has little or no control. On our part, however, it is very important to return to the erstwhile fiscal rectitude and sustainability, enhance productivity and expand the economic base, in order to withstand external shocks. Honoured Guests: I now turn to the subject of Monetary Policy, and wish to suggest that the importance of effectively formulating and implementing monetary policy is well known and self-evident. It goes without saying that a low, predictable and sustainable level of inflation contributes to the attainment of the broader national objective of a stable and sustained economic growth. Price stability also fosters international competitiveness of domestic producers by stabilising the trade-weighted exchange rate (also known as the real effective exchange rate), in conjunction with the crawling of the nominal trade-weighted exchange rate (also referred to as the nominal effective exchange rate). It is gratifying, therefore, that the Bank’s biannual Business Expectations Surveys continue to indicate broad-based support for the inflation objective and the exchange rate regime. In pursuit of price stability, the Bank uses interest rates and open market operations to influence demand and supply conditions in the economy and, ultimately, the rate of price increases. The timing and size of any interest rate change is derived from the monetary policy framework, which incorporates an assessment of prospective domestic and external economic developments that influence price movements. On the basis of the framework, the Bank forecasts inflation in the medium-term; it is this inflation forecast which, in turn, informs the monetary policy response. In this case, monetary policy is adjusted to address a sustained deviation of the medium-term inflation forecast from the medium-term inflation objective range. Even so, a change is undertaken when it is considered that the underlying inflationary factors can be influenced by monetary policy. It is the Monetary Policy Committee of the Bank which considers these factors and decides on the direction of monetary policy. As you will have observed, the outcome of the Committee’s deliberations is disseminated through the media to stakeholders, in order to help anchor inflation expectations and buttress policy credibility, which is critical in achieving long-term price stability. Let me now highlight the economic and financial developments of 2011, as background for the policy posture of the period. From a global standpoint, there was upward pressure on inflation in the first half of 2011, particularly in emerging market economies, due to an increase in commodity prices, especially for oil and food products. The increase in the price of oil was worsened by political and social conflict in the Middle East and North Africa. However, inflation slowed down as the year came to an end, due to a slack in global demand and economic activity. The trade-weighted average inflation for Botswana’s trading partner countries increased, from 2.8 percent in 2010 to 4.8 percent at the end of 2011. The SDR countries, which are the United Kingdom, United States of America, Japan and Euro area, experienced a significant increase in prices; the average inflation rose from 1.8 percent in 2010 to 2.9 percent in December 2011. In South Africa, headline inflation increased markedly, from 3.5 percent in December 2010 to 6.1 percent by the end of 2011, slightly breaching the upper end of the medium-term target range of 3 – 6 percent. This was attributable, in large part, to an increase in the price of food. BIS central bankers’ speeches As anticipated in last year’s Monetary Policy Statement, domestic inflation was above the medium-term objective range of 3 – 6 percent throughout 2011, due mainly to higher food prices. Other causes of rampant inflation included the increase in administered prices for fuel, public transport and electricity. Inflation then rose from 7.4 percent in December 2010 to 8.5 percent in the first quarter of 2011, as a result of the increase in private school fees and petrol prices. After easing slightly to 7.9 percent in June 2011 following the reduction of telephone tariffs, inflation resumed its upward trend and reached 9.2 percent at the end of last year, in response to the upward adjustment of fuel prices and transport fares, as well as the increase in the cost of food, health services and household durables. All measures of inflation went up last year. When administered prices are excluded, inflation rose, although at a slower rate, from 7.1 percent in December 2010 to 7.5 percent by year-end; similarly, the trimmed (16 percent) mean measure of core inflation increased from 7.7 percent to 8.5 percent. The effect of demand on inflation was limited since economic activity remained below long-term levels. Furthermore, the modest public service salary increase of September 2011 meant that household demand remained constrained. In addition, government expenditure growth was similarly tight with a view to balancing the budget by fiscal year 2012/13, the objective of which has been more than attained in view of the budgeted small surplus. Nevertheless, faster credit expansion helped to stabilise aggregate demand. For instance, bank lending to businesses increased by 41 percent last year, compared to only 11.3 percent the previous year; and credit to households rose by 15.8 percent in 2011, which is higher than the 12.5 percent growth rate of the previous year. Overall, the annual growth in private sector credit more than doubled in 2011, from 11.9 percent to 26.4 percent. Besides the domestic and external inflation environment of 2011, monetary policy was conducted against the background of global economic instability and uncertainty, to which I referred earlier. Oil prices were volatile, the Euro area sovereign debt crisis worsened and this created turmoil in major financial markets, which brought about fears of renewed banking crisis. Most industrial economies experienced persistent high levels of unemployment which, together with fiscal restraint, constrained demand. Moreover, supply disruptions caused by the earthquake and tsunami in Japan in March 2011 also adversely affected global production. Overall, and despite higher output growth rates in emerging economies, global growth was dampened and the trend was economic slowdown in the second half of the year. Although global inflation went up in 2011, it did not present a medium-term threat to the need for monetary policy to address the slowing economic activity; neither did it present a threat to the need to address persistent high unemployment and idle capacity in major economies. As a result, most developed countries’ central banks, including the United States Federal Reserve Bank and the Bank of England, maintained low policy interest rates throughout 2011. This was complemented by other measures such as adding liquidity to the banking system, which is referred to as quantitative easing. Towards the end of the year, the European Central Bank reversed the earlier increase in interest rates and also introduced quantitative easing, in an effort to stabilise financial markets. Similarly, some emerging market economies (notably those of Brazil and China) that had earlier increased interest rates also loosened monetary policy by year-end. India was the exception in this respect, as monetary policy was tightened. Here at home, the conduct of monetary policy was guided by a positive medium-term inflation outlook that reflected a low level of domestic demand and benign external influence on inflation. In the circumstances, the Bank Rate was maintained at 9.5 percent in 2011. The commercial banks’ prime lending rate was also unchanged at 11 percent. However, the Bank implemented two measures. First, the primary reserve requirement for commercial banks was increased from 6.5 percent to 10 percent with effect from July 2011, in order to reduce the amount of liquidity that is absorbed by Bank of Botswana Certificates. BIS central bankers’ speeches Second, four months later in November 2011, the maximum issuance of Bank of Botswana Certificates to absorb excess liquidity was limited to P10 billion. The reduction of Bank of Botswana Certificates issuance is intended to encourage banks to actively seek and finance bankable projects that would contribute towards economic diversification; it would undoubtedly also contribute to their bottom lines. Distinguished Guests: It follows that the outlook for domestic inflation is predicated on expectations of slower global output growth. Indeed as the impact of the Euro area sovereign debt crisis worsened, the forecast for global output for 2012 was reduced from 3.8 percent to 3.3 percent. Furthermore, despite recent encouraging indicators, the pace of economic recovery in the US continues to be constrained by failure to agree on the necessary fiscal policy measures. In contrast, economic activity in emerging market economies is expected to remain buoyant, particularly in China and India, although these countries’ economies are also vulnerable to any major global economic slowdown. The forecast overall slow global economic expansion clouds prospects for trade; it also reduces the threat of inflation in emerging market economies, and dampens the impact of an increase in commodity and food prices. Therefore, although there are underlying inflation pressures in emerging market countries due to relatively buoyant economic activity, overall global inflation is projected to decline from 4.6 percent in 2011 to 3.4 percent in 2012. As a result, monetary policy is expected to be generally accommodative in these countries. With respect to SDR countries, inflation is forecast to decline from 2.9 percent in 2011 to 1.8 percent this year. In South Africa, headline inflation is projected to increase only slightly, from about 5 percent in 2011 to 5.8 percent. All in all, it is expected that the effect of external price developments on domestic inflation will be negligible. Given that the Bank’s medium-term inflation objective range is still 3 – 6 percent, and the forecast average inflation range for trading partner countries is 3 – 5 percent, it follows that the nominal effective exchange rate will crawl down only minimally in 2012, in order to stabilise the real effective exchange rate. This will continue to support international competitiveness of domestic industries, as a contribution to economic diversification. Moderate output expansion is projected for the domestic economy, with non–mining output remaining below potential. Mining production is expected to be maintained at current levels, although this is subject to sustained global demand. There are expectations that, in the course of the year, some new mining ventures could commence operations and, if that were to be the case, there would be a boost to total mining output. However, non-mining sector performance could be weighed down by the limited domestic fiscal stimulus, as nominal government expenditure is only budgeted to increase marginally (0.1 percent) in 2012/13 and nominal personal incomes will continue to be sluggish. This outlook was also reflected in the fall in business confidence indicated in the recent (September 2011) Business Expectations Survey. Although pressures on inflation arising from domestic demand are expected to be limited and the impact of foreign price developments are likely to be minimal this year, prices could go up due to an increase in the international cost of food that would exceed current projections. Inflation may also rise in the event of any substantial upward adjustment in administered prices and government levies. In this respect, I wish to state the obvious, and that is, while the reasons for increasing utility tariffs are understandable, large adjustments increase inflation which, in turn, erodes living standards and well-being of households. It is for this reason that service providers are encouraged to make every effort to contain costs by enhancing efficiency, in order to minimise the adverse impact on consumers. Distinguished Ladies and Gentlemen: BIS central bankers’ speeches So far as the monetary policy stance for 2012 is concerned, domestic inflation is forecast to remain above the medium-term objective range in the short-term, as the impact of the recent cost increase tapers off gradually. However, it is anticipated that inflation will converge to the medium-term objective range of 3 – 6 percent in the second half of 2012, due to the dampening effect of underlying domestic and international economic prospects. Therefore, the prospects for a low, predictable and sustainable inflation in the medium-term will give rise to the conditions that would permit a counter-cyclical accommodative monetary policy, which would cushion the contractionary impact of restrained fiscal policy on economic activity. It should be stressed, however, that, in order to avoid an entrenchment of persistently high inflation, the Bank’s monetary policy stance will continue to be guided by the extent to which short-term price developments generate medium-term inflation expectations. More generally, and as expected, the Bank will respond in a timely manner to any sustained deviation of the medium-term inflation forecast from the medium-term inflation objective range of 3 – 6 percent, without undermining the much needed sustainable economic growth. Honourable Minister of Finance and Development Planning and your Cabinet Colleagues, Honourable Members of Parliament, Your Excellencies Members of the Diplomatic Corps, Distinguished Ladies and Gentlemen, this concludes my submission of the Monetary Policy Statement for 2012. I thank you most sincerely for your attention. BIS central bankers’ speeches	bank of botswana	2,012	2
Speech by Ms Linah K Mohohlo, Governor of the Bank of Botswana, at the Gala Dinner of the SWIFT 2013 Africa Regional Conference, Gaborone, 22 May 2013.	Linah K Mohohlo: The role of information technology in domestic economic development and regional integration – opportunities and related challenges Speech by Ms Linah K Mohohlo, Governor of the Bank of Botswana, at the Gala Dinner of the SWIFT 2013 Africa Regional Conference, Gaborone, 22 May 2013. * * * On behalf of the Board and all staff of the Bank, I would like to welcome you, not only to Gaborone and to Botswana, but to this Gala Dinner as well, an event at which we need to relax, mingle and get to know each other less formally. In his opening remarks yesterday, the Honourable Minister highlighted the importance of this Conference to the development and economic integration process of Africa. Taking cue from this, you have since deliberated on several issues that are fundamental to these developments, which include payments systems, financial inclusion, cross-border payments, as well as information and communication technology (ICT). This evening, I will share with you some observations on the subject of “The Role of Information Technology in Economic Development and Regional Integration: Opportunities and Related Challenges”. By now, you can hardly have failed to notice the impact of the continuing ICT revolution in transforming the daily lives of most people: both rich and poor, young and old. Contrary to widely-held expectations, ICT has proved to be an effective agent for narrowing, not widening, the digital divide. But the sheer dynamism of this revolution brings not only evolving opportunities, but also challenges, particularly perhaps for traditionally conservative bodies such as central banks. It is now clear that ICT-driven financial transactions can be the impetus for the next stage of domestic socio-economic development and should, therefore, be fully harnessed in promoting regional economic integration. It goes without saying that, if the benefits of ICT are to be realised, members of the public, financial sectors of respective countries and all stakeholders must be fully on board; they need to embrace its use and ensure that it is not subverted or abused. Distinguished Ladies and Gentlemen: The path to regional and, ultimately, continental economic development and integration is complex; it requires purposeful and resolute determination, the preconditions of which include meaningful economic integration, harmonisation of fiscal and monetary policies and convergence of banking policies and systems. With respect to the last of these, you will agree that coordination in harnessing the potential of ICT-based financial transactions infrastructure is critical for progress in driving forward the process of development and integration. Many in Africa share a common experience of inadequate infrastructure, whether it be for transport, communication, or making payments. Until we are personally inconvenienced, it is easy to forget the problems this can cause. But we need to change the current situation where, in far too many respects, the continent remains more directly linked with developed countries than with its constituent nations. It is not unusual to have better flight connections between African countries by first going to Europe. Indeed, not so long ago, intra-continental telephone communications were routed through London, Paris, Madrid or Lisbon. I am reminded of the observation made yesterday at the first plenary session that to a large extent, the priority of domestic rail and road infrastructure is outward linkages to seaports, rather than to neighbouring countries. Some rivers marking national boundaries still have no bridges; and to all of this must be added the problems caused by visa applications, customs controls and overly zealous officials manning our borders. BIS central bankers’ speeches Evidently, the bottlenecks are further compounded by weak, or even non-existent, direct cross-border payments infrastructure between countries. In fact, as already pointed out, it is quicker to effect payments to Europe, North America and other developed markets than across borders within Africa. This is either because, the impressive recent growth of panAfrican banking groups notwithstanding, many of our banks and financial institutions are mostly of European or North American parentage; or it is due to better technological linkages with the developed world. It is pleasing, however, that efforts to redress this infrastructure deficit are at last gathering much-needed momentum, whether it be through established institutions such as the African Development Bank, institutions-in-waiting such as the proposed BRICS development bank, or through funding by way of private capital markets. Furthermore, advances in ICT abound across the continent, with levels of connectivity heading steadily, rapidly even, in the right direction. Indeed, ICT is key to social and economic connectivity, as it renders payments more efficient and cheaper at all levels: domestic, regional, Pan-African and global. This is of particular benefit in the African context where banks continue to be spread thinly across people’s settlements, particularly in rural areas. In this case, cellular phone networks are enabling previously excluded segments of society to access basic financial services, mainly through money transfer facilities, but increasingly through other features associated with traditional banking. In Botswana, we are making discernable progress (although we can increase the pace); we are in the process of modernising the payments system. We have now electronically automated the Clearing House, and this has reduced the cheque clearing period to only a few days. The objective is to reduce the clearing period further to one day when the cheque imaging and truncation technology is in place. Furthermore, large value payments (that is, those in excess of half a million Pula) are made electronically, in this way benefiting government and large corporations, given improved speed and security, as the risk of fraud is reduced. The Real Time Gross Settlement system has also been in operation for a good number of years (at least 7 years). A platform of Visa International called Visanet provides a national net settlement service for all participating banks. Internet banking, using a desktop computer, is complimented by mobile phone transactions for paying utility bills, money transfers and managing bank accounts. Many pensioners and beneficiaries of government social security programmes are able to access their entitlements through smart card technology that is operated by local shops and businesses, irrespective of their place of abode. As a result of these ICT-driven infrastructure improvements, people located in areas far away from developed parts of the country now have access to financial services. The time saved in long distance travel to go to banks and/or pay bills is significant. More broadly, the much needed financial inclusion is being facilitated by affording and extending basic services of money transfer, payments and safe- keeping to those living in all but the most remote communities. This is most important in our society where the extended family remains of central importance. It is particularly gratifying for those of us with long enough memories to recall the effort that was previously required to effect even the most basic transaction from such locations. Cross-border payments have also been facilitated. In the SADC region, the payments integration project is well underway, and the SADC Integration Regional Electronic Settlement System (SIRESS for short) is expected to be commissioned later this year. Just as for infrastructure for domestic financial transactions, the prerequisite for effective cross-border payment systems is that they must be safe and secure. To echo the sentiments made by the Honourable Minister yesterday, this means an effective legal and regulatory framework is indispensible in each jurisdiction, in order to satisfy the much needed legal legitimacy of electronic signatures, as well as other identification and evidential information. BIS central bankers’ speeches I trust SWIFT would want to be associated with these developments (advanced ones and those not so advanced). It is important that Africa receives, from SWIFT, the much needed support so the continent is able to leap-frog into transactions that no longer depend on faceto-face exchanges of cash, particularly in view of the limited bank branch network. Given my vantage point, I have observed that the reaction of governments and central banks to the rapid spread and increase in usage of electronic financial services, particularly through cellular phones, has been mixed. There are those who wish to push for across-the-board regulation, and others who favour a more selective, or “light-touch”, approach in order not to be seen to discourage innovation of new platforms and business models. The emerging view is that any regulation, oversight and supervision should focus on each specific service, rather than adopt a one-size-fits-all approach. In other words, a bouquet of oversight regulatory and supervisory instruments will need to be selectively and judiciously brought to bear on ICT-based financial services. Indeed, there are elements to which commercial law and consumer protection regulations should apply; while those that are potentially of systemic importance to the financial sector will fall under the prudential ambit and appear on the supervisory radar. In view of the evolving nature of technology and its application, it is imperative that establishing the appropriate balance between vigilance, adaptation and learning through experience is the order of the day. Needless to say, central banks play a key role in selecting the appropriate colours and scents for this bouquet; what is critical is to learn to be adaptable and, if necessary, creative, without losing sight of the core responsibilities. Honoured Guests: I conclude by acknowledging our collective indebtedness to SWIFT and technology solution companies for playing their part in researching and developing technology and its software, in the best interests of enhancing the development and expansion of the financial sector. In turn, this smooths trade relations by expediting cross-border payments, thus enhancing regional and continental economic integration. Distinguished Guests, Ladies and Gentlemen: This brings me to the end of my remarks. I wish you fruitful deliberations of what is left of your daunting programme. I also wish you a safe return home. I hope you will take with you pleasant memories of your brief stay in Gaborone. Better still I hope you are seriously considering the Honourable Minister’s invitation to familiarise yourselves with our city and its surroundings. For those able to spare a little time, please visit at least one of the unique tourist attractions for which the country is renowned. As the brand goes: Botswana is our pride; please make it your destination. Please enjoy the dinner and the rest of the evening. I thank you for your attention. BIS central bankers’ speeches	bank of botswana	2,013	9
Keynote speech by Ms Linah K Mohohlo, Governor of the Bank of Botswana, at the official launch of Bank of India (Botswana) Limited, Gaborone, 9 August 2013.	Linah K Mohohlo: Developing and diversifying Botswana’s banking sector Keynote speech by Ms Linah K Mohohlo, Governor of the Bank of Botswana, at the official launch of Bank of India (Botswana) Limited, Gaborone, 9 August 2013. * * * I would like to thank the Managing Director of the Bank of India, Mr Mishra, together with the Board and Management of Bank of India (Botswana) Limited for inviting me to launch the opening of the bank’s subsidiary in Botswana. I wish to recognise the presence of His Excellency, the High Commissioner of India to Botswana, Mr Chandra, and extend a warm welcome to Botswana to two distinguished guests from India, the Chairperson and Managing Director of the bank, Mrs Viyalakshmi Iyer, and the Head of the bank’s International Division, Mr Narayanan. I can assure you that the Bank of Botswana, and significant others in the country, couldn’t be more grateful that you chose Botswana as the preferred destination for your business expansion. You are, therefore, warmly welcome to Botswana’s banking sector, which has come a long way from the 1950s when there were only two banks in the country. The country is now home to 13 licensed banks from which we deservedly expect to have an even more diversified banking product range and improved service delivery. I now know that the new bank is a wholly owned subsidiary of Bank of India, which is headquartered back home in India. The parent bank was incorporated in 1906 in Mumbai (India) and is majority-owned by the Government of India. It is a well-established international banking group with over 4 000 branches in India and 52 operations in 20 other countries. Botswana is now home to the 53rd overseas centre of the bank. The many years of accumulated experience of the parent bank puts the Botswana subsidiary at an advantage from which to leverage the managerial, operational and technical expertise. The subsidiary bank should also have at its disposal the technological infrastructure and financial resources of the parent bank. It, therefore, comes as no surprise that the Bank of India (Botswana) Limited, intends to provide a full range of commercial banking services that will cater for all sectors of the economy, with particular focus on the Small, Medium and Micro Enterprises (SMMEs) and the mining sector. As we are all aware, SMMEs play a critical role in contributing to economic growth, employment generation and poverty reduction, especially in developing economies; Botswana is no exception. Indeed it is these small enterprises which ultimately grow into big businesses which, in Botswana’s case, would be a welcome development for the economic diversification drive. As a way of making effective inroads into the competitive business environment, the new bank is advised to attract and employ qualified citizen staff, in order to tap into their knowledge of the local market and business contacts. It is also important that your staff should be trained and exposed to relevant work processes on an ongoing basis. I can assure you that the fruits of investing in human capital will be as bountiful as they are elsewhere in the competitive parts of the globe. As all banks in Botswana are constantly reminded, the success or otherwise of any institution is reflective of the quality of its personnel. As a matter of fact, relative competitiveness of the parent Bank of India is testimony to the fact that India’s financial institutions have some of the most highly trained and competent experts, a large number of whom work at institutions of note internationally. Similarly, it is hoped that the enlightened competent, efficient and effective staff of the Bank of India in Botswana, including the local Board, will be given the space to exercise and discharge their respective responsibilities in an appropriate manner. They should have the necessary authority to make independent judgments on adjusting business strategies and BIS central bankers’ speeches operations in line with local market conditions and national aspirations. In other words, the local oversight responsibilities should not be undermined or weakened. While the parent bank has the overall responsibility for major strategic and policy decisions affecting the group, it is crucial that, within this hierarchical structure, important business decisions relating to the day-to-day operations of a subsidiary bank are made and tailored to the needs of Botswana. Routine referrals for decision-making to the regional office or headquarters can only undermine the subsidiary’s course. Unnecessary referrals could also have the potential to deny the bank the opportunity to make timely and proactive business decisions that could grow the bank’s operations and ensure that it is able to compete favourably in the local market. In this connection, you should be able to take advantage of the relocation of some functions of the Diamond Trading Centre International from London to Gaborone, in the fullness of time, as this will generate downstream business activities associated with the beneficiation of rough diamonds. As indicated in your bank’s business agenda, it is Botswana’s expectation that you will have an important role in contributing to the national policy on economic diversification, by supporting the diamond and related business ventures. Honoured Guests, the entry of another bank in the Botswana’s financial sector can only heighten expectations of better and cost effective service delivery as the sector responds to the needs of the economy. We are, however, aware that the realisation of this goal still faces some challenges. To begin with, and as eloquently highlighted by His Honour the Vice President earlier this week, there is public concern (some would say outcry) about bank charges that are out of sync with the quality of service. The insidious effect of these high charges is that they impede progress towards financial inclusion; they also discourage saving and the all-important activity of financial intermediation. This is against the backdrop of research which has shown that, in Sub-Saharan Africa, 27 percent of men and 22 percent of women have access to financial services; this includes bank accounts, credit and insurance. These very low financial inclusion ratios are less than half of those of developed countries, where 92 percent of men and 87 percent of women have access to financial services. I trust that the entry of the Bank of India into the country’s banking sector will contribute positively to the country’s efforts to enhance access to financial services by all segments of the population. Please allow me to sing from the same hymn book with His Honour the Vice President again, when he expressed the expectation that, as primary operators of the payments system, banks need to put in place modern banking and payments technologies to enhance the efficiency and timeliness of the clearing and settlement systems. The Bank of Botswana is confident that the entry of the Bank of India (Botswana) Limited to the Botswana clearing system, will provide the added impetus to the Cheque Imaging and Truncation project, the objective of which is, among others, to reduce the cheque clearance cycle. Time is of the essence in this respect. Furthermore, distinguished ladies and gentlemen, you will agree that it’s about time the country had a well-developed and functioning interbank market which would provide an enabling environment for funds of any quantum to flow between and among banks on the one hand, and their customers on other hand; and at the same time lending a hand to the monetary policy transmission mechanism. So far, the Bank of Botswana efforts of fostering the development of an efficient inter-bank market have not yet borne desirable fruit. These efforts are frustrated, in part, by the conduct of some major banks which discriminate against other licensed commercial banks for no apparent sound reasons. This unjustified conduct does not distinguish between inter-bank and other forms of lending activities. It is also anti-competitive and constitutes unwarranted BIS central bankers’ speeches discriminatory practice. All banks in Botswana will know that time is not on our side in this respect too. The practice must be nipped in the bud. The banking sector also faces the challenge of imperfections in attracting long-term funds from institutional investors. There are cases where these market imperfections have resulted in financial deals for long-term deposit placements at great cost to some banking institutions, mainly because related contracts contain terms and conditions that are patently unfair and asymmetrical. Invariably, this practice unduly raises the cost of banking services to customers in general. The Bank of Botswana expects to work with all interested parties, if need be, to rid the market of such near unethical business conduct. Not all is lost, however; it is encouraging that, in some quarters, discernible improvements are evident in containing the level of bank charges. There is also progress in the direction of diversification of banking products on offer. I hasten to add that the concern about the exorbitant charges should not be construed to mean that bank profitability is frowned upon. On the contrary; the Bank of Botswana and the country take pride in having a profitable, well capitalised and regulated banking sector which operates in a safe and sound environment, even in the face of the ravages of the global financial crisis and economic recession in some parts of the world. Indeed the sector can still be relatively profitable within the strictures of prudential standards on safe and responsible lending, without having to unnecessarily impose high charges for the services rendered. Honoured guests, you will recall that one of the major lessons from the recent global financial crisis is that unsound banking systems and imprudent credit underwriting standards can undermine macroeconomic stability. It is very important, therefore, that we need to guard our own banking sector jealously and vigilantly so that it can continue to be healthy, sound and well run, and ultimately develop into one of the engines of sustainable economic growth and development for the country. Speaking of the need for prudent banking, I wish to stress the importance of banks continuing to play a proactive role in preventing opportunities for financial fraud and other forms of crime that can only tarnish the integrity and reputation of the country’s financial sector. Among other initiatives, banks must ensure that their internal control environment is up to standard and effective; for example, compliance with “Know-Your-Customer” (KYC) requirements must be up to date. Indeed, Botswana banks have vested interest in ensuring effective compliance with both the spirit and principles of the global standards on anti-money laundering and the financing of terrorism. Director of Ceremonies, distinguished ladies and gentlemen, as I come to the end of my remarks, I wish to reiterate my commendation of the Board, management and staff of Bank of India for bringing additional banking services and facilities to Botswana. I invite the bank and its personnel to settle in well and relatively quickly, and make your presence felt in the Botswana banking sector; in which case, it would not be unreasonable to expect expansion of the bank’s operations to other parts of the country sooner rather than later. Please rest assured of the Bank of Botswana’s support, at all times, in more ways than one, including through regulation and supervision. I know I am speaking to the converted as I remind you of the merits of maintaining cordial working relations with relevant organs of the banking sector, particularly the regulator. It does make life easier. Your Excellency, the High Commissioner of India to Botswana, honoured guests, distinguished ladies and gentlemen; this concludes my remarks. It is now my distinct privilege and honour to declare the Bank of India’s presence in Botswana officially launched. I thank you for your attention. BIS central bankers’ speeches	bank of botswana	2,013	9
Welcome remarks by Ms Linah K Mohohlo, Governor of the Bank of Botswana, at the official launch of the new coin, Gaborone, 27 February 2014.	Linah K Mohohlo: Official launch of new Botswana coins Welcome remarks by Ms Linah K Mohohlo, Governor of the Bank of Botswana, at the official launch of the new coin, Gaborone, 27 February 2014. * * * On behalf of the Board and staff of the Bank, I welcome you, Sir, Your Excellency The President and all invited guests, first, to the Bank’s impressive premises; second, and more fittingly, to this event, the proceedings of which will culminate in the official launch of the new family of Botswana coin. I wish to acknowledge the presence of Your Lordship the Chief Justice Rre Dibotelo, and Your Excellency the former President, Sir Ketumile. The Honourable Minister of Finance and Development Planning, Rre Matambo, and your Honourable Cabinet Colleagues, the Honourable Deputy Speaker of the National Assembly, Members of the Diplomatic Corps, Chief Executive Officers of banks and other financial institutions, Distinguished Ladies and Gentlemen – your presence too is acknowledged. Your Excellency, as and when we have the opportunity to host you in the Bank’s premises, as is the case this morning, we feel distinctively honoured. It is all the more so when we are privileged to host you on this particularly special day, February 27. Happy birthday Your Excellency, and many happy returns. I take pride in paving the way for you, Sir, to launch the new family of coin and declare them legal tender in Botswana, so that they can be available for public use in daily transactions. Indeed, the public and business community are anxiously looking forward to the new coins. I have only a few remarks to make before I make way for appropriate officiation. In line with international best practice, the Bank embarked on a comprehensive review of the denominations, composition, form and design of the country’s currency some years back. Once the Honourable Minister of Finance and Development Planning had given the go ahead, in line with the relevant Section of the Bank of Botswana Act (Section 24 (2)), the first step of this exercise involved a renewal of all banknotes in 2009, which resulted in the issuance of the Pula banknotes currently in circulation. Now we have a new set of coin, soon to be launched, the make-up and denomination of which I leave for His Excellency The President to speak to. In fact, Your Excellency’s input and guidance in this respect, have been invaluable. Since the launch of the family of banknotes in 2009, currency in circulation has increased by 35 percent. This is attributable mainly to the P200 banknote, which is an indication of its popularity. In fact, by the end of 2013, the P200 banknote accounted for approximately 60 percent of all the paper money in circulation. As a related matter, the management of all currency is now conducted on these premises called the Cash Management Centre. This facility assures efficient handling and delivery of quality service to commercial banks, and generally enhances efficiency in the national cash management cycle. Although banknotes and coin continue to be a major medium of exchange in Botswana, non-cash transactions, especially electronic transfers, have gained considerable ground. The result is that the average monthly cheque payments have declined by over 50 percent to about P3 billion in the five years to 2013. In the same period, congestion at banking halls for cash withdrawal has been eased, due to the increasing number and usage of Automated Teller Machines (ATMs). Equally important, the value of average monthly ATM withdrawals has increased by about 50 percent to P1.3 billion. BIS central bankers’ speeches In the not-too-distant future, the efficiency of the national payments system will be enhanced by the introduction of the cheque imaging and truncation system, which will reduce the cheque clearing cycle. Furthermore, both the Accountant General’s Office and the Botswana Unified Revenue Service will be connected to the Bank of Botswana through the electronic Botswana Interbank Settlement System. This will greatly improve the speed, security and efficiency of government payment transactions, as well as those of the Botswana Unified Revenue Service. Director of Ceremonies, Distinguished Guests: There is one last piece of noteworthy information obtained from institutional memory that I would like to share with you. That is, since Botswana withdrew from the Rand Monetary Area and introduced its own currency in 1976, it is the first time that a sitting President will, by the end of this ceremony, have coincidentally presided over the renewal of all of the country’s banknotes and coin. Congratulations are in order, Sir. Distinguished Guests, Ladies and Gentlemen: It is now my pleasant duty and honour to invite you to the podium, Sir, Your Excellency The President, so you could deliver your address and ultimately launch the country’s new family of coin, and, at the same time, declare the new coin legal tender in Botswana. Your Excellency, Sir. BIS central bankers’ speeches	bank of botswana	2,014	4
Remarks by Ms Linah K Mohohlo, Governor of the Bank of Botswana, at the launch of the Monetary Policy Statement for 2014, Gaborone, 28 February 2014.	Linah K Mohohlo: Botswana’s Monetary Policy Statement for 2014 Remarks by Ms Linah K Mohohlo, Governor of the Bank of Botswana, at the launch of the Monetary Policy Statement for 2014, Gaborone, 28 February 2014. * * * I wish to welcome you to the launch of the Monetary Policy Statement for 2014, which is by now well-known to be the premier event for the Bank. The Statement informs stakeholders how one of the Bank’s key functions is discharged, and that is the formulation and implementation of monetary policy. The Statement is issued each year because the Bank attaches importance to the need for transparency and accountability in the discharge of this key mandate. That is why your dedicated patronage on this occasion is sincerely valued and appreciated. As has been regularly explained, the principal objective of monetary policy is to achieve sustainable, low and predictable level of inflation and, at the same time, ensuring that the economy is financially stable. This is due to the fact that sustainably low inflation and a conducive financial environment support economic growth by fostering savings and productive investment, while promoting the competitiveness of domestic producers and contributing towards a more equitable income distribution. This is the seventeenth year since the Bank has issued the annual Monetary Policy Statement; and perhaps this year’s Statement is of particular interest. It is the first time that the launch takes place in circumstances in which inflation has been comfortably within the Bank’s medium-term objective range for a sustained period. This outcome has afforded the Bank the scope to ease monetary policy in the course of 2013. I will have more to say about this shortly. While this is, without a doubt, a positive development, it does not suggest a time for complacency with respect to the Bank’s approach to monetary policy. On the contrary, the early weeks of 2014 have reminded us of the considerable uncertainty that continues to surround prospects for the global economy, and the vulnerability of emerging markets to related risks is turning out to be particularly acute. Therefore, the vigilance of the Bank, through the work of the Monetary Policy Committee and supporting structures remains undiminished. As I intimated earlier, one of the core functions of the Bank is conducting monetary policy. Indeed, the framework through which the Bank carries out this function is now widelyknown; you can bear testimony to the fact that any adjustment to policy is communicated to the public immediately after each meeting of the Monetary Policy Committee. The policy framework is forecast-based, with a medium-term outlook that primarily guides the Bank’s response to anticipated movements in inflation, while taking account of prospects for economic growth. Central to the forecast is an assessment of the prevailing gap between long-term trend output and actual output as a leading indicator of inflation. It is recognised that other factors also contribute to inflation. These other factors include foreign inflation, exchange rate movements, changes in domestic administered prices and taxes, as well as expectations of future price movements. Therefore, it is essential that policy credibility is underpinned by rigorous analysis of economic and financial developments, and by an assessment of future trends and associated risks, with a focus on anticipated price changes and their implications for the medium-term inflation outlook. There is also a consideration of relevant indicators of financial stability in the domestic economy. All these considerations will form the basis for the formulation and implementation of monetary policy in 2014. BIS central bankers’ speeches Distinguished Ladies and Gentlemen: I now wish to highlight inflation trends and other economic developments of the past year. You may recall that global output growth slowed marginally in 2013, from 3.1 percent in 2012 to an estimated 3 percent, resulting in modest inflationary pressures, as capacity utilisation and high unemployment in major economies persisted. With respect to commodities, international oil prices were stable because of the emergence of new sources of supply and the easing of geopolitical tensions in some oil producing regions. The increase in food prices was also restrained due to ample grain production. Consequently, global inflation decreased from 4 percent in 2012 to 3.8 percent in 2013. Average inflation for Botswana’s trading partner countries declined from 4 percent in 2012 to 3.4 percent last year. The countries the currencies of which comprise the Special Drawing Rights (that is, the United States of America, Eurozone, Japan and the United Kingdom) also experienced a decline in inflation, from an average of 1.9 percent to 1.3 percent in the same period, mostly due to weak economic activity, lower food inflation and the moderation in international oil prices. Price movements in South Africa followed the same trend; they slowed down from 5.7 percent in 2012 to 5.4 percent in 2013, in this way, remaining within the medium-term target range of 3–6 percent. In Botswana, inflation maintained a downward trend too, moving within the Bank’s mediumterm objective range by June 2013. By the end of the year, inflation had declined to 4.1 percent, compared to 7.4 percent in December 2012. In the event, price increases were subdued across a broad range of goods and services, including food. In fact, commodity groups representing about 90 percent of goods and services in the Consumer Price Index basket were within the objective range. Overall, inflation excluding administered prices decreased from 6.8 percent in December 2012 to 4.7 percent in December 2013, while the 16 percent trimmed mean measure of core inflation fell from 7.1 percent to 4 percent. The sustained decline in inflation was due to a dissipation of the impact of the increase in administered prices effected in 2012. The moderate increase in prices was also indicative of benign domestic demand pressures. The impact of government spending on economic activity was small in the context of fiscal consolidation measures, with annual government expenditure growth limited to only 2 percent. To some extent, demand was supported by continued growth in commercial bank credit, especially to households, which went up at a faster rate, from 21 percent in December 2012 to 24.2 percent by the end of 2013. It was observed that growth in household credit was led by mortgage lending, which grew by 43.3 percent. The continued rapid expansion in household credit also reflected, in part, some improvements in financial services provision and financial inclusion. Nevertheless, the level of household debt, which is dominated by personal loans, in an environment of slow growth in incomes, is a cause for concern. While current indicators, such as low default ratios, suggest that widespread default risks are not imminent, the related emerging debt repayment burden for households warrants close attention. In contrast, there was a marked deceleration in the growth of business credit, from 26.8 percent in December 2012 to only 4.6 percent in December 2013. The slowdown in the growth of business credit is reflected in virtually all economic sectors, and is in line with the moderation of growth in economic activity. For instance, the annual growth in non-mining GDP slowed to 5.1 percent in the twelve months to September 2013, compared to 8 percent a year earlier. Honoured Guests: Implementation of monetary policy in the past year posed an interesting challenge. From a global perspective, there was sluggish demand, weak economic activity, lacklustre financial intermediation and benign inflationary pressures. All the same, there was positive sentiment BIS central bankers’ speeches flowing from faster output growth and decreasing unemployment rates in the United States of America and United Kingdom; the euro area too emerged from recession. Output expansion in emerging market economies remained robust and spurred global economic performance. Monetary policy in major economies carried the burden of supporting economic recovery as fiscal austerity programmes remained in place. It was mostly accommodative and involved maintenance and, in some instances, reduction of the already low policy interest rates. Some of the major central banks used forward guidance to indicate thresholds for unemployment and growth; this was adopted with a view to guiding market interest rates in the medium term and to foster investment and demand. In contrast, the more imminent threat of rising inflation in emerging market economies resulted in some policy tightening. Here at home, monetary policy was conducted principally through open market operations to absorb excess liquidity from the banking system and maintain market interest rates at required levels. The Monetary Policy Committee continued to assess the impact of economic and financial developments on inflation prospects. The effect of credit growth on the quality of banks’ assets, the growing burden of household debt and the potential for asset price bubbles were also kept under review. The result was the reduction of the Bank Rate by a cumulative 2 percentage points to 7.5 percent during the year, against the background of, among others, below-trend GDP growth and a positive outlook for inflation in the medium term. Accordingly, commercial banks reduced their prime lending interest rates by the same magnitude to 9 percent, with corresponding movements in most other market interest rates. As a related matter, and in a bid to reward depositors, commercial banks have been advised to publish and offer to customers their 91-day deposit products. These products pay an interest rate that is, at a minimum, 3.5 percentage points below the Bank Rate. Longer dated deposits are expected to attract commensurately higher interest rates. In terms of the outlook for inflation, the global economy is projected to grow by 3.7 percent in 2014. This compares with the estimated growth of 3 percent for 2013. The recent upward revision to the forecast reflects improving sentiment for global economic prospects. There are some risks to the forecast, however, which relate to a potential reversal of capital flows that could follow the ongoing wind-down of asset purchases in the United States of America. This could undermine growth prospects for emerging market economies, which have been a major source of global economic growth. Global inflation is projected to maintain the 2013 level of 3.8 percent. This is against the background of stable commodity prices, subdued output growth and persistence of spare capacity, as well as high unemployment rates in major economies. There may, however, be upward pressure on inflation in some emerging market economies, given robust economic activity and lower unemployment rates. Monetary policy in major economies is expected to focus on maintaining an accommodative stance, providing liquidity and fostering resilience of the financial sector. In contrast, emerging economies are likely to have a bias towards policy tightening, in response to emerging global risks of capital outflows to industrialised economies, and the need to focus on structural weaknesses of their respective domestic economies. The domestic economy is forecast to grow by 5.1 percent in 2014, compared to last year’s GDP growth of 5.4 percent. Demand will be supported by the growth in government expenditure, for which budgetary allocations for the 2014/15 fiscal year have increased by 8.5 percent, with the bulk of the additional spending concentrated in the recurrent budget. Business confidence remains muted, but the recent successful transfer of diamond aggregation and sales functions from the De Beers London office to Botswana should serve to boost domestic economic activity. On the exchange rate front, I wish to submit that the crawling band exchange rate policy has continued to serve the purpose for which it was established, which is to render domestic industries internationally competitive and contribute towards macroeconomic stability and BIS central bankers’ speeches economic diversification. You will, by now, know that the parameters of the exchange rate policy were recently made public by the Honourable Minister of Finance and Development Planning. Indeed for 2014, the Pula basket weights are 55 percent for the South African rand and 45 percent for the Special Drawing Rights. The Pula will crawl downward by 0.16 percent, given that the inflation objective range of 3–6 percent is marginally higher than the projected average inflation range of trading partner countries of 3–4 percent. Overall, it is expected that pressure on inflation from domestic demand will be low in 2014, as will the impact of foreign price developments. Therefore, inflation is projected to remain within the medium-term objective range of 3–6 percent. This means there will be further scope for monetary policy to support economic activity through the current accommodative policy stance, while maintaining price stability. As usual, the Bank will respond appropriately to any sustained deviation of the inflation forecast from the objective range and to any emerging threat to financial stability, where the causal factors can be influenced by monetary policy action. Be that as it may, any upward adjustment in administered prices and government levies or any increase in international food and oil prices beyond current forecasts will present upside risks to the inflation outlook. Furthermore, any substantial civil service wage increase could also generate inflationary pressures through higher demand and inflation expectations. Distinguished Ladies and Gentlemen: I conclude by reiterating that the domestic economy is expected to be characterised by an environment of benign inflationary developments in 2014. The Bank’s formulation and implementation of monetary policy will focus on entrenching expectations of low and sustainable inflation in the medium term, through timely responses to price developments, while ensuring that credit and other market developments are consistent with lasting financial stability. I thank you for your attention. Copies of the detailed Monetary Policy Statement are in the foyer of the Auditorium; please obtain a copy so you can read it at your leisure. BIS central bankers’ speeches	bank of botswana	2,014	4
Speech by Ms Linah K Mohohlo, Governor of the Bank of Botswana, at the press briefing on banks' liquidity condition, Gaborone, 26 March 2015.	Linah K Mohohlo: Liquidity conditions in Botswana banks Speech by Ms Linah K Mohohlo, Governor of the Bank of Botswana, at the press briefing on banks’ liquidity condition, Gaborone, 26 March 2015. * * * I welcome you to this press briefing, the purpose of which is to provide clarity on liquidity at commercial banks. This is in response to some recent articles in the local media which suggest that, among others, banks in Botswana are in financial difficulties and their customers face a “credit crunch”. The Bank of Botswana welcomes informed reporting of topical banking/financial issues and, in this spirit, has endeavoured to provide timely and informative responses to questionnaires received on the matter. As you will be aware, I took advantage of the National Business Conference in Maun in November last year and addressed the issue of commercial bank liquidity in some detail. Given continued interest on the subject, we have considered that a further engagement with the media is advisable. I will share with you salient points on this important matter and respond to questions thereafter. I would like to underscore an important fact, and that is, the banking sector in Botswana is sound and profitable. Profitability has of course declined as expenses increased faster than income, and the situation varies from bank to bank. In the 12 months period to January 2015, the aggregate industry balance sheet grew healthily by 11 percent, with deposits growing by 7 percent and credit growing by 13 percent. A tightening of bank liquidity has been evident. What is key is that all banks continue to comply with the necessary requirements such as the statutory liquid asset requirements. Recent economic and market developments have had no adverse impact on levels of capital in the banking industry, with the aggregate Capital Adequacy Ratio at 19 percent as at January 2015, and above the prudential limit of 15 percent. In the past five years, excess liquidity in the banking system, as represented by outstanding Bank of Botswana Certificates (BoBCs), has declined from P17.7 billion as at end-2010 to P4.6 billion in February 2015. The main cause was the Bank of Botswana’s phased reduction of the excess money that is continuously mopped by way of auctioning of BoBCs. The cap for this excess money is currently P5 billion and it was put in place to encourage productive lending by banks as well as to moderate the cost of mopping up excess liquidity. In turn, this resulted in a period of rapid credit growth by commercial banks, compared to a slower increase in deposits; thus resulting in a sharp increase in the intermediation ratio, which is simply a ratio of bank loans to deposits. This ratio increased from 53.1 percent at the end of 2010 to 87.6 percent in a period of four years to the end of 2014. In essence, funds previously held in BoBCs have been diverted to loans by banks and more than doubled – growing by 104.3 percent, from P22.1 billion in December 2010 to P45.2 billion in January 2015. These funds have been effectively absorbed by the economy, to the benefit of businesses and households. Deposits increased at a slower pace of 31.7 percent from P40.4 billion to P53.2 billion in the same four-year period. The slower growth in deposits is possibly due to, among others, sluggish growth in incomes, inadequate financial inclusion, more streamlined procedures for government funding of parastatals and very low interest rates paid by banks on deposits. As funds available for lending become exhausted, it is inevitable that credit expansion would slow down. However, credit has continued to grow at a robust pace, as evidenced by the January 2015 annual growth rate of 13 percent, which is higher than nominal economic growth. In situations of tighter liquidity, banks tend to tighten lending criteria, while taking BIS central bankers’ speeches measures to boost deposits. Even then, current developments do not suggest that new lending will cease completely, as growth in deposits remains positive. It is indeed imperative that banks undertake measures to attract deposits, and focus on productive use of more limited funds available for lending. More emphasis on deposit mobilisation and improved financial inclusion would be steps in the right direction towards a more mature banking sector. There are also complementary measures that the Bank of Botswana stands ready to undertake in support of banks as they review their operations in an environment of reduced liquidity. These include a reduction of the Primary Reserve Requirement and enhanced access to Bank of Botswana lending facilities. It is with this in mind that I wish to take this opportunity to inform you and, through you, all stakeholders that the Bank of Botswana has decided to reduce the Primary Reserve Requirement for banks from the current 10 percent to 5 percent, with effect from April 1, 2015. This will release a total of P2.3 billion to augment the banks’ loanable funds. Thank you for your attention. BIS central bankers’ speeches	bank of botswana	2,015	4
Christmas message by Mr Moses D Pelaelo, Governor of the Bank of Botswana, at the Staff Christmas Party, Gaborone, 16 December 2016.	null	bank of botswana	2,016	12
Speech by Mr Moses D Pelaelo, Governor of the Bank of Botswana, at the launch of the 2017 Monetary Policy Statement, Gaborone, 27 February 2017.	BANK OF BOTSWANA 2017 MONETARY POLICY STATEMENT by Moses D Pelaelo Governor February 27, 2017 Introduction It is indeed a great pleasure and honour to welcome all of you, on behalf of the Board, management and staff of the Bank, to the launch of the 2017 Monetary Policy Statement. This is an important and priority occasion in the annual calendar of events for the Bank. We are therefore most grateful to all of you, Distinguished Guests, for gracing the occasion with your presence this morning. The launch and dissemination of the Monetary Policy Statement is consistent with the key governance imperatives of transparency and accountability in the formulation and implementation of monetary policy. The Statement seeks to promote an understanding of the conduct of monetary policy and its objectives and, accordingly, guide the public’s formation of expectations. It is on this occasion, that the Bank reports on inflation trajectory and policy performance as articulated in the previous year’s Statement; outline and convey the Bank’s perspective on economic and other policy developments; and, in turn, how the Bank intends to respond and implement monetary policy. Esteemed Guests, I would like to start with recognition of the immense contribution of the past leadership of the Bank in the design and shaping of the current monetary policy framework, and in particular, my predecessor, former Governor, Ms Linah Mohohlo. She presided over important innovations that helped engender policy credibility and performance in meeting the inflation objective as well as fostering effectiveness and stability of the banking system. As you would be aware, inflation in Botswana has been, since June 2013, either within or below the desired objective range. This is the single most important contribution to demand management and macroeconomic stability that you can ask of your Central Bank. Indeed, the Bank’s primary statutory mandate is to maintain price stability. Along with this mandate, the Bank is responsible for promotion of a safe and sound financial system as well as efficient payments infrastructure. Price stability, which is defined as low, stable and predictable level of inflation, fosters mobilisation of savings, productive investment, prudent allocation of credit and international competitiveness of domestic firms. In turn, a sound and stable financial system is potentially more effective in policy transmission and facilitating economic activity through the provision of liquidity and risk mitigation. Therefore, Honourable Minister, let me reaffirm that the Bank’s mandate is aligned to, and supports, the national objective of sustainable economic growth. Improvement to the Monetary Policy Framework Distinguished Guests, I will now mention some of the important elements of the evolution of the monetary policy framework, over the past two decades. First, is the clarity and definition of the inflation objective performance and horizon. identification Second, of the development medium-term of supporting infrastructure and internal capacity to operate the forecasting and policy analysis system that guides monetary policy decisions. Third, the Bank formalised the institutional arrangements, in the form of a Monetary Policy Committee whose regular meetings are followed by a Press Release, as well as publication of the Annual Monetary Policy Statement and Mid-Term Review. In addition, changes in the exchange rate policy framework also helped enhance the effectiveness of monetary policy. In particular, the adoption of the crawling band exchange rate framework since 2005 and, later, public disclosure of the weights of the constituent currencies in the Pula basket as well as the rate of crawl, has supported the Bank’s focus on the inflation objective. This transparency in the management of the exchange rate helps to anchor policy credibility and predictability and, therefore, informs expectations and economic decisions. As the Bank continues to focus on refining and making improvements, it has been the intention to enhance transparency and interaction with the market, as circumstances would be propitious, with a view to further buttressing policy transmission and credibility. In this regard, the Bank will, henceforth, pre3 announce the dates for the Monetary Policy Committee (MPC) meetings for the ensuing half year; and, convene a Media Briefing following each meeting of the MPC to announce the policy decision. I hasten to add, Distinguished Guests, that these initiatives are premised on availability, and should be a catalyst for development, of an appropriate market infrastructure and expertise, such as informed and robust market analysis and strong financial journalism, as well as organised debt and credit markets. Honourable Minister, Ladies and Gentlemen, my message today also addresses three other areas. First, I will briefly examine global trends that have influenced inflation in Botswana; second, I will highlight the conduct of monetary policy, both internationally and here at home; and, finally, I will provide the medium-term inflation outlook and, consequently, the likely policy stance. External Economic Developments Looking back, it is estimated that global output growth was 3.1 percent in 2016, compared to 3.2 percent in 2015, and weaker than the projection of 3.4 percent early in the year. The lower growth rate resulted from subdued economic activity in both advanced and emerging market economies, while low commodity prices continued to weigh down on economic performance in commodity exporting countries. International oil prices, however, recovered during 2016, partly in response to the agreement by major producers to reduce production; therefore, potentially generating upward pressure on inflation. Following a generalised decrease in the previous two years, global food prices also increased in 2016. Due to these factors, global inflation increased slightly from 2.8 percent in 2015 to 2.9 percent in 2016, but much lower than the forecast of 3.4 percent at the beginning of the year. As regards Botswana’s trading partner countries, inflation remained low in the Special Drawing Rights (SDR) countries (comprising the United States of America, euro zone, China, Japan and the United Kingdom). Average inflation for these countries increased from 0.7 percent to 1.7 percent in the same period. In contrast, inflation in South Africa breached the upper end of the target range, peaking at 6.8 percent, mainly because of weakness of the South African rand and food price pressures. Overall, average inflation for the trading partner countries increased from 2.8 percent to 4.2 percent during 2016. Domestic Inflation In Botswana, inflation was low and stable, and fluctuated around the lower end of the desired objective range of 3 percent, hence broadly consistent with projections for the year. Inflation reached a record low of 2.6 percent in August 2016. The low rate of annual price increase was generalised across most categories of goods and services. However, food price inflation increased from 0.7 percent in 2015 to 3.9 percent in 2016. Also, the reduction of 3.3 percent in fuel prices in 2016 was small compared to a 15.7 percent decrease in the prior year. In addition to benign external price developments, modest inflation in Botswana was also indicative of subdued domestic demand, against the background of sluggish economic activity and restrained growth in personal incomes. Among the influences on domestic demand are growth in government expenditure, wages and credit. Taking these three elements in turn, government expenditure increased by 9.7 percent in 2016, virtually the same rate of expansion as in the previous year. It should be recognised, in this respect, that the short-term impact of government spending on domestic demand is moderated to the extent that a significant component involves infrastructure and capacity development. In the context of Botswana, this type of spending tends to be import intensive and, also, the economic benefits of such public investments are derived in the medium to long term. Turning to wage developments, it is notable that government recurrent expenditure included a 3 percent salary increase for the public service, which, as a matter of practice, guided parastatal and private sector wage adjustments. Thus, in 2016, wages increased, generally, by 5.2 percent, therefore, with a modest impact on demand and inflation. On credit developments, growth in commercial bank credit fell from 7.1 percent in 2015 to 6.2 percent in 2016 in the context of subdued economic activity and restrained growth in personal incomes, which influenced both the demand and supply side. The Bank also recognises challenges in the transmission of the prevailing policy rates to lower lending interest rates. The challenges relate partly to structural issues, such as uncertainty about sustainability of funding sources and associated balance sheet restructuring as well as tighter lending criteria by banks. Against this background, the annual expansion in lending to households fell from 12.8 percent to 7.6 percent and included lower growth for personal loans and mortgages. In contrast, growth in business credit increased to 4.2 percent, from a contraction of 0.3 percent in 2015, but with varying performance across sectors. Overall, the moderate increase in bank lending supports economic activity and it is broadly consistent with growth of nominal GDP. Monetary Policy Implementation in 2016 Honourable Minister and Esteemed Guests: Monetary policy was predominantly accommodative in advanced economies, with low levels of interest rates; in some instances, interest rates are negative, while liquidity support to the financial sector was maintained. In this regard, notable developments include the reduction of interest rates in the United Kingdom aimed at mitigating the adverse impact of the decision to leave the European Union (Brexit) and the second increase in interest rates in the United States of America since 2008, given progress in attaining full employment and price stability. For emerging market economies, the direction of policy changes was mixed, invariably reflecting differing macroeconomic circumstances. Closer to home, the South African Reserve Bank increased the policy rate by 75 basis points to 7 percent during 2016 in order to anchor inflation expectations around the country’s target range of 3 – 6 percent. Domestic Monetary Policy Implementation For its part, the Bank continues to conduct monetary policy through a forecast-based policy framework that informs the appropriate response to deviations of inflation from the desired objective range. The analysis also involves assessment of divergence of actual output (GDP) from potential output (technically known as the “output gap”), which is the primary indicator of the direction of future inflation. The forecast incorporates projections of foreign inflation, exchange rate movements and changes in domestic administered prices and taxes. In addition, the Bank undertakes a careful evaluation of risks associated with the projected outlook. In determining the appropriate policy response, the inflation forecast is considered alongside indicators of financial stability and economic activity, including relevant information from the Business Expectations Survey conducted biannually by the Bank. Monetary policy during 2016 was conducted in an environment of below-trend economic activity and a positive medium-term inflation outlook, providing scope for policy easing. Indeed, the Bank Rate was reduced further by half a percentage point to 5.5 percent in August. Accordingly, commercial banks also reduced the prime lending rate by half a percentage point to 7 percent. Nevertheless, there was a build-up of excess liquidity in the banking system as commercial bank credit expansion slowed relative to the increase in deposits. Monetary policy was implemented with a view to encourage productive commercial bank lending and market efficiency, as well as ensuring costeffective absorption of excess liquidity in the banking system, through a limited issuance of Bank of Botswana Certificates (BoBCs). This was balanced with the need to keep money market interest rates aligned with the monetary policy stance, a consideration that allowed for some flexibility in the issuance of BoBCs. Honoured Guests, as in the previous years, monetary policy was also implemented in a way that safeguards the stability of the financial system. Notably, the slower household credit growth was in line with modest increase in personal incomes, while the restrained expansion in mortgage lending was also consistent with a weaker residential property market. In this respect, the ratio of non-performing loans to total credit was modest at just under 5 percent. Overall, the banking system satisfied, and in most cases, significantly exceeded the minimum prudential requirements, which is indicative of a generally healthy, sound and stable financial system. Economic Outlook and Projections Now looking ahead, the global economy is expected to grow by 3.4 percent in 2017. The projected improvement is premised on anticipated stronger emerging market economies, including a recovery from recession in Brazil and Russia. In advanced economies, growth is expected to be supported by relatively low oil prices, improving labour markets and possible fiscal stimulus in the United States of America. Nonetheless, global economic performance is subject to uncertainty of the policy environment associated with the potential for inward-looking and protectionist trade policies as well as geopolitical tensions. Other downside risks emanate from persistence of tight financing conditions in some key markets and subdued commodity prices. Global inflation is forecast to be 3.3 percent in 2017 as advanced economies reflate to achieve the desired targets and as the effect of the earlier decrease in energy prices dissipates. In emerging market economies, inflation is expected to moderate as the effect of previous currency depreciation tapers off in 2017. In this environment, it is anticipated that monetary policy will remain accommodative in most economies, complemented by measures aimed at facilitating effective financial intermediation and fostering resilience of the financial sector to support economic activity. Domestic Economy As the Honourable Minister indicated in the 2017/18 Budget Speech, the domestic economy is forecast to grow by 4.2 percent, an improvement from the estimated 2.9 percent for 2016. Furthermore, the budgeted 6.5 percent expansion in government spending, in 2017/18, should continue to be supportive of domestic demand. Government spending comprises elements that generate both short-term growth supporting demand and expansion of productive capacity which, potentially, should sustain future growth prospects. The exchange rate policy will continue to complement the monetary policy framework and it augurs well for maintenance of international competitiveness of domestic industries and macroeconomic stability. As announced at the beginning of the year and consistent with Botswana’s trade pattern, the weights of the constituent currencies in the Pula basket were adjusted from 50 percent each to 45 percent for the South African rand and 55 percent for the SDR. Also, effective January 1 this year, the Bank is implementing a modest upward rate of crawl of 0.26 percent for the nominal effective exchange rate, lower than the 0.38 percent in 2016. The upward crawl reflects the achievement in maintaining domestic inflation at a rate lower than the average for the trading partner countries. Overall, both external and domestic pressures on inflation are expected to be benign, and it is projected that inflation will remain within the 3 – 6 percent objective range in the medium-term, although, in the near-term, it is expected to rise modestly. This forecast takes into account possible increase in some administered prices, the impact of which, however, is not expected to result in short-term inflation over-shooting the upper boundary of the objective range of 3 – 6 percent. Having said so, it is worth underscoring the point that any upward adjustment in these prices that is substantially beyond current projections presents upside risks to the inflation outlook. In contrast, downside risks to inflation arise from the expected restrained growth in global economic activity and the tendency of technological progress to result in lower prices as well as a possible decline in commodity prices. Conclusion and Monetary Policy Stance Distinguished Guests, as I conclude my remarks, I would like to restate that current projections, based on available data, suggest that inflation in Botswana will, in the medium-term, remain within the Bank’s objective range of 3 – 6 percent. This positive medium-term outlook for inflation is in the context of anticipated higher GDP growth in 2017 and a sound and stable financial system. Therefore, prospective developments augur well for maintenance of an accommodative monetary policy that supports productive lending to businesses and households. The Bank’s implementation of monetary policy will continue to focus on entrenching expectations of low, predictable and sustainable inflation, through timely responses to price developments; while, at the same time, taking due care to ensure that policy decisions are consistent with enduring financial stability and supportive of sustainable economic growth. Honourable Minister and Distinguished Guests, it is important to note that the continuing success in containing inflation within the desired 3 – 6 percent medium-term inflation objective, to which the Bank remains fully committed, must, in the end, involve the cooperation of all key players in the economy, namely, Government, parastatals and the private sector, for the good of the country as a whole. Let me also take this opportunity to remind the Media about the scheduled Press Briefing, to be held tomorrow morning at 1130 in the Bank, after the first MPC meeting of the year. The Briefing will cover both this Monetary Policy Statement and announcement of the Monetary Policy Committee decision. Honourable Minister, Distinguished Guests; I thank you for your kind attention.	bank of botswana	2,017	5
Keynote address by Mr Moses D Pelaelo, Governor of the Bank of Botswana, at the 25th anniversary gala dinner of Stanbic Bank Botswana Limited, Gaborone, 23 March 2017.	KEYNOTE ADDRESS AT THE 25th ANNIVERSARY GALA DINNER OF STANBIC BANK BOTSWANA LIMITED by Moses D Pelaelo Governor March 23, 2017 It is an honour and, indeed, I am most grateful to the Board and Management of Stanbic Bank Botswana Limited for the invitation to officiate at this Gala Dinner, celebrating “25 Years of Stanbic Bank Moving Forward”. This event marks a significant milestone in the history of the bank in Botswana, more so coming shortly after the commemoration of the Bank of Botswana’s 40th Anniversary on March 31, 2016 and the 50th Anniversary of our country’s Independence, on September 30, 2016. Distinguished guests, allow me to start by thanking, in particular, Standard Bank Group Chief Executive, Mr Sim Tshabalala; Chairman of the Board of Stanbic Bank Botswana Limited, Mr Craig Granville; Chief Executive, Mr Leina Gabaraane, and the entire management and staff of Stanbic Bank for ensuring that we are here, today, celebrating the Silver Jubilee of Stanbic Bank Botswana Limited. The efficiency, effectiveness and safe conduct of banking operations cannot and ought not be taken for granted because, as many would know, banks are accident-prone entities. It is for this reason that the Board, Management and Staff of the Bank of Botswana congratulate you, Mr Gabaraane, your Board and the entire team, for the many achievements of your bank to this day and, thus far, having conducted the affairs of the bank in a prudent, sound and sustainable manner. Distinguished Ladies and Gentlemen, the first part of my remarks this evening will highlight the accomplishments of Stanbic Bank Botswana Limited over the last 25 years in the areas of governance, financial performance, innovation and corporate social responsibility. Thereafter, I will offer a few perspectives on expectations relating to banking sector regulatory compliance and the role of banks in policy implementation. The entry of Stanbic Bank into the Botswana financial sector should be placed in the context of the major financial sector reforms undertaken in the early 1990s. These reforms were informed by the report entitled “Botswana - Financial Policies for Diversified Growth”, derived from a study by Government with the assistance of the World Bank. The key elements of these reforms included deregulation of interest rates, adoption and use of indirect instruments of monetary policy, introduction of the Bank of Botswana Certificates to influence liquidity in the banking system and manage short-term interest rates, liberalisation of banking licensing requirements to spur competition in the financial sector and enhanced prudential supervision of banks. Hitherto, there were only three commercial banks operating in Botswana. In 1991, two additional commercial banks were licensed, namely, ANZ Grindlays Botswana Limited and Zimbank Botswana Limited. A year later, in 1992, the Bank of Botswana granted UnionBank Botswana Limited, a subsidiary of Standard Bank of South Africa, a banking licence, making it the sixth licensed commercial bank in the country. Shortly thereafter, in the same year, UnionBank merged with ANZ Grindlays, each with an initial capital of P10 million, to form the bank we know today as Stanbic Bank Botswana Limited. Director of Ceremonies, today, 25 years on, Stanbic Bank is ranked 4th among the 10 commercial banks operating in the country, in terms of staffing, branch network, capital and deposit liabilities. From a modest beginning, with only 24 employees in 1993, Stanbic Bank currently employs over 600 staff members across 10 branches, and serves in excess of 80 000 retail and business customers. The bank asset base has grown significantly, from P138 million in 1993 to P12 billion as at December 31, 2016. During the same period, the bank has also consistently made profits; with its net income after tax increasing from P2.2 million in 1993 to P192 million in 2016. At present, Stanbic Bank is regarded as one of the systemically important domestic banks operating in Botswana, with a 15 percent market share of total banking industry assets and deposits. Distinguished Guests, Stanbic Bank offers a wide range of traditional and innovative corporate, retail and investment products and services including, more recently, like some of its peers, the introduction of on-line and mobile banking services. I have no doubt that these technology-based platforms, products and services will enable Stanbic Bank to continue to be a significant player in the industry and broader economy, as well as adapt to the emergence of financial technology (Fintech) operators for the benefit of customers and the economy at large. Somewhat uniquely, while embracing technology-based banking, Stanbic Bank continues to reinforce its position in corporate and investment banking. Amongst other Awards in the recent past, it was named the best investment bank in Botswana in the 2016 Europe, Middle East and Africa (EMEA) Finance African Banking Awards. Congratulations, once again. Distinguished Ladies and Gentlemen, another highlight is the evolution of leadership and governance at Stanbic Bank. Notably, the Chief Executive position was localised in 2008 with the appointment of Mr Gabaraane, while the majority of the bank’s Board members (six out of 10) and 80 percent of the senior management staff of the bank are citizens. These are significant developments in two respects: first, they reflect the attention given to staff development and enhancement of relevant skills across the spectrum of banking operations; and, second, the alignment of leadership, management and operational processes to the local context, in order to better serve the domestic economy. I can confidently state that, based on the latest statutory returns submitted monthly and quarterly to the Bank of Botswana, the bank is solvent, profitable, well governed and prudently run, in the main, by Batswana. Director of Ceremonies, in the area of corporate social responsibility, Stanbic Bank has a long-standing relationship with the Cheshire Foundation; it donated therapeutic equipment to the Rehabilitation Centres; mosquito nets to the Ministry of Health to fight malaria; and a mobile clinic for the Shakawe community and surrounding areas. I am informed that the bank also supports vulnerable groups, such as orphans and underprivileged children, through various initiatives, including a partnership with SOS Children’s Village, St Peters Day Care Centre, Metsimotlhabe Recreational Centre and Kagisano Women’s Shelter, as well as promoting culture, arts, health and wellness. Distinguished Guests, there is, however, one missing part of this good story, namely that, unlike its peers, Stanbic Bank is not listed on the Botswana Stock Exchange. To be clear, the Bank of Botswana does not prescribe that the shares of banks operating in Botswana be listed on the domestic stock exchange. This is consistent with accepted best practice and governance norms that the Board and Management of individual firms should be allowed to determine the appropriate capital structure and economic capital management for a bank, subject, of course, to meeting the minimum thresholds for prudential regulatory capital adequacy requirements. That said, the non-existence of Stanbic Bank on the domestic bourse could be misinterpreted to mean lack of long-term commitment and willingness to have the Botswana public participate in the ownership of the bank. This point assumes particular significance in the context of a country where all the 10 licensed commercial banks are subsidiaries of foreign-owned entities. Distinguished Guests, Ladies and Gentlemen, Stanbic Bank is a wholly owned subsidiary of Standard Bank Group, the largest PanAfrican banking group by assets amounting R1.95 trillion; equivalent to approximately P1.6 trillion or 154.5 billion US dollars. Therefore, Stanbic Bank Botswana is supported by a strong parent and a well-recognised franchise, regionally and globally. presents both opportunities and challenges. As This regards opportunities, the Standard Bank Group is a Pan-African bank that also has significant representation in other international markets. This places the Group in an advantageous position to fill the gap that may be left by some of the global banks as they decide to move out from certain markets, a process euphemistically referred to as “regulatory deconsolidation” or “global de-risking” and, in certain cases, withdrawal of correspondent banking services, for a variety of reasons. In contrast to such disengagement, as we witnessed recently, Stanbic Bank played a leading role in the syndicated facility for the financing of the Morupule Power Station project. I hasten to add that, as an internationally active financial conglomerate, with appropriate risk management and governance structures, resources and expertise, Standard Bank Group is well positioned to support regional businesses and infrastructure projects through the provision of long-term finance. Distinguished Guests, this leads me to my second sub-theme; and I wish to offer some thoughts on ‘Moving Forward’ in the next 25 years and beyond, with a special focus on the Bank of Botswana’s expectations regarding Stanbic Bank and other banks from a policy and regulatory perspective. The global, regional and domestic economies are projected to grow modestly in the years ahead, constrained by a number of factors, including policy uncertainty, change of growth models in China, low commodity prices, slowdown in global trade and potential event risks emanating, especially, from the Brexit negotiation process and some European countries electoral outcomes in 2017. Distinguished Guests, notwithstanding the foregoing, the agenda for transformation of Botswana’s economy, from a resource-based to a well-diversified economy, supported by good public infrastructure, a sound macroeconomic environment and a vibrant financial sector, must continue. As indicated in the 2012 - 2016 Botswana Financial Sector Development Strategy, “a healthy and vibrant financial sector is crucial for the future of Botswana. Financial institutions and markets safeguard savings, provide the financing required for a growing private sector, and make an important and growing direct contribution to employment and economic growth”. It is in this context that the presence of Stanbic Bank and its parent bank, Standard Bank Group, in banking, insurance and other forms of financial services in Botswana becomes critically important. Distinguished Guests, banks are, by definition, risk traders and, invariably, should be compensated for taking such risks. However, in the context of economies, such as Botswana, there is a tendency for some large banking groups to engage in some form of “cherrypicking” of best corporates and wealthy customers for credit support to the exclusion of SMMEs, non-salaried persons, low income groups and other underserved segments of society. In order to continue to contribute positively to sustainable economic development, the Botswana banking system should be more inclusive. Banks ought to invest more in risk management infrastructure (staff and systems) to be able to tap into new resources and opportunities, including identifying and funding bankable projects originating from low-income groups and small enterprises, and, I must add, in a safe and prudent manner. In the long-term, failure to do so could marginalise banks, as we know them today, as fintechs and block chain technologies increasingly satisfy the demand for financial services in more innovative and cost-effective ways. According to the World Economic Forum Global Competiveness Report of 2016/17, the Botswana financial sector’s overall ranking is 66 out of 138 countries, representing a slight deterioration from a ranking of 63 in 2015/16. According to the Report, “this is largely due to weak performance in the soundness of banks, (ranked 68), and ease of access to loans, (ranked 69)”; these aspects were ranked and 56, respectively, in the 2015/16 Global Competitiveness Index”. It is also a matter of public policy concern that the ratio of private sector credit to GDP has increased only marginally, from 25 percent in 2011 to 31.8 percent in 2016. Furthermore, the proportion of mortgage loans to total GDP has been, on average 5.2 percent in the last five years. This compares, for example, with a ratio of 69.3 percent for Norway, 67.6 percent for the United Kingdom and 84.3 percent for Sweden. Overall, therefore, these particular financial indicators for Botswana are below international norms and suggest that it may be true that lack of cost-effective access to appropriate finance and credit is a constraining factor towards a more diversified economy. Distinguished Guests, post the global financial crisis, the Financial Stability Board and other international standards-setting bodies have been spearheading regulatory reforms aimed at enhancing the resilience of banking systems, globally. In this regard, the Bank of Botswana has demonstrated foresight with respect to the minimum prudential capital requirements for banks, which has been set at 15 percent of risk-weighted assets, compared to the international benchmark of 8 percent, since 1997. As some will be aware, effective January 1, 2016, the Bank of Botswana implemented those elements of the revised International Convergence of Capital Adequacy Measurement and Capital Standards, called Basel II, deemed relevant and proportionate to the nature of the risk profile of banks, as well as the structure and the needs of the Botswana economy. Furthermore, the Bank of Botswana is, along with other stakeholders, taking steps to strengthen the framework for banking sector safety nets and system-wide crisis management. This project requires all systemically important domestic banks to develop recovery plans in conjunction with their parent banks. Distinguished Guests, the Bank of Botswana recently issued a guidance note on cybercrime risk, imploring banks to put in place effective risk management systems and maintain sound internal controls, specifically designed to counter the growth of increasingly sophisticated cyber-attacks and other forms of financial crimes. Furthermore, there continues to be a worrisome upward trend of cases of fraud, in the form of identity theft, scanning and cloning of bankcards and unauthorised cash withdrawals from Automated Teller Machines (ATMS) by individuals and organised crime syndicates. Cybercrime, fraud and other forms of criminal activities, including money laundering and the financing of terrorism, impose heavy financial and economic costs on society as banks, customers and regulators have to allocate large amounts of resources on preventive measures. Moreover, these forms of crime have the potential to undermine public confidence and trust in the banking system. Given the nature of these operational risks, there is a need for sound leadership and governance of banks, both individually and on a consolidated basis. For banking regulators and supervisors, these developments call for smarter and more responsive supervisory frameworks, as well as effective collaboration, cooperation and communication across jurisdictions. Distinguished Guests, despite these challenges, banking institutions, such as Standard Bank Group and its subsidiaries, in Botswana and elsewhere, should remain strong, continuously evolving operating environments, agile in decision making and adapting as necessary to provide the much-needed financial resources for economic development and job creation. There is no doubt, in my mind, that technology is the future of banking, particularly in a sparsely populated country such as Botswana. However, weak, ineffective and inappropriate governance and risk management infrastructure may compromise the safe conduct of banking business. You will agree that for a large Pan-African bank, such as Standard Bank Group, any deficiencies, in this regard, could be far reaching, and have an adverse impact on business and economic performance in several countries, including those that are anchors of regional growth. Distinguished Ladies and Gentlemen, as I mentioned recently at the launch of the 2017 Monetary Policy Statement, the Bank of Botswana’s primary objective is to achieve price stability and safeguard the stability of the financial system. I also indicated that a sound and stable financial system is potentially more effective in policy transmission. Put slightly differently, banks in distress, as well as unsound and imprudent behaviour, can undermine transmission of monetary policy signals, macroeconomic stability and economic performance. To be absolutely clear, however, let me note that the Botswana banking system, of which Stanbic Bank is a significant player, complies satisfactorily with the minimum prudential requirements, which is indicative of a generally healthy, sound and stable financial system. Distinguished Ladies and Gentlemen, effective monetary policy transmission is also premised on wider financial inclusion. Therefore, the leadership of the financial sector and policy and regulatory authorities need to continue to work together to broaden financial inclusion, and bring more unbanked enterprises and households into a bankable population. It is only when there is a formal economic relationship between a great majority of businesses and individuals and the banks that changes in interest rates, for example, can affect saving and borrowing decisions on a large scale and, therefore, have the anticipated effect on price developments, economic activity and employment creation. From the Bank of Botswana’s perspective, it is important that the formulation of monetary policy and effective discharge of the central bank’s primary mandate are not constrained by perennial concerns about the health of banks; and, in turn, that banks are not so encumbered by internal weaknesses that they are unable to respond to, and effect, changes in the Bank Rate, that is, implement a policy decision. As I conclude, Distinguished Ladies and Gentlemen, I wish once again, to recognise the role of Stanbic Bank in supporting economic development through involvement in savings mobilisation, prudent lending, provision of payments and risk mitigation, as well as participation in community initiatives in Botswana. Honourable Cabinet Ministers, Distinguished Ladies and Gentlemen, I wish Stanbic Bank prosperity as it moves forward and, together with other players in the financial sector, foster economic activity and wealth creation in Botswana. I thank you for your kind attention.	bank of botswana	2,017	5
Keynote speech by Mr Moses D Pelaelo, Governor of the Bank of Botswana, at the official launch of Bank Gaborone Maun branch, Gaborone, 11 September 2017.	OFFICIAL LAUNCH OF BANK GABORONE MAUN BRANCH Keynote Speech by Moses D Pelaelo Governor, Bank of Botsw ana September 11, 2017 Good morning and thank you all for being part of the official opening of the Maun branch of Bank Gaborone. Today marks yet another important milestone in the history of Bank Gaborone in Botsw ana. Last year, on March 22, the bank opened its doors to the residents of Palapye, that w as just tw o years after the opening of the Kang branch (in 2014) in Kgalagadi North, w here, by the w ay, to date, Bank Gaborone is the only bank in that village. It is, therefore, commendable that in a period of three years, Bank Gaborone has added three new branches, to take the total to 9 and 17 Automated Teller Machines (ATMs). This becomes even more significant if w e consider the fact that Bank Gaborone started its operations in Botsw ana in 2006 and, in a relatively short period of 11 years, it has expanded its netw ork of branches, comparable in number to, or even, surpassing some of the older banks in the country. The bank also provides electronic banking services, w hich further extends its coverage and footprint. I should also recognise that , Bank Gaborone employs 261 people, mostly Batsw ana, hence, contributing to the economic and social w ell-being of the employees and their families. Distinguished Guests, w hat I have just said about Bank Gaborone, demonstrates a clear commitment and contribution to Botsw ana’ s financial inclusion agenda. The strategy of expanding the branch netw ork beyond cities, potentially opens up access to banking services to a greater number of individuals and businesses, including small and medium scale enterprises and, indeed, the informal sector. By so doing, Bank Gaborone is adding to the inputs and resources needed to enhance productivity of economic pursuits, and for the community to harness and profit from business opportunities. The extended outreach of financial services being undertaken by Bank Gaborone accords w ell w ith the nation’ s Financial Sector Development St rategy and, ultimately, contributes to the aspiration of inclusive economic grow th. Distinguished Ladies and Gentlemen, as you may be aw are, Bank Gaborone is a member of the Capricorn Group - a financial services group w ith its roots in Namibia, offering banking, insurance and asset management services in Botsw ana, Namibia and Zambia. In Botsw ana, the bank’ s financial position has grow n steadily since commencement of operations, in 2006. Total assets increased from P268 million in June 2007 to P4.6 billion in June 2017; lending increased from P197 million to P3.2 billion in June 2017; w hile deposits grew from P188 million to P3.9 billion in June 2017. The bank has, therefore, in a relatively short period, mobilised approximately P4 billion w orth of financial resources. These resources have been productively employed and distributed, in the form of loans and other credit facilities, to support real economic activity in diverse sectors across Botsw ana, including consumption spending. As a regional bank and being relatively new , it is expected that the bank and its design of products w ill continue to be w ell aligned to contemporary domestic market requirements. Notably, for the area around Maun, this branch of Bank Gaborone is invariably expected to support the various facets and business value chains in the tourism and agricultural sectors associated w ith this region. In this w ay, Bank Gaborone w ould be contribut ing to sustainable economic activity and inclusive grow th in this part of Botsw ana. It is w orth pointing out that the tourism industry, of w hich Maun is a significant player, accounted for 3.9 percent of the country’ s Gross Domestic Product (GDP) in 2016, through industries such as hotels, restaurants, travel agents, airlines and other passenger t ransportation services. The same industries contributed 2.6 percent to total employment in 2016. It is therefore expected that the provision of additional or enhanced financial services, in the form of transactional accounts, savings products, credit ext ension, payments and other banking services offered by Bank Gaborone, as w ell as other players of course, should help sustain the contribution of the tourism sector to GDP. In turn, this should foster economic diversification and broad-based private sector development, both of w hich are critical for endurable economic grow th and raising living standards of our people. To the Maun residents and North West community, in general, w e should recognise that the Maun branch of Bank Gaborone is a business that needs a good and durable customer base in order for it to be profitable and sustainable. Therefore, you are all encouraged to use the branch and, of course, all other licensed banks in your area, to save money and undertake other financial transactions. Similarly, it is my expectation that Bank Gaborone w ill take full advantage of the Botsw ana payments and other public infrastructure, partnership w ith mobile operators and other Electronic Payments Systems, to enhance financial inclusion; and this includes providing the much-needed support for the informal businesses in Botsw ana in general and Maun, in particular. Distinguished Guests, Ladies and Gentlemen, In addition to w hat I have just said, I w ish to implore the Maun community to engage banks w ith viable borrow ing proposals that are sustainable and can yield positive returns. Equally, important, and having obtained loans and other credit facilities, borrow ers should honour their obligations by adhering to the repayment programme agreed w ith banks. Distinguished Guests, I am making this point because the Bank of Botsw ana is concerned about the recent observed upw ard trend in non-performing loans. While this trend could be, in part, due to sluggish global economic activity and idiosyncratic business performance and environment, there is some evidence of lack of financial discipline on the part of some individuals and poor management practices by some businesses. There is also an undesirable creeping culture, on the part of some customers of banks, of failing to repay their obligations to banks according to the agreed schedule. Let me, therefore, take this opportunity to remind you, Distinguished Guests that, in the main, banks in Botsw ana are funded mainly by depositors/savers’ funds. Therefore the Board and management of a bank have a fiduciary duty and responsibility to ensure that the lending and credit underw riting standards are sound; the bank is managed in a safe and prudent manner, to safeguard depositors’ funds and ensure that these borrow ed funds are not lost through uncollectable loans. In this context, I should therefore caution that, w here a borrow er is in default, the bank is entitled to institute law ful, procedural and ethical recovery procedures including attachment and liquidation of property pledged as collateral to recover its money. Moreover, providing for a loss or w riting off a loan in the bank’ s books, as a non-bankable asset, does not extinguish the debt the customer ow es to the bank. In this case, the bank is only being prudent and adhering to sound accounting and international financial reporting standards. defaulting customer continues to be obliged to repay. The In this context, let us alw ays remember that a safe, sound and stable banking system is a necessary condition for sustainable economic development. Director of Ceremonies, Distinguished Guests, I am reliably informed that Bank Gaborone, w hich identifies w ith the mission statement: “ to make banking a rew arding experience for all stakeholders” , has a strong customerfocus orientation that should make it a good business partner. I am also aw are that customers have demonstrated their confidence in the bank’ s service delivery by voting it the “ Best Bank in Customer Care” , during a customer service survey carried out by KPM G in 2013 and 2016. This is commendable and trust that the Maun community w ill soon have a reason to validate these accolades. In terms of Corporate Social Responsibility, Bank Gaborone qualifies to be called a good corporate citizen, as evidenced by its participation in charitable activities, including Financial Literacy Programme, through w hich the bank educates Batsw ana on financial matters. Other Corporate Social Responsibility initiatives include support for youth football development; involvement in the Diabetes Apple Project and Journey of Hope for raising breast cancer aw areness; and sponsoring Lady Khama Charitable Trust, UB Foundation and Kang Primary School. Distinguished Guests, Ladies and Gentlemen, allow me to comment on a few other issues of topical interest . First, the status of liquidity in the banking system; one of the key economic functions of a bank is to manage and provide liquidity to firms and other economic entities. As many of you w ill be aw are, liquidity and maturity transformation is the essence of banking. In this regard, banks should ensure that, at all times, they have adequate funds, including contingency funding sources, to meet their financial obligations. These obligations typically include customer w ithdraw als and draw dow n of loan facilities, as w ell as the capacity to accommodate grow th and profit opportunities, such as new credit requirements by their clients. Therefore, liquidity is a critical and integral component of a bank’ s operations, strategy and governance framew ork. Consistent w ith our principal objectives, as the central bank and regulatory authority, namely, “ to promote and maintain monetary mechanism and stability, the an liquidity, efficient solvency payments and proper functioning of a soundly based f inancial system” , the Bank of Botsw ana monitors banks on an ongoing basis to ensure that they continually meet the minimum prudential thresholds, in this case, liquidity ratios; and that there is no constraint to transmission of the monetary policy stance. It is for this reason that , the Bank of Botsw ana stands ready to inject and/or w ithdraw liquidity from the banking system and, also, provide overnight credit facilities to solvent banks, if needed, to meet temporary liquidity shortfalls. These form of support by central banks is common across the w orld, as it is central to the primary objective of “ fostering monetary, credit and financial conditions conducive to the orderly, balanced and sustainable economic development” of the country. As regards the current status and health of the banking system, I can report that banks have sufficient liquidity, totalling approximately P19 billion, inclusive of Bank of Botsw ana Certificates and balances held abroad, both of w hich could be liquidated in case of need, w ith minimal capital loss, to finance any effective and viable demand for credit. How ever, it should be noted that the distribution of liquidity amongst banks w ill vary from time to time. Distinguished Guests, Ladies and Gentlemen, the second issue relates to the conduct of banks in accepting foreign currency international denominated norms, and deposits. as is Consistent the case in w ith many jurisdictions, Botsw ana’ s banking and other law s permit non-residents to open accounts in local banks. I should note here that, similarly, Botsw ana residents do open and operate accounts in other countries, subject to compliance w ith Botsw ana tax and other applicable law s. How ever, there is a legal requirement to declare any cross-border transfers, including cash in any currency equivalent to P10 000 and above. In opening accounts and accepting deposits by foreigners (non-resident accounts), the local banks are doing so in compliance w ith Botsw ana law s. Banks are, how ever, required to consistently undertake effective due diligence, including strict application of the Know Your Customer procedures for any such transactions and/or customers. These include obtaining customer identity documents, residence status, address, business location and sources of income; this is done at account opening and on an ongoing basis. Banks also need to ensure that any cross-border cash deposits and similar inw ard transfers are supported by duly completed and valid documents, w hen processing such transactions. It is also important to indicate that banks have a screening process to ensure that entities and individuals on the International Sanctions Lists do not use the Botsw ana banking system as a conduit for illegal activities and other forms of financial crime. Banks also routinely monitor accounts for suspicious activity and file Suspicious Transactions Reports (STR) w ith the Financial Intelligence Agency. While it is not evidence of illegality, the Report triggers appropriate steps, including follow up action by relevant authorities, such as the Bank of Botsw ana, NonBank Financial Institutions Regulatory Authority and other law enforcement agencies. Having said that, I can confirm that both the Financial Intelligence Agency and the Bank of Botsw ana continue to monitor and enforce, in line w ith their respective mandate, local banks' compliance w ith applicable law s, business conduct requirements, as w ell as the Anti-Money Laundering and Combatting the Financing of Terrorism protocols. This leads me to the third topical issue, namely, cybercrime and related other financial crimes. Distinguished Guests, technology is the future of banking and many of us w elcome the benefits of new information and communication technologies, in various facets of our lives, including enhanced cost-effective access to financial services and the associated convenience of conducting banking and other transactions. How ever, in as much as these technologies increase efficiencies and bring other economic benefits, the speed, scale and the cost of any fraudulent activity perpetrated through these channels can be enormous, ruining the lives of many and causing major harm to institutions and society, in general. These financial crimes can take many forms including unauthorised cash w ithdraw als from customers’ bank accounts at Automated Teller Machines (ATMs), identity theft, scanning and cloning of bank cards, disruption or compromising business processes, internal fraud and, more broadly, cyber-crime. If not properly mitigated, these crimes can discourage members of entrusting their savings w ith the public from banks and this could undermine public confidence and trust in the banking system. Consequently, w e need to be on guard, as institutions, businesses and individuals to mitigate cybercrime and other forms of financial crime risks. The National Banking Week message by the Bank of Botsw ana, in 2011, articulated the issue w ell as follow s that; “ combating fraud is an on-going shared responsibility by all interested parties; it requires the involvement of the Bank of Botsw ana, banks and the vigilance of members of the public. Vigilance is all the more important as the banking system diversifies and competition intensifies by w ay of new entrants to the market, increased branch netw ork, new products, and progressive globalisation of banking services” . I trust, in closing, that the presence of Bank Gaborone here in Maun, w ill add value to the community and the broader region, by expanding banking services and that there w ill be a mutually rew arding and enduring bank-customer relationship. Mr Coetzee, once again, and through you, I w ould like to thank the Board, Management and staff of Bank Gaborone, for inviting me to be part of this occasion. I w ish Bank Gaborone every success and hope that it w ill continue to grow and expand its services across the country. Distinguished Ladies and Gentlemen, it is now my honour and privilege to declare the Maun Branch of Bank Gaborone officially open. I thank you for your kind attention.	bank of botswana	2,017	9
Keynote speech by Mr Moses D Pelaelo, Governor of the Bank of Botswana, at the official opening of First National Bank of Botswana Limited, Mochudi Branch, Mochudi, 19 September 2017.	OFFICIAL OPENING OF FIRST NATIONAL BANK OF BOTSWANA LIMITED - MOCHUDI BRANCH Keynote Speech by Moses D Pelaelo Governor, Bank of Botswana September 19, 2017 It is with great pleasure that I join you for the official opening of the Mochudi branch of First National Bank of Botswana (FNB). My team and I are particularly delighted because this is the first branch of the bank in the Kgatleng District. This is indeed a positive response to what the Bank of Botswana has been urging all banks to do, specifically to have a physical presence in all major villages of Botswana including Mochudi. I am assured that the branch is well equipped, to the same standard as is the case with other FNB branches, with modern service facilities, most notably platforms that harness the beneficial features of new information and communication technologies. Through the branch facility and electronic platforms for conducting banking business, FNB, and other banks, offer choice and added convenience to customers; this, again is a welcome development. The widening, deepening and modernisation of financial services, and the related facilities fulfil the nation’s Financial Sector Development Strategy and contribute to both financial inclusion and inclusive economic growth. Distinguished Guests, First National Bank of Botswana Limited is a subsidiary and member of the FirstRand Group, which is a South African Johannesburg financial Stock services Group listed Exchange, offering banking, management and insurance services. on the asset The FirstRand Group has a presence in 8 countries in Africa, namely, Botswana, Lesotho, Mozambique, Namibia, Nigeria, South Africa, Swaziland and Tanzania. As at June 30, 2017, the FirstRand Group had assets amounting to R1.15 trillion, with market capitalisation of R251.5 billion. The Group is, therefore, wellendowed to support the domestic and regional resource needs, with respect to a broad range of financial services. These include participation in mobilisation of large-scale finance and funding of businesses, industrial developments and infrastructure projects. It is also well placed to support sustained operation, expansion and further investment in the local subsidiary, to the benefit of the domestic economy. In Botswana, the Group offers a variety of financial services through its three brands, namely, FNB, the retail bank, Wesbank, for financing of moveable assets, notably motor vehicles and finance leases for equipment; and RMB in supporting corporates to access investment banking products and services including working capital and trade finance, private equity and global market services. Since commencement of operations in Botswana in 1991, FNB has grown substantially, initially through the acquisition of Bank of Credit and Commerce Botswana Limited in 1992, Financial Services Company of Botswana Limited in 1993 and Zimbank Botswana Limited in 1994. More recently, in the past five years, FNB has grown organically to be the largest bank in the country. The bank’s total assets increased from P13.9 billion in December 2011 to P23.6 billion in June 2017. In the same period, loans and advances rose from P8.3 billion to P15.6 billion, while deposits grew from P11.8 billion to P18.7 billion. The bank employs a total of 1 269 staff members, most of whom are Batswana; it has a network of 23 branches, 150 cash dispensing Automated Teller Machines, 51 Automated Teller Machines that have deposit taking capabilities, 25 Slimline Automated Teller Machines and 5 600 point of sales machines in retail outlets all over the country. Overall, in the 26 years of existence and operations in the country, FNB has grown in both size and range of products and services offered. With particular reference to this Mochudi branch, located here at the Pilane Crossing Mall, the bank adds to the opportunities for enhancing access to financial services, notably saving channels, providing financial resources to its customers, ease of transacting, convenient payment and related advisory services. The branch potentially extends the support to economic activity in the local community and neighbouring areas, and should serve the needs of local industry, businesses, agricultural pursuits and households, including the informal sector. Distinguished Ladies and Gentlemen, FNB Botswana has embarked on a number of beneficial Corporate Social Responsibility (CSR) initiatives through the FNB Foundation and its Staff Volunteer Programme. The focus of these initiatives is on education; healthcare; skills development; vocational training; support for disadvantaged and handicapped people; arts and culture development; and sports and recreation. Many of the community projects that the Staff Volunteer Programme supports involve infrastructure upgrades, such as the renovation of nursery schools, classrooms and primary healthcare clinics. I am reliably informed that, here in the Kgatleng District, the FNB Foundation has changed many lives through partnering with Community Development Organisations, such as the Motswedi Rehabilitation Centre, Bakgatla Bolokang Matshelo, Mochudi Resource Centre for the Blind, Stepping Stones, and Pudologong Rehabilitation Centre. Through the Foundation, more than 10 000 pairs of school shoes have been donated to deserving pupils. Distinguished Ladies and Gentlemen, let me turn to some general, but topical financial sector development issues. I recently made reference to a worrisome trend of nonperforming bank loans; a point that, for emphasis, I would like to reiterate here. Non-performing loans, or NPLs, as a proportion of total loans and advances have been on an upward trajectory since 2014; the industry’s NPLs rose from 3.6 percent in December 2014 to 3.9 percent in 2015 and 4.9 percent in December 2016. As at July 31, 2017, the NPLs had increased further to 5.9 percent of total bank loans. The trend is a cause for concern. This is despite the fact that these levels of NPLs are relatively low, by international norms, especially in the context of prudent and sound accounting practices as well as the quality and level of capital in the banking system. Nonetheless, I should emphasise that the concern is not with respect to the level or growth of credit in the economy. In fact, the current Private Sector Credit to GDP, of about 30 percent, is low by international standards, suggesting that there is greater scope for the banking sector to perform better in mobilising resources to support economic activity through credit provision. Broadly, growth in credit that is commensurate with rate of increase in economic activity and incomes should be sustainable. Indeed, affordable credit, when put to good use, is beneficial for economic activity, investment, wealth creation and, ultimately, increase in living standards. The challenge arises when there is high leverage, or over-indebtedness, relative to incomes, and where there is weak financial management. A combination of these factors, as well as subdued economic growth, can undermine the ability to repay bank loans. If left unchecked, unsustainable personal indebtedness not only leads to financial ruin but threatens the safety and soundness of banks and, by extension, depositors’ funds. It is, therefore, critically important to expand financial education and literacy. Distinguished Guests, it is for this reason that the Bank of Botswana and the commercial banks continue to engage in public education on financial matters through various platforms. Furthermore, the Bank of Botswana will continue to emphasise the role of banks and other lenders in the country of instilling financial discipline, as well as promote ‘truth-in-lending” through greater transparency of credit terms and the true cost of borrowing over the life of a loan facility. Furthermore, concerted efforts are required to educate the public, in particular, consumers of financial services with respect to borrowing and debt management. I, therefore, call upon other key stakeholders, including schools, NGOs, trade and credit unions, social clubs, consumer watch dogs and professional counsellors to intensify public education on financial matters. Distinguished Ladies and Gentlemen, on a related matter, please allow me to implore you to be on guard and vigilant with respect to the mushrooming of illegal deposit taking activities in the form of pyramid schemes. I thought it would be appropriate, to use this forum to appeal to Batswana and to you all, Distinguished Guests, that you should neither participate nor peddle any of these “get rich quick” schemes. These can only lead to financial ruin, resulting from loss of hard-earned money and sources of livelihood. I urge you to be suspicious and stay away from anybody offering exceptional returns. The general guide is that, in any country, returns or rate of profit on any investment should be around the general level of interest rates, the growth rate of the economy or the average return of the companies listed on the stock exchange. Anything substantially higher is either too risky to be worthwhile or fraud. As they say, ‘if something sounds too good to be true, it probably is too good to be true’. Unfortunately, even the educated, professionals and people who should be financially literate and, I may add, some in the financial sector, are gullible and do fall prey to these illegal and unfair trading schemes. While it is difficult for the Bank of Botswana to recommend where to look for advice if confronted by a tricky financial investment situation, and you are unsure; you may wish to consider the general guide I have just highlighted. Director of Ceremonies, Distinguished Guests, a formal, sound and well-regulated financial sector is the foundation of effective intermediation, productive use of financial resources and, in turn, reasonable returns for savers and investors. In this respect, successful and sustainable banks are essential for the development of well-functioning money and capital markets. This is particularly so in Botswana where the banking sector is a substantial component of the financial system. Moreover, banks also benefit as deeper and more efficient markets provide alternatives for sources and placement of funds as well as more effective liquidity management. This includes the interbank market, through which banks lend to one another, typically on a short-term basis. In turn, this improves the overall allocation of financial resources, including real returns to depositors and investors, and the channelling of funds to productive use in diverse areas of economic activity. Director of Ceremonies, in this context, it is a matter of public policy concern that money and capital markets in Botswana are in a rudimentary state of development. As a result, there is a limited range of instruments and relatively low turnover and activity in the various markets, more so in relation to instruments for risk-sharing, distribution and mitigation. This tends to result in volatility of both prices and volumes, and limits the choice of instruments necessary for efficient financial and business management. For the banks, in particular, a diverse source of funds that includes a large number of retail depositors and structured long-term funds represents stable funding. This facilitates maturity transformation and support for the range of financial resource requirements of businesses, including infrastructure and utilities projects, as well as households. Regarding the short-term interbank market, it is important that banks, although competitors, operate in a collaborative spirit to address any structural impediments to this lack of development and low efficiency, with a view to improving the flow of liquidity and its management in the banking system. The central bank should only be required to provide or absorb liquidity in the market after mutually beneficial trading opportunities among banks are exhausted. The Bank of Botswana already facilitates such collaboration through industry-wide fora that address issues of mutual concern related to market development in order to foster enhanced and effective support for real economic activity. It is, therefore, important that banks strive for constructive engagement, in this regard, in order to achieve the best outcomes in terms of effective policy transmission and enhanced contribution by the financial system to economic performance. Distinguished guests, ladies and gentlemen, as I conclude, let me thank the Chief Executive Officer, Mr Bogatsu, the Board, Management and staff of FNBB, for inviting me to be part of this occasion. I wish the bank well and look forward to many more invitations for the opening of FNBB delivery channels or yet another “brick and mortar” branch, especially in major villages, such as Mochudi and, of course, the rural areas. To Bakgatla, Dikgosi tsame, Member of Parliament for Mochudi West, District Commissioner, Council Chairman and Council Secretary, Honourable Councillors, the entire district leadership and all Distinguished Guests, in addition to the other banks, there is now a branch of FNB Botswana near you; patronize it; and do not give Mr Bogatsu and his team an excuse to close the branch, shortly after its opening, on account that it is not profitable. Distinguished ladies and gentlemen, with those few remarks, it is now my singular honour and privilege to declare the First National Bank of Botswana Mochudi branch, officially open. I thank you for your kind attention.	bank of botswana	2,017	11
Keynote address by Mr Moses D Pelaelo, Governor of the Bank of Botswana, at the 7th Annual National Asset Liability Management Africa Conference, Cape Town, 2 November 2017.	7TH ANNUAL NATIONAL ASSET LIABILITY MANAGEMENT AFRICA CONFERENCE RECENT DEVELOPMENTS IN INTERNATIONAL FINANCIAL MARKETS Keynote Address by Moses D Pelaelo Governor, Bank of Botswana November 2, 2017 Introduction It is indeed an honour and pleasure to have the opportunity to speak to this gathering this morning. I wish to start by thanking the organisers and, in particular, the Chairman, former Deputy Governor at the Bank of Botswana, Mr Oduetse Motshidisi, for the invitation to this Conference held in this beautiful city of Cape Town. As many of you would be aware, while it is true that the primary mandate of any central bank is price stability, Governors have a myriad of responsibilities on a daily basis. Beyond the preoccupation with the core mandate of monetary and financial stability, many central banks, including my own, the Bank of Botswana, have responsibility for the regulation and supervision of the banking sector; promotion of an efficient payments system; currency management; and, also, the management of foreign exchange reserves, as well as the closely related roles of economic and financial adviser to Government. Equally important are considerations such as broader financial sector development issues including financial inclusion, consumer protection and financial literacy. My comments today will reflect these mixed perspectives. This Conference is being held in the shadow of the tenth anniversary of the onset of the Global Financial Crisis and subsequent "Great Recession". Unsurprisingly, the causes and lessons of the Crisis have been a major topic of discussion in recent months. This meeting is, therefore, taking place at possibly the most opportune time in the history of global finance. In the aftermath of this difficult episode, the world should come out the wiser. At its recent meeting in Berlin, Germany, the Financial Stability Board Plenary observed that the international post-crisis policy reform agenda was nearly complete and that, going forward, the priority will be placed on monitoring and publicly reporting on its 24 member jurisdictions’ implementation of the agreed reforms. Similarly, the recently-concluded annual Meetings of the IMF and World Bank Group noted signs of sustained global recovery, albeit not yet complete, with below-target inflation and weak wage growth in several advanced countries, while output growth remains below potential in many cases. At the same time, it is important not to lose sight of some megatrends, in demography and technology, for example, that also have a profound impact on economic developments and, more specifically, global and domestic financial markets. In this regard, I note that 2017 is also the tenth anniversary of the iPhone, and we all know the profound impact of that development. What I wish to emphasise here is not only the importance of technological progress, but also the inherent unpredictability associated with such developments. I am informed that when the iPhone was introduced it was envisaged as little more than a combination of the mobile phone and the iPod, with a camera added. As a reflection of the random path of technological developments, the world of apps on which we increasingly depend was not central to the original concept. Also, among today’s generation of "new ideas", it seems to be the potential impact of blockchain or Distributed Ledger Technology that is attracting most attention. However, as the example of the iPhone demonstrates, the future path of its development is far from clear. The coincidence of these two tenth anniversaries is of particular relevance for global financial markets. The vulnerabilities exposed by the Crisis, and the responses they engendered, must be viewed in the context of dynamic developments in information technology. This is in terms of both emerging opportunities and accompanying threats. Here, Distributed Ledger Tech3 nology is a prominent example, not least because the technology has become intertwined with the controversial issue of cryptocurrencies. This is unfortunate, given that central banks and regulators, rightly in my view, are increasingly circumspect about digital currencies. It would be regrettable, however, if this stifled development of the underlying technology. Distributed Ledger Technology has already demonstrated sufficient potential, albeit still lacking in maturity, as the basis for more secure and efficient payments systems to attract the interest of several central banks. Another matter of serious concern in today’s financial world and markets is cybercrime. Cybercrime is not the focus for this discussion; it is, however, a major challenge of the modern age and should never be far from our thoughts. I would like to take this opportunity to appeal for concerted cooperative and collective action in meeting this challenge. In this respect, it is welcome that more than 70 percent of members of the Financial Stability Board intend to introduce new initiatives to boost cyber security in the coming year. It is to be hoped that others will follow their example. Distinguished Ladies and Gentleman, I now wish to focus my remarks on three broad areas. First, a brief look at the domestic economy of Botswana, including the capacity to generate external foreign exchange reserves. This will highlight the growth of the domestic financial sector and the impact of the global financial crisis on the economy. Second, from the global perspective, I will consider recent developments in financial markets and the associated policy challenges; in particular, the extended period of low yields together with heightened risks, including geopolitical risks. Again, this has major implications for effective asset/liability management. Before concluding, I will give some consideration to the emerging challenges, where the increasingly optimistic outlook for the global economy has encouraged talk of policy "normalisation". The Botswana Economy In the five decades since Independence, in 1966, Botswana’s economy has grown rapidly, from one of the poorest in the world to an upper-middle-income country with a per capita income of approximately seven thousand US dollars. Central to this growth has been relatively strong institutions and governance, healthy fiscal position and external balance sheet, low public debt burden and the prudent management of mineral revenues. From the mid-eighties, persistent twin fiscal and balance of payments surpluses led to rapid growth of foreign exchange reserves that, at their peak, were equivalent to almost three years of import cover. In turn, this allowed the authorities to move relatively quickly to open the economy, includ5 ing the abolition of foreign exchange controls by 1999. Since 2001, both S&P Global Ratings and Moody’s Investors Service have consistently assigned Botswana the highest, investment grade, sovereign ratings in Africa. On October 27, 2017, S&P Global Ratings affirmed the country’s ratings of A-/A-2 for short- and long-term foreign and domestic-currency denominated debt, while revising the outlook from negative to stable. The revision of the outlook is significant as it reflects expected stable economic growth at a time when many Sub-Saharan African countries face relatively weak growth and shrinking fiscal space. This has been a remarkably resilient development model, in combination with the Government’s consistently prudent approach to fiscal management and sustainable budgeting. However, beginning in the 2000s and, in particular, since the global financial crisis, the twin surpluses have not been so reliable, with recurring fiscal and external deficits. This has implications for the management of the Government’s net asset position, including balancing options for taking on more public debt vis-àvis drawing on the accumulated national savings. The structural transformation of the economy is also an important consideration. In the past, the model whereby foreign exchange reserves were held pending opportunities for their productive deployment in funding public infrastructure was clearly appropriate. But now, with relatively low returns on such investments, the holding of financial reserves as a sustainable source of income for both current and future generations is increasingly important. The financial sector, too, has expanded rapidly, both in size and the range of services. In 2016, the financial and business services sector accounted for 13.6 percent of GDP, dwarfing most other non-mining private sector activity; for example, manufacturing accounted for only 5.2 percent. Over the past ten years, cumulative growth of the financial sector, in real terms, has been almost exactly 100 percent, compared to 52 percent for the economy as a whole. A major driving force in this development has been the rapid growth of the domestic pension fund industry. In the early 2000s, the Government took a decision to effectively privatise a large portion of the foreign exchange reserves through the establishment of a defined contribution pension fund scheme for the public service. Despite its openness, the impact of the global financial crisis on the Botswana economy was relatively mild. The main negative shock was to the mining sector, but the transmission to the rest of the economy was muted, helped by government drawing on its financial savings to maintain public spending. For the financial sector, the predominantly "plain vanilla" characteristics and limited international linkages provided a shield against the worst effects, buttressed further by effective regulation and prudential supervision. There is no room for complacency, however, as the interconnectedness of Africa with global financial markets continues to develop, encouraged by the search for yield and ample market liquidity resulting from an extended period of ultra-loose monetary policy. More generally, for the "Africa Rising" narrative to regain the much-needed momentum requires sustained recovery in global commodities markets. At the same time, increasingly stringent global regulatory requirements, especially on market conduct and financial crimes, notably the anti-money laundering and combatting of the financing of terrorism regimes, have created challenges. In this regard, a number of countries in the region have been subjected to enhanced due diligence by correspondent banks and, in general, negative perceptions among counterparties towards doing business with African banks. In response to the latter, it is clearly necessary for countries to do everything in their power to ensure that the Know Your Customer, and the Anti-Money Laundering and Combatting of the Financing of Terrorism regulations in their jurisdictions are of the highest possible standards. Adoption and effective implementation of such standards is also supportive of development of the regional markets. Developments in Global Markets and Economic Policy Uncertainty The extended low interest rate environment, resulting in meagre returns on international investments, was in large part the consequence of central banks’ use of "unconventional" policies, such as quantitative easing and negative interest rates. But a long-term trend decline in the "neutral" rate of interest that balances economic activity also appears to have contributed. The resulting "search for yield" has driven important developments in the asset management industry. Traditionally conservative funds (including those under the custody of central banks) have had to face up to the need to balance a cautious approach to taking on more risk with moving away from comfort zones based on high-quality fixed income debt instruments and listed equities in liquid major markets. In such circumstances, the traditional guiding mantra of "safety, liquidity, return" needs recalibration in order to retain its operational relevance. It appears that the greatest challenge has been to balance the increasingly positive signs of global economic recovery, with uncertainty driven by geopolitical event risks. It is perhaps tempting to suggest that this has receded somewhat after a series of elections across Europe where the rise of populist parties appeared to have been halted, if not fully rebuffed. This may be too optimistic, however, as indicated by the recent Aus9 trian elections or, perhaps, the unfolding consequences of events in Spain; the direction of Brexit or the Trump administration are also still very much unknown. The cumulative chances of a highly-unpleasant surprise from further “Black Swan” events are surely not negligible. The question would be how do investors position themselves against these risks? Looking more closely at equities markets, in particular in the United States, there could be a legitimate concern that the current optimism is bordering on irrational exuberance shutting out evident political risk. It is of course not difficult to cite plausible reasons why equities markets should be buoyant: earnings growth, good exposure to emerging markets, low bond market yields and the prospects of tax reform, among others. However, on their own, these factors do not seem to justify market valuations where cyclically adjusted price-to-earnings ratios are at levels that fall short only of the peaks before the dotcom bubble burst in 2000 and the Great Crash in 1929. Interest in the next market crash has been heightened by another recent anniversary: Black Monday, on October 19, 1987. Technological developments over the intervening years are, once again, a key factor and a cause for both concern and comfort. For example, there is uncertainty about how markets increasingly driven by passive funds would respond in times of stress. When investors are increasingly hard-wired into follow10 ing the herd, the risk of herd-mentality sweeping the markets is likely to be amplified. On the other hand, it can be reasonably argued that improved information flows, increased diversity of investors and interconnectedness of global markets will help prevent market drift and misalignment leading to a crash. Overall, we simply do not know the likely balance of risks. In terms of major developments in recent years that impact on financial markets, I cannot fail to note the relentless rise of China, now surely a major global player, and with the power of the current leadership amply demonstrated at the just-ended congress of the ruling Communist Party. Beyond the raw strength of the world’s second largest economy, with its growth still close to 7 percent per annum, China is the technological leader in key emerging fields such as cashless payments. On the other hand, risks remain pronounced, reflecting issues of transparency, the challenging transition to a consumption-led economy based on inclusive growth and its financial system. Its emerging status as both a source of and destination for investment is also well known. But China remains something of an enigma to investors, who must aim to chart a prudent path between the opportunities and challenges. Moreover, with its currency now included in the Special Drawing Rights of the IMF, and as Renminbi assets increasingly gain acceptance as part of mainstream benchmark indices, this is a challenge that is increasingly difficult to avoid. The Emerging Challenges of "Policy" Normalisation As I mentioned earlier, the recent IMF and World Bank Annual Meetings noted improved global growth, spread broadly over both developed and emerging economies, as well as reduced market turbulence. Importantly, growth in world trade has also resumed after a period of stagnation. Moreover, it was pleasing that this optimism was tempered by realism, including warnings of continuing underlying risk from several quarters. Equally important was the call to use this window of opportunity, of the relatively benign prevailing conditions, to "fix the roof", including undertaking the much-needed structural reforms. In particular, in many countries debt remains at worrying high levels, with potentially negative consequences for continued financial stability. Nonetheless, this "recovery" phase poses a new range of challenges to policymakers, with significant implications for developments in the global financial markets. Here I shall briefly mention a few. First, what will constitute the new normal for monetary policy is far from obvious. Recent pronouncements by leading central bankers have hardly provided much light in this respect, reflecting, in part, the fear that clarity will result in further market "tantrums". More fundamentally, although I would stop short at la12 belling this, like the Financial Times, a "crisis of confidence" for central banks, there is a need for a frank discussion on the robustness of the models used to guide monetary policy decisions. In particular, whether the long-standing reliance on the Philips Curve paradigm is still justified; but also the need to effectively integrate financial indicators into the modeling process. Second, the role of fiscal policy requires careful consideration. At least with hindsight, it does seem that there is a strong case that the retreat to unswerving fiscal austerity added to the negative impact of the 2007-08 global crisis. However, the underlying reasons for fiscal caution still resonate. This dilemma was well summarised in the recent communique from the IMF, which noted that "Fiscal policy should be used flexibly and be growth-friendly, while enhancing resilience, avoiding procyclicality, and ensuring that public debt as a share of Gross Domestic Product is on a sustainable path". This is a tricky combination of requirements to meet simultaneously. In terms of major policy issues, the need for financial sector reforms and smart regulation is also significant. At the epicentre of the global financial crisis were deregulation, weaknesses in banking system governance structures and erosion of fiduciary responsibility and trust. The lesson to be learned, in this regard, is that strong micro-foundations of a financial system, es13 pecially banks, are of crucial importance at both national and international levels. That is why, for example, the Financial Stability Board was established; banking supervisory and regulatory regimes strengthened in many jurisdictions; and capital adequacy and liquidity requirements extensively reviewed. But, as I indicated earlier, the Financial Stability Board recognises that, while the policy design is nearly complete and the new rule books are in place, this is not sufficient. Hence, it is necessary to now turn towards effective implementation. In the context of an integrated and globalised financial system, this requires effective coordination, collaboration and communication, not only among the 24 member jurisdictions of the Financial Stability Board, but also by including more effectively countries such as ours in Sub-Saharan Africa. For example, the unintended consequences of the global reform agenda, such as the global de-risking and withdrawal of correspondent banking relationships, requires urgent attention. I should mention that, in my capacity as Co-Chairperson of the Financial Stability Board Regional Consultative Group for Sub-Saharan Africa, I hope to have greater focus on these issues. Conclusion Distinguished Ladies and Gentlemen, in concluding, I remind you that the saying "may you live in interesting times" is reputedly an old Chinese curse. To the extent that the past decade has certainly been "interesting", the continued challenge to pol14 icymakers is to make life at least a little bit boring, while not repeating the mistakes of the past. On a more positive note, despite the recent pushback by the supporters of economic nationalism, the fundamental driving forces of globalisation are not reversible. Nor is it desirable that they should be, given the extent to which they have contributed to global poverty reduction. However, the globalised economy is a source of not just tremendous opportunities, even for conservative investors, but additional risks and associated costs of mitigation. These include the potential for various levels of contagion, as indicated by both the experience of the global financial crisis and the rise of cybercrime which, as I indicated my remarks, is an increasingly global phenomenon. No central bank Governor, wealth or fund manager can afford to act as if they are immune from such risks. Distinguished Ladies and Gentlemen, I thank you for your kind attention.	bank of botswana	2,017	11
Speech by Mr Moses D Pelaelo, Governor of the Bank of Botswana, at the Kgori Capital Business Club seminar, Gaborone, 3 October 2017.	KGORI CAPITAL BUSINESS CLUB SEMINAR THE IMPORTANCE OF COMMUNICATION IN MACROECONOMIC POLICY MANAGEMENT by Moses D Pelaelo Governor, Bank of Botsw ana October 3, 2017 Director of Ceremonies I am pleased and indeed it is an honour to be part of this important information sharing and empow ering Seminar, organised by the Kgori Business Press Club. The initiative for this forum resonates w ith the Bank’ s desire to contribute to the development of informed financial and economic journalism as a means of improving transmission of market information, as w ell as incisive commentary on policy analysis and decisions. For a number of reasons, a central bank needs information to continually interact to stakeholders. Such and disseminate interactions and communication clarify the Bank’ s role and, therefore, reinforces the effectiveness w ith w hich it discharges its mandate of ensuring price stability, sound financial and w ell- functioning payments systems and, more broadly, financial stability. Director of Ceremonies, the subject of my remarks this morning is ‘The Importance of Communication in Macroeconomic Policy Management.’ For this purpose, let me distil macroeconomic policy into three distinct elements, namely fiscal policy, monetary policy and exchange rate policy; and for convenience add financial sector policies in order to complete the interactive and inherent relationships involved. Distinguished guests, ladies and gentlemen, you w ill appreciate that individually and together, these policies are intended to affect the behaviour of economic agents, w hich is, their response in terms of the supply and demand factors of economic activity. At a broad level, this entails decisions to invest, save, consume, and/or trade across borders. In this regard, the relative incentives across sectors and industries engendered by the various policies and instruments w ill have an impact on the rate of economic grow th, in other w ords, the pace of increase in national w ealth and living standards. Evidence from the 2007/08 global financial and economic crisis indicates that if not w ell managed and coordinated, macroeconomic and financial policies also have the potential to undermine economic grow th. At this point, distinguished ladies and gentlemen, let me take a moment to illustrate the influence of the various policies and related instruments on real economic activity: Starting w ith Fiscal Policy - In a situation of slow economic grow th, fiscal policy might involve increase in expenditure or reduction in taxes by Government to stimulate activity. In the event, spending by government and low er taxes generate an increase in demand, including consumption, providing an incentive for businesses to invest and increase operations to meet the higher demand; thus making positive contribution to economic grow th. Monetary Policy – With regard to monetary policy, again assuming a need to support grow th, a reduction of interest rates by the central bank, in the right level of doses, w ill low er the cost of finance, therefore, potentially leading to higher demand by consumers and investment by businesses, ultimately raising the overall rate of economic grow th. Exchange Rate Policy – A discretionary devaluation or maintenance of an undervalued exchange rate could be undertaken in order to enhance the competitiveness of the domestic industry in external markets and against imports. This is relevant for supporting sustainable industrialisation and diversifying sources of grow th, and may similarly raise overall rate of economic grow th. Financial Policies – In this area, a sound, stable and inclusive financial sector not only facilitates the conduct of transactions and payments, but it is also the conduit through w hich macroeconomic policies are transmitted to real economic activity. Thus, there is need for continuous attention to ensure the developmental aspects, as w ell as integrity, safety, stability and a w ell-functioning financial sector to support sustainable and inclusive economic grow th. Distinguished Guests, I now to turn to the role of communication in ensuring ultimate efficacy of the various policies or actions and decisions. Efficacy or potency in this regard w ould mean policy action having the desired or intended outcome. In the examples given above, this w ould mean higher rates of economic grow th w ith respect to fiscal and monetary policies and a faster pace of industrialisation arising from the exchange rate policy. Going back in history, there w as a time w hen policymaking w as shrouded in secrecy, w ith policy framew ork and actions designed to surprise the market; the language of policy makers w as coloured by obfuscation and ambiguity in order to generate uncertainty. In particular, a mystique surrounded central banks. The former Chairman of the US Federal Reserve Bank (FED) Allan Greenspan even said in 1987, “ Since I have become a central banker, I have learned to mumble w ith great incoherence. If I seem unduly clear to you, you must have misunderstood w hat I said” . Indeed, in a Speech in 2014, the President of the European Central Bank, Mario Draghi, pointed out that there w as a time w hen the FED w ould not even publish its interest rate decisions. At the time the FED w ould let the outside w orld derive the interest decisions from the market reaction; it w as only in 1994 that the FED decided to make its interest rate decisions public in real time. No doubt things have changed and economic policy making now involves phrases such as “ forw ard guidance” as a real policy tool designed to enable markets and the public to anticipate the direction, magnitude and timing of policy action. And in this regard, the manner and w ording of communication becomes crucial. Therefore, I w ill argue that communication is an instrument of macroeconomic policy, w ithout w hich the desired outcomes w ould not be realised or w ould be realised only sluggishly. There are tw o related dimensions to this. First is, economic and policy aw areness that helps the public and economic agents to anticipate policy action; the so called expectations. Second is the direct relaying of information on policy action and the intended outcome. In both these cases, three pillars support effective communication. On one side is the policy institutions, in the middle, a vibrant and know ledgeable media, w hile an economically aw are, participative and responsive market and economic agents are the third pillar. That said, in order for the communication tool to be effective in macroeconomic policy formulation, the institutions and framew orks for policy need to have sufficient integrity. In turn, integrity is derived from clarity w ith respect to governance, policy setting, operational and accountability framew orks, as w ell as transparency and consistency. Regarding general aw areness and understanding of economic and financial matters, w e need to appreciate that, generally, economies are characterised by business cycles of varying lengths and intensity, driven by various factors. While, there is no time to go into details, the message I am relaying is that the various macroeconomic policies are programmed to respond to such cycles. Therefore, economic aw areness entails understanding the state of the economy, the current cycle, the direction or momentum, and, therefore, anticipate policy direction. Thus, in terms of macroeconomic indicators, an up-cycle is normally characterised by acceleration in economic grow th and credit demand, and an increase in inflation. In this instance, a w ellinformed market and public w ill anticipate that the next set of policies w ould be contractionary. The converse is true, w here sustained low and falling inflation, depressed economic grow th and credit demand should engender expectations of expansionary or accommodative monetary policies. Therefore, in this environment of w ell-informed expectations and trust in the stabilising capacity and potency of instruments arsenal of the authorities, there is less risk of market overreaction to the path of economic indicators. Indeed, economic agents might take stabilising and policy reinforcing decisions. Consequently, once a policy-setting institution has built up integrity and reputation, markets and economic agents generate belief and respond accordingly because the institution consistently does w hat it says it w ill do in given circumstances. I w ill now illustrate, and indeed reinforce, how communication is evolving w ith respect to tw o areas of macroeconomic policy formulation in Botsw ana. You w ill appreciate, that in the areas of monetary policy and exchange rate policy, there is ongoing improvements and clarity relating to institutional setting, policy framew ork and parameters, instruments and decision-making cycles and dissemination platforms. In my view such developments have greatly improved understanding and efficacy of these policies. Regarding monetary policy, the Bank of Botsw ana has now entrenched a price stability objective of 3 – 6 percent, w here the institutional set-up entails six pre-announced meetings in a year, of the Monetary Policy Committee that assess developments, economic outlook and make a policy decision. A media briefing, and a Statement announcing the policy decision and related background information follow each meeting. The annual Monetary Policy Statement and its Mid-term Review serve as the anchor for dissemination of the monetary policy framew ork, policy analysis and guide for expectations on economic and policy outcomes. In this regard, aw areness of institutional arrangements for consistency, promote necessary the the policy framew ork, decision-making integrity and and transparency that foster efficacy of monetary policy. In essence, economic agents are able to anticipate, as w ell as respond to policy action. In addition, markets are more aligned to the policy stance. We, therefore, view the maintenance of a transparent and accountable monetary policy and the related communication contributing to sustained attainment strategies, of the as inflation objective. The exchange rate policy is also much more transparent. It is now clear to the market that w e have a fixed exchange rate, albeit in a craw ling band arrangement, pegged 55 percent to the SDR and 45 percent to the South African rand. It is also know n that the exchange rate is continuously adjusted using an annual rate of craw l based on the difference in the projected inflation of the trading partner countries and Botsw ana’ s inflation objective; this rate of craw l is public know ledge, typically announced at the beginning of the year. Such transparency has removed uncertainty in the management of the exchange rate. Thus, economic agents can use market information and forecasts w ith respect to the freely traded currencies (that constitute the Pula basket) and inflation, to anticipate the Pula exchange rate. In this regard, certainty about the policy path helps to anchor economic decisions in a manner desired by policy action, and that is supportive of industrialisation and economic grow th objectives. Distinguished Ladies and gentlemen, effective communication also entails common understanding and usage of language. In this regard, there is need, on the part of policy-setting institutions, for consistency in definitions, in the meanings of adjectives attributed to magnitudes of changes and movements in economic indicators, as w ell as the w ording/interpretation of policy action (or non-action). To the extent that such common language is accepted and used by the media, policy analysts and commentators, it becomes a tool in policy formulation that has an intended impact on economic decision making. How ever, on the other hand, misreporting, either deliberately or due to lack of understanding of some key concepts, could cause unnecessary confusion in the market and, therefore, be detrimental to the implementation of these macroeconomic policies. Communication also entails proper identification of spokespersons for the policy setting institution and matters on w hich they are responsible. A proper arrangement in this regard, promotes credibility and effectiveness of policy communication. For example, the Governor of the central bank is normally and appropriately the singular voice on monetary policy, w hile the Minister responsible for finance or treasury, is the singular voice on fiscal policy. In concluding, I w ant to point out that, dissemination platforms are also an important component of policy effectiveness, and determine the reach and credibility of macroeconomic policy. For the Bank, w e find high-level gatherings such as the launch of the Monetary Policy Statement, Economic Briefings follow ing publication of the Annual report, as w ell as media briefings follow ing Monetary Policy Committee meetings, to be very important. These facilitate both information dissemination, exchange of ideas, as w ell as feedback and evaluation of their performance. Extensive use of the w ebsite also allow s for w ider and continuous access to information and external contributions and commentary. The Bank also finds that research and publications, as w ell as participation in w orkshops and seminars, help to project the quality and content of the Bank’ s w ork, w hich also engenders credibility and integrity of the sources of policy analysis and decisions. Ladies and gentlemen, allow me to end here and I w ould be happy to continue the dialogue as you make observations, comments and ask questions.	bank of botswana	2,017	12
Keynote address by Mr Moses D Pelaelo, Governor of the Bank of Botswana, at the inaugural Banking and Wealth Expo, organised by the Bankers' Association of Botswana, Gaborone, 16 November 2017.	BANKERS ASSOCIATION OF BOTSWANA BANKING AND WEALTH EXPO Keynote Address by Moses D Pelaelo Governor, Bank of Botswana November 16, 2017 Distinguished Ladies and Gentlemen, it is indeed an honour and great pleasure for the Bank of Botswana to co-host this Executive Networking Dinner as part of the events of the inaugural Banking and Wealth Expo organised by the Bankers Association of Botswana. In line with the theme of the Expo, “Bridging the Inclusion Gap through Financial Literacy”, my remarks this evening will focus on four areas, namely, (a) importance of financial inclusion, especially for inclusive economic growth (b) financial literacy as an essential ingredient for inclusive financial sector; (c) impact of financial sector regulation and (d) the role of sound and stable macroeconomic environment, with emphasis on price stability. As His Honour the Vice President indicated, in his official opening remarks yesterday, financial inclusion has been identified as one of the key strategic priorities for financial sector development in Botswana. In this regard, a number of related initiatives form part of key policy documents such as National Development Plans, and the Financial Sector Development Strategy (2012 - 2016). Distinguished Guests, the basic elements of financial inclusion can be summarised as a state in which individuals and businesses have access to a full suite of quality financial services, at affordable prices, provided by a range of financial institutions, in a stable competitive market, in a convenient manner, with respect and dignity, to financially capable clients. In this way, households and businesses, regardless of income level, are able to have access to and can effectively use appropriate financial services, to meet their needs. Therefore, an indicator of financial inclusion would be the proportion of firms and individuals using financial products and services. These typically include transactions, payments, savings and insurance provided in a responsible and sustainable manner. The Alliance for Financial Inclusion, which is the world’s leading organisation on financial inclusion policy and related regulation, estimates that about 2 billion adults, globally, that is, more than half of the total adult population of the world, do not have an account in a formal financial institution. About 90 percent of these unbanked adults are in developing countries. However, the good news is that, according to the 2015 Bill Gates Annual Letter, it is estimated that by 2030, about 2 billion people who do not have bank accounts today, will be storing money and making payments with their mobile phones. It is anticipated that, by then, mobile money providers will be offering the full range of financial services, including interest-bearing accounts, credit and insurance. Research by the World Bank, conducted in 137 countries from 2005 to 2011, observes that lack of access to finance constitutes a major problem for households and acts as a barrier to the growth of small enterprises. It is therefore evident that financial inclusion empowers poor households and small enterprises by bringing them into the mainstream economy thereby reducing extreme levels of poverty and inequality. There is also evidence, based on a number of research work, that financial inclusion promotes economic development, especially for women, and that financially empowered women are more likely to improve social welfare. Overall, women’s financial exclusion limits the growth-promoting potential of finance and it may also prove costly in terms of elevated risks to financial stability. Distinguished Guests, in recognition of this developmental impact, financial inclusion is becoming a global priority for policy makers, regulators and development agencies. Among others, financial inclusion has been identified as an enabler for seven of the 17 Sustainable Development Goals. In this regard, the World Bank Group considers financial inclusion as a key enabler in reducing extreme poverty and boosting shared prosperity, and has, therefore, put forward an ambitious global goal to attain universal financial access by 2020. Furthermore, the G20 has committed to advancing financial inclusion worldwide. Distinguished guests, one area in Botswana where there has been a significant impact, and continues to provide a huge potential, is the nondiscretionary savings, in the form of defined contribution pension schemes. It is notable that the Pension Fund industry in Botswana has grown substantially in the last two decades, mostly driven by establishment of the Botswana Public Officers Pension Fund in 2001. As at the end of 2016, pension funds assets amounted to P75 billion or 44 percent of national income (nominal GDP) compared to total banking assets of P81 billion. In this regard, the pension industry was a major driving force behind the cumulative expansion of the financial sector in the past ten years; 100 percent growth in real terms, compared to 52 percent for the economy as a whole. However, the main beneficiaries and industry customers continue to be the long-term employed, to the exclusion of the traditionally disadvantaged cohorts. Therefore, national policy and the financial sector should increasingly find solutions to provide wider coverage for retirement funds to include the self-employed and younger generation. Distinguished Ladies and Gentlemen, let me now to turn to financial literacy as a key component of financial inclusion. Experience has shown that low levels of financial literacy and capability in developing countries form a significant barrier to accessing and effectively using financial services. Financial literacy is the acquisition of knowledge on financial products and services; while financial capability refers to the application of the financial knowledge gained into desirable financial behaviour. Without financial capabilities, a financially literate individual may not increase savings and investment or reduce debt and risky financial behaviour. Therefore, financial institutions have to re-direct their financial inclusion strategies to incorporate enhancement of the financial capabilities of their customers. It is in this regard that financial capability is an integral part of financial inclusion; hence, effective empowerment strategies for financial capability need to focus on providing practical, easy-to-understand and impartial advice so that consumers can make informed decisions. As you would be aware, in general, the rate of financial inclusion is relatively low in sub-Saharan Africa and other the emerging market economies. For example, according to the 2014 Finscope Survey, more that 68 percent of the adult population in Botswana have access to financial services; this compares with 58 percent in Namibia, 70.3 percent for South Africa; 39 percent in Mexico and 53 percent in India. Overall, the average financial inclusion measures for South Asia and Latin America as well as the Caribbean are lower than those for Botswana at 46.6 percent and 51.4 percent, respectively. In contrast, financial inclusion is high in the developed countries. According to the World Bank, 94 percent of adults in 35 high income Organisation for Economic Cooperation and Development (OECD) countries had access to financial services in 2015. Ladies and Gentlemen, as in other countries, the main policy objective of the financial inclusion agenda in Botswana is to improve household welfare, increase economic efficiency and support inclusive and sustainable economic growth. In this regard, advances in technology, have engendered an increase in opportunities and scaling up of financial inclusion. Thus, modern communications infrastructure, particularly mobile money and advances in the payment systems and platforms, play a significant role in financial inclusion. Thus, the availability of userfriendly and cost-effective information and communication products and platforms play an important role in broadening safe and secure access to financial services. Notably, we have seen a significant increase in the number and functionality of automated teller machines, including deposit-taking machines; mobile money remittances and payments service; internet and web-based access and transacting; and the promotion of card payments. These platforms augur well for enhanced financial inclusion. Notwithstanding, I wish to implore banks to move at a measured pace, taking into account the resilience of public infrastructure and other development needs, in transitioning from brick and mortar banking branches to e-channels. There is anecdotal evidence which suggests, for various reasons, such as, cultural, literacy and human psychology factors, that customers, even in this digital age, need physical access and engagement with a human being and not “Siri” to access financial services, to understand and resolve account queries. I am well aware and commend financial institutions engaged in various financial literacy programmes that also reach out to school going children, in the form of booklets, drama and radio quizzes on financial products and services. In this regard, it is equally important to engage customers on ways and means for optimising the benefits of digital and electronic platforms, but also highlighting the associated risks and mitigation measures. It is worth mentioning that banks need to practice, at all times, acceptable market conduct through increased transparency, fair pricing, quick and timely resolution of both failed transactions and fraud incidents. Distinguished Guests, in line with the 2012 - 2016 Financial Sector Development Strategy, a number of initiatives are underway to enhance cost-effective access to finance, including the establishment of a robust and effective credit information system as well as promulgation of electronic payments services regulations. Also, as announced by the Minister of Finance and Economic Development in the 2015 Budget Speech, Government has adopted Making Access Possible approaches to financial inclusion. This is a multi-country initiative to support financial inclusion using a process of evidence-based country diagnostic and stakeholder dialogue. Some of the Making Access Possible priorities include, improving the payments eco-system, both domestic and crossborder transactions, facilitating low cost, accessible savings products through the use of mobile savings accounts and less onerous Know Your Customer requirements for low risk savings accounts. I will now address financial regulation as a perceived barrier to financial inclusion. Distinguished guests, the domestic regulatory framework is gradually being modernised to keep pace with financial innovation. I must admit that, given the dynamic, evolving and innovative financial sector, it is always going to be a challenge to come with smart and cost-effective regulations. This challenge is even greater for digital finance, which is currently and prospectively, the main conduit of the financial inclusion, especially in a sparsely populated country like Botswana. It is generally accepted that rigid and excessive regulation can be an obstacle to financial inclusion. Therefore, the Bank and other domestic financial sector supervisors endeavour to regularly review and amend, where necessary, those provisions of the law that can impede effective access to finance. The immediate regulatory issues are the provisions relating to the sharing of customer creditworthiness information, both positive and negative data, know your customer requirements and the Anti-Money Laundering and Combatting of the Financing of Terrorism protocols. The Banking Act confidentiality provisions are also being reviewed to allow for the sharing of customer creditworthiness information and to facilitate the establishment of credit bureaux. As regards the anti-money laundering and combatting the financing of terrorism measures, much as both the Financial Intelligence Agency and the Bank of Botswana subscribe to a risk-based approach and seek to avoid undue regulatory burden, it is equally important to safeguard the integrity and overall stability of the country financial system by implementing and adhering to the international standards on AML-CFT matters. Moreover, there is need to guard against the impact of de-risking and loss of correspondent banking relationships that could be detrimental to trade, procurement, financing and payments arrangements. Distinguished guests, the Bank of Botswana, as a primary partner in the evolution of the financial landscape, is committed to ensuring that there exists an enabling environment for enhanced financial inclusion of the unbanked members of our society. For the Bank, greater financial inclusion enhances the potency of its policies and functions. In particular, given that monetary policy is transmitted by the financial sector, it has a greater and wider effect when a greater part of the population and businesses use financial services and products. For example, an individual or business that use the financial system to save or borrow is affected by a change in interest rates; therefore, their reactions in that regard, collectively affects the rate of increase in prices and economic activity. It is, therefore, notable that the key mandates of the Bank collectively relate to protecting the intrinsic value of the national currency; and that achievement of the Bank’s objectives promotes financial inclusion, literacy and capability. In particular, the Bank has responsibility for issuance of good quality banknotes and coin, while pursuing stability with respect to domestic prices, the exchange rate and the financial sector. To the extent that these objectives are met, the Bank helps to minimise erosion of the purchasing power of the currency, while ensuring that it remains integral to storage of value, monetary valuations, means of payment, and access to foreign currencies as needed, as well as credibility of the domestic financial system. In the horizon, there are issues of digital currencies and block chain technologies. While Distributed Ledger Technologies, albeit not yet mature, offer hope and opportunities for enhancing the efficiency and resilience of the payment infrastructure, for central banks, digital currencies are not yet convincing and, in my view, rightly remain an area for other stakeholders. This is not to suggest that these developments are not keenly watched and monitored. The Bank has also entrenched a transparent and, I would say, effective policy framework for management of inflation and related expectations that has so far been successful. Since 2013, inflation has been within and, at times, even below the objective range of 3 – 6 percent. In this environment, there is scope for affordable access to financial resources, their productive deployment and greater opportunities for generating real returns. The transparency of the exchange rate framework and absence of exchange controls removes uncertainty and encourages use of various platforms for financial inclusion, as well as informed decision-making and planning by economic agents. Effective supervision of the banking sector and oversight of the payments system and related infrastructure also contributes to financial inclusion. In particular, this is to the extent that policy, legislative and regulatory developments embrace advances in the provision of financial services, new technology and payments methods, while ensuring that integrity, resilience and stability of the financial system is maintained. In this regard, there is continuing patronage and growth in usage of the financial sector and related services, as evidenced by the sustained expansion of financial services and increasing share in GDP. In concluding, Distinguished Guests, Ladies and Gentlemen, a stable macroeconomic environment, characterised by low and predictable levels of inflation, safe, sound and inclusive financial sector, supportive regulatory environment and well-informed consumers of financial services is positive for wealth creation and preservation, as well as inclusive growth. I thank you for your kind attention.	bank of botswana	2,018	1
Keynote address by Mr Moses D Pelaelo, Governor of the Bank of Botswana, at the Botswana Institute of Bankers' 2017 Graduation and Awards Ceremony, Gaborone, 22 November 2017.	BOTSWANA INSTITUTE OF BANKERS’ 2017 GRADUATION AND AWARDS CEREMONY Keynote Address by Moses D Pelaelo Governor, Bank of Botswana November 22, 2017 I am most delighted and wish to thank the Chairman of Council of the Botswana Institute of Bankers and, through you Mr Jaco Viljoen, the Managing Director of Capital Bank, and your fellow Council Members, for the invitation to be the Keynote Speaker at this 2017 Graduation and Awards Ceremony. At the onset, I congratulate the 2017 Graduants and Award Winners for this important milestone and achievement. I can imagine that there were many challenges on the way, including juggling one’s studies with other social obligations, such as family and job obligations. As one motivational speaker said, “it is not your aptitude, but your attitude that determines your altitude”. Congratulations to you all, Class of 2017! Distinguished Ladies and Gentlemen, banking is an evolving industry, which provides opportunities for personal and professional growth, while its services and products have important and increasing linkages with other areas of economic activity. Most significantly, in the context of today’s ceremony, professional bankers are a key input to economic development and wealth creation in terms of providing resources and informed advice and guidance with respect to investment channels and options. Membership of this esteemed profession by knowledgeable, skilled and passionate individuals also enables them to contribute to its growth. In this regard, therefore, let me commend many Batswana, including these Graduants, who continue to invest their time and resources on selfdevelopment, and, ultimately, rise to positions of higher responsibility, in both the banking and the broader financial sector in Botswana. To a great extent, this ascendency to senior management positions is a vote of confidence on the domestic banking sector and its ability to produce quality leaders. To you Class of 2017, I have no doubt that you too aspire to assume key roles in the financial sector in order to better serve your institutions at higher levels and, ultimately, serve the country. The journey has just begun. However, this is a journey to be continued, both in terms of continuing engagement in selfdevelopment and, of course, career progression. Along this path, we should always remember that banking and, more broadly, finance is a business of trust. The bankers, in particular, have a fiduciary responsibility and duty to protect the integrity and reputation of the banking system, to underwrite continuing public trust and confidence in the financial system. Distinguished Ladies and Gentlemen, the Bank of Botswana is proud to be associated with the Botswana Institute of Bankers, as its founding member. You will recall that the Institute was established in 1991 as a not-for-profit organisation, with a mandate to promote banking as a career and an accredited profession in Botswana, through provision of quality and relevant knowledge and skills in banking and finance and, I should add, fostering ethical conduct of banking business. Today marks the 23rd Graduation and Awards ceremony for Associate Diploma II graduates. I am advised that since inception, the Institute has awarded 842 Certificates and 535 Associate Diplomas. This evening, there will be awards of 18 Associate Banking Diplomas and, in total 30 outstanding individuals recognised. This serves as a testimony to the fact that the Institute continues to be relevant in enhancing the level of skills and excellence, as well as promoting professionalism in the banking sector. The contribution of the Institute to development of human resources for the banking industry indeed deserves commendation and recognition. It is nevertheless important to implore the Institute to continue to transform and align its mandate to the needs of the industry in order to better meet the expectations of the more discerning customer and market place. For that to happen, the Institute needs to be dynamic and innovative, interact meaningfully with similar institutions for benchmarking, and explore opportunities for collaboration and strategic partnerships with other professional organisations, academic institutions and industry leaders. In as much as I recognise this progress, Botswana cannot afford to continue to have banking practices and products that are “behind the curve” compared to regional and global developments. The industry will need to invest in people, systems processes, and including risk management infrastructure to meet today’s challenges. Distinguished Ladies and Gentlemen, this is particularly important in the context of dynamic changes in demography, technology, competitive landscape and prolonged low global interest rate environment, all which have had a profound impact on business models for banking. As an example, technology is the future of banking, and the industry needs highly skilled and innovative staff to keep pace with financial technology, such as Fintech, blockchain and cryptocurrencies. In the circumstances, the need for an institution, such as the Botswana Institute of Bankers, is all the more important. Evidently, banking has already come a long way, and we should all prepare for the future armed with knowledge, relevant skills and appropriate behaviours. It should also be a motivation that the current and prospective banking environment is leveraged on interestingly challenging, complex and digital banking systems. Concomitant with these developments, both globally and here at home, digitalisation and financial integration require that we all exercise increased diligence, prudence and ethical conduct. This is because, desirable as technological innovation is, it also encapsulates risk and possibilities to contaminate the industry and profession with bad behaviour and harmful activities. There was a time when the main threats to banks were robberies and insider collusion relating to stealing of the physical cash. These days, harmful activities, fraud and theft are perpetrated through cyber-crime, infiltration of systems and unauthorised access to information and identity records. The “thieves” are likely to be behind the counter, and through the mobile phones and computer systems. Therefore, the modern banker has to be alive to these possibilities and also able to harness the necessary resources and mitigation strategies to forestall such harmful activities. In addition, bankers need to be able to respond meaningfully and offer timely redress in the event of customers’ accounts and information being compromised through no fault of their own. Ineptitude and failure to handle such operational risk issues diligently could weaken public confidence in the banking system and undermine the financial inclusion agenda and the very essence of banking, which is to facilitate intermediation for productive use of financial resources, as well as certainty of payments. Furthermore, the adverse effects of such illegal activities could impose a heavy financial burden on the public as banks commit resources to preventive measures; and often the costs of such are passed on to customers. Distinguished Guests, the Bank of Botswana will continue to play its role in encouraging and promoting professionalism, honesty, integrity and ethics in banking. The fabric and foundation of banking is trust and trustworthy bankers. This is important as good governance is a key pillar for the promotion and maintenance of a safe and sound financial system; one that is run by fit and proper and competent leadership, management and staff. At the same time, there is need to enhance transparency in banking to instil confidence in the financial system. In this context, the Financial Stability Board Working Group on governance frameworks is working on proposals to strengthen governance frameworks to mitigate what is called “misconduct risk”, addressing information gaps and due diligence in employment of individuals with a history of misconduct; and mapping responsibilities to senior personnel to strengthen governance of misconduct risk in financial institutions; as well as to address cultural risks that drive misconduct. Once concluded, the tendency of “rolling bad apples” in the financial sector will be stopped and there will be no place to hide for dishonest and unethical people. Let me underscore that the success of a well-diversified economy depends on an inclusive, well managed, prudently run and efficient financial sector. To this end, the Bank of Botswana continues to foster the development of policies designed to enhance and align skills to the needs of the domestic market. It is vital that banks, which are the bedrock of the financial sector, fully commit to the effective implementation of the human development strategies aimed at increasing the supply of professional bankers. The existing and continually evolving training opportunities should be geared towards enhancing efficiencies in the banking sector. Needless to say, effectiveness and development of the Institute is significant both in content and technicality, to adequately equip bank employees and ground them in the pre-requisites of what is required to be an effective and professional banker. Distinguished, Ladies and Gentlemen, I would like to take this opportunity to remind all of us here, once again, of the importance of adhering to codes of ethics and professionalism in the delivery of banking services. This is important as banks are invariably the principal pillars for commerce, savings mobilisation and payments infrastructure and, in general, socio-economic development. In concluding, Council Chairman, Council members, Executive Director, and Distinguished Guests once again, congratulations to the Graduants and Award Winners on their achievement. It takes determination to start, and commitment to finish. This evening represents a mark of personal growth and I have every confidence that the success in your Botswana Institute of Bankers studies offers an opportunity for your professional growth in the banking industry. I thank you for your kind attention.	bank of botswana	2,018	1
Welcome remarks by Mr Moses D Pelaelo, Governor of the Bank of Botswana, at the visit of Mr Tao Zhang, Deputy Managing Director of the International Monetary Fund, to Botswana, Gaborone, 25 July 2018.	INTERNATIONAL MONETARY FUND DEPUTY MANAGING DIRECTOR, MR TAO ZHANG, VISIT TO BOTSWANA Welcome Remarks by Moses D Pelaelo Governor, Bank of Botswana July 25, 2018 Distinguished Guests, I am privileged to welcome you to this special dinner, hosted by the Bank of Botswana, in honour of our esteemed guest, the Deputy Managing Director of the International Monetary Fund, Mr Tao Zhang. On behalf of the Board, Management and Staff of the Bank, we very much appreciate your honouring the invitation and your presence tonight. Thanks to you all. In welcoming the Deputy Managing Director, I wish to observe that, coincidentally, his visit to Botswana comes shortly after the conclusion of the annual Article IV Consultation that took place just over a month ago. It is also two weeks after the Workshop on Fintech, Payments and Financial Inclusion, jointly organised by the Bank of Botswana, the International Monetary Fund and the Bank of Canada. Thus, the visit reinforces the beneficial relationship between Botswana and the International Monetary Fund. Mr Zhang is accompanied by his Advisor, Mr Steven Allen Barnett, Mr Enrique Gelbard, the Mission Chief for Botswana’s IMF Article IV consultations, who is quite familiar to several of us; and Mr Abdulqafar Abdullahi, Advisor to the Executive Director for the Africa Group 1 Constituency at the IMF, to which Botswana belongs. Tonight Mr Zhang will address the global, regional and Botswana connections with respect to economic and policy developments. Previously, in 2007, the then Deputy Managing Director, Mr Takatoshi Kato, while visiting Botswana dealt with challenges and opportunities for growth in Sub-Saharan Africa, with special focus on Botswana. In 2011, Mr Naoyuki Shinohara discussed challenges relating to the management of natural resources and developmental opportunities in Botswana. In 2016, Mr Zhang’s immediate predecessor, Mr Min Zhu, eloquently articulated technological progress and evolving industry arrangements that nations, such as Botswana, can harness to take development to the next level. Honourable Minister, Distinguished Guests, given the high level attention given to Botswana by the IMF, it is fitting to briefly highlight the benefits of being a member and working with the IMF since 1968. First, the capacity of the IMF to analyse global developments and potential transmission channels and spillover to various regions and countries is key to timely responses to harness opportunities and/or mitigate risks. Second, the regular consultations, on the main through the Article IV Missions, enables dialogue with local stakeholders in the policy arena, industry, as well as economic analysts and civil society. This enables an understanding of the unique situation of Botswana and the interaction with global and regional developments; thus, structural evolution and trends, developmental aspirations and needs that inform policy priorities and key data trends. In turn, such exchange of information enables evaluation of prospects and policy options, going forward. Third, the Bank, as well as institutions such as the Non-Bank Financial Institutions Regulatory Authority and Statistics Botswana, benefit from targeted technical assistance and skills development provided by the IMF from the headquarters in Washington DC or through the Regional Technical Assistance Centres, such as AFRITAC South based in Mauritius, to which Botswana is affiliated. This technical assistance enables improvements in areas such as legislation, macroeconomic policy frameworks and formulation, regulatory approaches, as well as structuring and governance of institutions as necessary. In addition to improving operational competencies, access to training and skills development also encompasses interaction with other practitioners globally to share experiences. Distinguished Guests, it is clear, therefore, that the IMF facilitates access to resources that members can opt to tap into subject to evaluation and assessment of their needs. In this regard, sustained judicious and prudent management of resources and the economy, as is the case in Botswana, enables a wider range of choices and options with respect to policies, prioritisation of resource allocation, as well as the timing of implementation to achieve the desired objectives. Distinguished Ladies and Gentlemen, you will be aware that Botswana desires to transit from upper middle income status to high income status, and globally this transition is judged to be challenging, as it requires substantial structural transformation and shifts in growth strategies and policies. For Botswana, it is estimated that this requires annual GDP growth rates of 8 percent over a six year period to leap from the current per capita income of just under USD8 000 per annum to above USD12 000. As a country, in the recent years, we noted challenges of slower growth rates compared to when we graduated from low-income status, slower than desired rate of economic diversification, as well as relatively high level of unemployment. In this respect, it is expected that, going forward, our relationship with the IMF will focus on drawing on their expertise and sharing of experience of other countries to support transformation policies and strategies to enable Botswana to fulfil its aspirations for a high-income status on a sustainable basis. Distinguished Guests, Ladies and Gentlemen, I thank you for your kind attention.	bank of botswana	2,018	8
Welcome remarks by Mr Moses D Pelaelo, Governor of the Bank of Botswana, at the 2018 National Business Conference Dinner, Gaborone, 9 September 2018.	2018 NATIONAL BUSINESS CONFERENCE DINNER Transition to High Income Status – The Role of Monetary Policy and Communication Welcome Remarks by Moses D Pelaelo Governor, Bank of Botswana September 9, 2018 Distinguished Guests, Ladies and Gentlemen, good evening. It is my honour to welcome you to this Dinner hosted by the Bank of Botswana on the eve of the National Business Conference here in the City of Francistown. On behalf of the Board, Management and Staff of the Bank and on my own, I thank you all for honouring the invitation; your presence here tonight is valued and highly appreciated. Role of National Business Conference and Theme The Bank of Botswana is privileged and accepts the honour to host this Welcome Dinner to the 15th National Business Conference, organised by Business Botswana, in collaboration with the Government under the theme, “Breaking through to a High-Income Botswana - The Role of the Private Sector in Charting the Path”. This should provide an opportunity to evaluate prospects for Botswana, with respect to structural transformation, policies, strategies and, especially, implementation frameworks that would enhance international competitiveness of local firms and support the transition to high-income status in line with Vision 2036. I am reliably informed that, His Excellency the President of the Republic of Botswana, Mr Mokgweetsi Eric Keabetswe Masisi will, in addition to performing the official opening, actively participate in this Conference and, in particular, share his thoughts on the growth of business in Botswana in one of the sessions, tomorrow. Background and Broad Structural Issues Distinguished guests, it is common cause that the economy of Botswana has, over the last 52 years, recorded impressive growth and structural transformation, leading to the country attaining upper middle income status, currently with a per capita annual income of approximately USD 8 000. Similarly, over the years, the country has enjoyed relatively sound and stable macroeconomic and financial conditions. Despite episodes of terms-of-trade shocks and volatile commodity prices during this period, the economy has been largely characterised by relatively low and predictable levels of inflation; balance of payments surpluses; substantial foreign exchange reserves; stable real effective exchange rate; low public debt; and continued pursuance of prudent fiscal policies. However, as we are well aware, in the last decade or so the country’s growth momentum seems to have lost steam. Evidently, this is constrained by several factors including the narrow economic base, high levels of unemployment, insufficient innovation and private investment spending, infrastructure constraints, thin and fragmented markets as well as low level of financial sector development and, relative to other upper middle-income countries, less inclusive growth. Distinguished Guests, the IMF Executive Board, on August 31, 2018, completed the 2018 Article IV Consultation with Botswana, and as usual, the Botswana authorities were commended for a track record of sound policies that has supported strong growth and macroeconomic stability. However, it is considered opportune to leverage on the favourable prospects to accelerate implementation of structural reforms to unlock the country’s growth potential. The specific areas highlighted by the IMF include preserving priority infrastructure and social spending, restructuring and privatisation of parastatals, promotion of private sector development and economic diversification, sustained efforts to improve the business climate, including facilitating foreign direct investment as well as skills and realignment of education policies to eliminate existing skills mismatches. The Bank’s Role in Supporting Economic Activity and Growth As a contribution to the theme of this National Business Conference my remarks, this evening, will focus on the role of monetary policy and communication in transiting to high-income status and, also, take the opportunity to launch the Bank’s maiden Monetary Policy Report. Therefore, in a broad sense, the intent is to project the relevance and role of the Bank of Botswana in contributing to the journey towards highincome status for Botswana. To give perspective, you will be aware, Distinguished Ladies and Gentlemen, that the Bank exists to protect the value of the local currency, the Pula and thebe, through currency management operations, monetary policy, exchange rate management, regulation and supervision of relevant financial institutions and facilitating sound payments and settlement frameworks. Essentially, the Bank promotes the desire and willingness to hold the local currency, as well as to transact and save locally in Pula premised on the quality and durability of the banknotes and coin; stable, predictable domestic price changes; safety and soundness of the financial system and reliable payment infrastructure. Inevitably, where central banks fail to achieve these outcomes, or are constrained by political interference, economic performance and development suffer considerably; recent examples include Venezuela and Zimbabwe. Overall, by fostering appropriate conditions, the Bank of Botswana has, throughout its 43 years of existence, contributed to stability of the macroeconomic environment and financial system, as well as integrity and reliability of payments and settlement platforms; therefore, enabling economic activity, as manifested in the ability to transact and access financial services. Distinguished Guests, we are, however, collectively looking ahead and, in this regard, there are several aspects of mandates and operations of the Bank that require modernisation and upgrading in order to remain relevant and contribute to national development aspirations and objectives. Indeed, monetary policy and the various instruments, including communication, can only be effective if undertaken alongside improvements in other operations of the Bank and policy transmission channels. AlIow me to highlight four relevant areas in this regard. Modernisation and Adaptation of the Bank’s Functions First, there is a need to adapt to changing domestic and global conditions and, also, to ensure that the Bank of Botswana is appropriately positioned to adequately address new developments and related challenges. Some of these include fintechs, digital currencies and similar innovations as well as adopt best practice, to sustain national development. In this regard, there is ongoing review of the Bank of Botswana Act, the Banking Act and proposals to promulgate a national payments law. The intention is to enhance operational capability, predictability and integrity of policy and regulatory frameworks, as well as to clarify institutional relationships and promote accountability and transparency. Furthermore, one of the key lessons from the 2008/9 global financial crisis is the need for joint, speedy and coordinated response, by all relevant stakeholders, to any substantial systemic risks emanating from any parts of the financial sector. As part of the broader financial development architecture, there is a need to re-configure institutional arrangements for the financial sector oversight to achieve greater focus on macro-prudential dimensions of financial stability policy and financial safety nets. The recent establishment of the Financial Stability Council is a significant step towards protecting the viability, integrity and sustainability of relationships and cross-holding of exposures within the financial sector and with other economic sectors. As I mentioned, this enables coordinated and decisive response when needed; ultimately safety of savings and investments and prospects for attracting more. Also, one of the key tenets, in this respect, include the need for legislation for the establishment of a deposit protection scheme, to further encourage patronage of the domestic financial system, in particular broader financial inclusion. Monetary Policy Framework Distinguished Guests, the second area of continuing improvement that I want to highlight relates to the role of the monetary policy framework in facilitating a conducive environment for private businesses to thrive. Broadly, an appropriate policy framework should encompass definition and clarity of objectives and instruments, understanding and calibration of transmission channels and, therefore, predictability and, in turn, accountability. It is for these reasons that the Bank’s primary mandate of price stability, is clearly defined as a sustainable level of annual inflation that is within the medium-term objective range of 3 – 6 percent. The policy is also formulated with a view to safeguarding the stability of the financial system. In essence, protection of the value of the Pula and integrity and safety of channels and platforms for holding money and transacting in local currency. Let me, once again, underscore the point that low and predictable level of inflation and a conducive financial environment foster savings mobilisation, productive investment and international competitiveness of domestic producers which, in turn, contribute towards the broader national objectives of sustainable economic development and employment creation. Equally important is a sound and stable financial system particularly the banking sub-sector, as it serves as the main transmission channel for monetary policy signals and facilitating economic activity through the provision of liquidity and risk mitigation. It is also apparent to the markets and general public that the key instruments of policy are the Bank Rate and the Bank of Botswana Certificates. The former relates to the cost of money and decisions to save or borrow, while the latter influences the quantity of loanable funds in the banking system. In both cases, the operation of these instruments affects prospects for demand and, in turn, its influence on the rate of price changes, with the Bank’s focus being to maintain inflation within the defined objective range of 3 – 6 percent. The policy is predictable in the sense that the Bank publishes the medium term inflation outlook, which informs the policy response. For example, a forecast for sustained inflation above the objective would imply an increase in interest rates and tightening of financing conditions, to help moderate inflation. On the other hand, sustained lower inflation than the objective range implies subdued economic performance and would require reduction in interest rates to raise demand and stimulate economic activity. However, for policy transmission to be effective it requires a sound and responsive banking system. Thus, banks should cut interest rates and increase lending when the Bank Rate is reduced, and accordingly raise them when monetary policy is tightened and not be constrained by internal and structural weaknesses. In this regard, the Bank is always available to provide liquidity to the banking system and to solvent individual banks, as needed, to ensure market sustainability and appropriate policy transmission. Market Development and Financial Inclusion Aligned thereto is the third developmental area, which is the Bank’s role in promoting the growth, spread and deepening of money and capital markets and, also, financial inclusion. The development of a wide range of money and capital markets institutions and instruments enables substitution and access to a variety of purpose-fit saving and investment channels as monetary policy and conditions change; therefore sustained effectiveness of policy transmission in affecting market activity. A diverse and deep market also allows banks to better manage liquidity positions, hence the ability to effectively transmit policy. In addition, with enhanced financial inclusion, changes in monetary policy are more effective as a greater number of businesses, institutions and households, hold and have exposures that are directly affected by the direction and level of interest rates and availability of loanable funds and market liquidity. Communication Distinguished Guests, the fourth area of focus for the Bank, as we look ahead, is communication. The Bank considers and uses communication as a direct, practical and potent instrument of policy. It is, therefore, important that in order to generate the desired response, communication is recognised and acknowledged by the market and general public as a policy instrument. However, this is to the extent that such communication is backed by durable integrity and reliability of the Bank of Botswana, premised on predictability and transparency. Public trust and reputation of the Bank are essential elements for policy effectiveness. Central banks such as the Bank of England, the European Central Bank and the US Federal Reserve demonstrate such effectiveness where, for example, issuance of forward guidance statements (without immediate actual change in interest rates), generate market reaction; thus change in economic behaviour and activity. More generally, communication works best in an environment of economic and policy awareness by the public as well as informed policy and market analysis and commentary. The combination of economic developments and dissemination of policy analysis and economic projections by the Bank helps the public and economic agents to anticipate policy action; the so-called expectations. For example, expectations about future inflation and, therefore, interest rates, are a key determinant in formulating investment and consumption decisions, hence economic activity. Communication also facilitates accountability and various platforms and media are used in this regard. Overall, increased transparency and communication, regarding the policy framework, objectives and strategy, as well as decisions and progress in meeting the objectives of the Bank can contribute to desired market responses and policy effectiveness. Distinguished Ladies and Gentlemen, at the launch of the Bank’s Monetary Policy Statement, in February this year, I outlined the refinements that the Bank continues to make to the monetary policy framework relating to communication. I indicated that, the more recent innovations that started in 2017 included the pre-announcement of the dates for the Monetary Policy Committee meetings for the year ahead and media briefings that follow each meeting to announce and engage on the policy decision. I also indicated that, going forward and in an effort to further improve on communication and transparency on economic and policy analysis and implementation, the Bank will publish four Monetary Policy Reports each calendar year, including the Monetary Policy Statement. I am happy to announce that tonight the Bank is launching the first Monetary Policy Report to be published on the Bank’s website tomorrow morning. The Report is also available on the Bank of Botswana branded memory sticks that will be distributed to the invited guests tonight. There is also a limited number of hard copies. The Report will be the main medium through which the Bank will inform the public about the formulation and implementation of monetary policy. It serves to meet the public’s expectation of a transparent and accountable central bank in fulfilling the monetary policy mandate. The Monetary Policy Reports in April, August and October will be preceded by the Monetary Policy Statement in February each year. Distinguished Guests, as I conclude, I would like to assure you that the Bank’s implementation of monetary policy will continue to focus on entrenching expectations of low, predictable and sustainable inflation, through timely responses to price developments. At the same time, the Bank will contribute to effective oversight of the financial system to ensure sustained financial stability and integrity of the payments system, while promoting market development and financial inclusion; as a growth imperative and also important for policy transmission. Essentially, this is the enduring contribution of the Bank to an enabling environment for private sector growth and greater participation in economic activity; therefore, enhanced prospects for economic diversification efforts, employment creation, inclusive growth, and transition to high-income status. Let me wish you a fruitful conference and deliberations for the next two days. Please enjoy your dinner. However, to conclude the formal proceedings, allow me to call upon the Director of Research and Financial Stability Department, Dr Tshokologo Alex Kganetsano to present a brief outline of the Monetary Policy Report and also highlight its relevance in influencing expectations and economic activity. I thank you for your kind attention.	bank of botswana	2,018	10
Official remarks by Mr Moses D Pelaelo, Governor of the Bank of Botswana, at the Botswana Stock Exchange Opening Bell Ceremony, Gaborone, 1 November 2018.	BOTSWANA STOCK EXCHANGE OPENING BELL CEREMONY Official Remarks by Moses D Pelaelo Governor, Bank of Botswana November 1, 2018 Distinguished Guests, it is my great pleasure and honour to have been able to accept the invitation from the Chief Executive Officer of Botswana Stock Exchange Limited (BSEL), Mr Thapelo Tsheole, to make a few remarks on the occasion of today’s event, marking the sixth “Opening Bell” ceremony. Let me start by acknowledging the important symbolism surrounding the “opening bell” ceremony. This refers to the signal that a stock exchange is open for business. A bell itself is only used in a few instances, notably in New York, where the current practice of ringing the bell at the start and close of each day’s trading dates back to 1895, initially using a Chinese gong. But the phrase is used more generically across exchanges and, needless to say, among financial journalists. The use of a bell is, of course, most appropriate in the environment, typically hectic, of “open outcry” trading where the volume of the bell is an effective means of directing proceedings. In other words, the bell was necessary as a form of regulation, albeit self-regulation. This traditional system of trading has been largely overtaken by more efficient technologies, first by telephonic and then electronic trading systems. The New York Stock Exchange still conducts a small proportion of trades (although typically high-value) through floor traders. In Europe, the famous “ring” London Metal Exchange (LME) remains a bastion of the tradition; although it too has recently been experimenting with the use of more modern systems. Director of Ceremonies, the rapid advances in technology, more so in financial services, appears inexorable; indeed, this has long been the case. Today, the power of the internet; super computers, social media and “big data”; as well as the potential opportunities offered by new technologies, such as block chain, dominate financial news and public discourse. But innovation and disruptive technologies have been a recurring feature of progress and development for centuries. For financial services, it is progress in communications technology, including the collation, storage and transfer of information, that has often been the key. examples in this regard, including: There are many  The origins of iconic City of London institutions such as Lloyds and the London Metal Exchange coffee houses where like-minded patrons gathered to share news;  “Cable”, the colloquial term used by currency traders for the United States dollar-sterling exchange rate; it relates to a nineteenth century undersea communications cable used to transmit key financial information across the Atlantic Ocean; and  American Express, the financial services multinational, began as an express mail business. Recognising the historical context, it should be little surprise that financial and communications regulators must in many cases operate in tandem, while adopting smart and costeffective ways to deal with risks. Today, given the current, dizzying, pace of ICT development, it is more crucial than ever that central banks and financial sector regulators are alive to these trends. This adds a further dimension to the challenge, in both developing and developed economies, of finding the right balance between being, on the one hand, a prudential regulator and, on the other, development. a facilitator for market The latter goal is something to which the Bank of Botswana is unreservedly committed. As I have observed elsewhere, informed repeatedly research has indicated a causal connection between financial sector development, economic growth and poverty reduction. However, in many Sub- Saharan African countries, Botswana included, financial systems remain mostly small, fragmented and un-diversified, providing only limited services to an exclusive section of the population at a relatively high cost. Equally, while Botswana’s financial sector is comparable in size to other countries in the region; it remains relatively smaller and less developed compared to that of its middle-income peers. Notwithstanding, during the past ten years, Botswana financial sector has expanded rapidly, both in size and the range of services covered. In this period, cumulative growth of the financial sector, in real terms, has been almost exactly 100 percent, compared to 52 percent for the economy as a whole. A major driving force in this development has been the rapid growth of the domestic pension fund industry. Indeed the role played by the financial sector in supporting inclusive and sustainable economic growth was the central theme of the 2017 Bank of Botswana Annual Report. Distinguished Ladies and Gentlemen, in broad terms, how should we go about addressing this challenge? Here, I start by making an obvious, but nonetheless important, point. A well-functioning, liquid and regulated market is good for development. It gives both investors and consumers confidence that their interests are protected in an industry where information asymmetries remain a chronic problem. At the same time, regulation can help confer legitimacy on regulated service providers. As central bank Governor, I should also extend this point further. The sustainable development of financial markets is supported by macroeconomic and financial stability. Botswana has been lauded for its strong macroeconomic environment, a position which was recently reaffirmed by the 2018 Global Competitiveness Index. The macroeconomic environment was the best performing pillar for Botswana, with the country ranked first, globally, supported by a public debt to GDP ratio of 15.6 percent and inflation of just about 3 percent. To further support financial markets development, the Bank has recently initiated important changes in the communication of monetary policy, including the launch of the inaugural Monetary Policy Report (MPR) on September 9, 2018 at National Business Conference in Francistown. And on Monday, this week, the Bank published the second MPR following the Monetary Policy Committee meeting of October 22, 2018. But, important as these developments are, neither observations address the key issue. That is, how can central banks deal with the problem developments in financial that, services at that some are point, otherwise legitimate and desirable may be held back, discouraged, or even halted by over-, or outdated, regulation? Here, I would highlight two distinct risks that must be addressed:  First, the nexus between prudence and innovation may prove to be a challenge and too often financial sector regulators favour the status quo which, in turn, almost inevitably works to frustrate radical, but beneficial innovation. Moreover, this risk may be amplified by lack of appreciation for trends in modern technologies;  Second, there is also a danger that the regulators overcompensate against this risk, by adopting too lax an approach, and welcoming all kinds of start-up entities so as not to stifle innovation. This may be aggravated in cases where more than one regulator has an interest, a situation which calls for greater collaboration, proper coordination and effective communication. Navigating these risks remains work in progress, with central banks across the world adopting a wide variety of approaches. From my perspective key elements of a robust approach by central banks should include the following six elements: First: clear leadership, guidance and consultation on the desirable direction for the development of the financial sector, including reforms to the regulatory environment. For this reason, the Bank of Botswana strongly advocates the updating of the Financial Sector Development Strategy, which is now two years past its end date of 2016. In terms of consultation, the Banking Committee, Botswana Financial Markets Committee and the recently established Financial Stability Council, provide important channels for consultation. Second: leadership through advocacy and by example. The Bank is keenly aware that key legislation is out of date or missing. Regulations to support the growth of electronic payments have been finalised, while both the Bank of Botswana Act and Banking Act are in the process of revision. The Bank is also providing strong support for key developmental initiatives, including the development of the government bond market, within the established parameters of fiscal discipline, both through more active primary issuance and supporting the secondary market through establishment of a Central Securities Depository. Third: as I have already indicated, central banks should invest time and resources to have necessary awareness in developments in ICT. Here, the subject of distributed ledger technologies (DLT), fintechs and crypto-assets comes to mind. Fourth: where practicable, there should be some scope for easing the burden of regulations to allow innovations to be tested. Here, a particularly promising approach is the use of so-called regulatory “sandboxes” and other proof of concept frameworks, adopted by many jurisdictions including Singapore, Indonesia, Canada and, nearer home, in South Africa, where the South African Reserve Bank, working alongside commercial banks, recently successfully led the "Khokha" project to test the viability of DLT for processing wholesale interbank payments. Such sandboxes allow smallscale experiments under live conditions while being exempt from some legal requirements to keep down start-up costs and remove constraints on innovation. Fifth: in scrutinising innovations in financial services, a simple five-fold test should be applied: is it a solution to a real economic problem, in a cost-effective way; does it offer a better service; is it faster; does it democratise access (improves financial inclusion); and, are there serious negative side effects? Many recent developments, notably the use of mobile payments systems, would pass these tests with flying colours. In contrast, despite the headlines and the hype they generate, the so-called crypto-currencies, such as bitcoin and ethereum, at least at their present state of development, would fail on all counts. For example, these crypto assets cannot serve as a reliable unit of account, trusted store of value or universally accepted means of payment. By the way, Bitcoin turns 10 today. In conclusion, Paul Volcker, the former Chairman of the United States Federal Reserve, once famously said that the ATM was the only really useful financial innovation in banking. This was undoubtedly going too far: as I have already made clear, many Fintech innovations hold tremendous promise for improved security and speed of transactions and, importantly, financial inclusion. But it makes the point that central bankers have conservatism, and with it scepticism, ingrained in our DNA. This is how it should be. Not least, together with our co-regulators, Non-Bank Financial Institutions Regulatory Authority, the Financial Intelligence Agency and Botswana Communications Regulatory Authority, we act and serve public interest; collectively and in our respective statutory roles, are responsible for alleviating system-wide risks that are not always so readily appreciated by individual operators. As a case in point, measures to combat money laundering and other forms of financial crimes are undoubtedly inconvenient at the individual level. But this would be nothing compared to the inconveniences that would be experienced if international sanctions were imposed against Botswana for falling short of the required minimum standards on anti-money laundering and the combatting of the financing of terrorism. That said, central bankers must also do their part to avoid the risk of what might be termed “reckless conservatism”, and embrace opportunities that not only meet customer needs but also, in many instances, reduce systemic risks. Chairman of BSEL, Director of Ceremonies and Distinguished Ladies and Gentlemen, I thank you for your kind attention.	bank of botswana	2,018	11
Keynote address by Mr Moses D Pelaelo, Governor of the Bank of Botswana, at the Launch of the ABSA Africa Financial Markets Index, Gaborone, 9 November 2018.	LAUNCH OF THE ABSA AFRICA FINANCIAL MARKETS INDEX Keynote Address by Moses D Pelaelo Governor, Bank of Botswana November 9, 2018 I am delighted to be able to join you this morning to mark the official launch in Botswana of the ABSA Africa Financial Markets Index. It is even more of a pleasure to give the keynote address in the wake of the news that, in the 2018 update of the Index, the rank of Botswana has moved from third to second among the 20 countries covered in the Index. Director of Ceremonies, I would like to preface my remarks by observing that, not so long ago, the “Africa rising” narrative was somewhat eclipsed by what one respectable magazine described as the “hopeless continent of Africa”, a label that was later retracted as inaccurate and inappropriate. And rightly so! The fact is that, despite a number of development challenges and pockets of civil strife and political unrest in parts of the continent, Africa has remained largely resilient. This is in the context of an increasingly competitive and interconnected global economy in which both developed and developing countries continue to be challenged by relatively low rates of economic growth, unsustainable levels of public debt, as well as rising trade and socio-political tensions. It is all the more impressive, therefore, that the broader trajectory in Africa is one of progressive entrenchment of the democratic dispensation, adherence to the rule of law, and sound economic reforms, with laudable returns in some cases, in terms of overall economic performance. According to the 2018 World Investment Report by United Nations Conference on Trade and Development (UNCTAD), since 2010 FDI in Africa has averaged approximately USD 50 billion per annum. That the continent is increasingly regarded as an attractive investment destination is itself part of the new reality. But the on-going transformation of Africa is taking place in a broader new global reality; that is, one of increased economic interconnectedness in which there is a relative shift in the centre of gravity of economic power towards emerging markets. This shift brings with it increased opportunities for a more equitable sharing of the benefits of global wealth and income. That said, investor interest in Africa remains unduly cautious and heavily focussed on specific sectors, typically commodityrelated, in a few countries. The same UNCTAD report indicates that, in 2017, FDI flows into Africa fell by 21 percent compared to the previous year. Thus, there is a need to re-double efforts to not only make investors aware of the myriad opportunities in the continent of Africa but also provide tangible reassurance that levels of idiosyncratic risk are no longer prohibitive. To this end, as I speak, the inaugural African Investment Forum organised by the African Development Bank has reached its final day nearby in Johannesburg. The event has the explicit aim of moving beyond talking about investment in Africa to providing a setting for moving specific projects towards bankable deals. It is also from this perspective that I welcome the ABSA Africa Financial Markets Index, as a practical tool that supports market development and, by extension, further improvement in the investment environment. But, before sharing some thoughts on the role of financial market indices, let me, very briefly, enunciate the key characteristics of a wellfunctioning financial sector. Distinguished Guests, well-functioning financial markets should foster savings mobilisation and investments in a cost-effective manner, channelling surplus funds to their most productive uses, hence contributing to economic growth. They should inspire investor confidence; have breadth and depth in terms of product offerings, as well as liquidity. But more importantly, good governance and accountability structures, buttressed by a sound regulatory framework, good accounting and auditing standards, as well as efficient and independent judiciary are essential to embed public trust and investor confidence. In this way, developed financial markets facilitate the financial interactions of households, corporations, financial institutions, and governments. Such markets provide a pool of savings that can be tapped into for funding investments by businesses and, also, offer a stable source of funding for governments that can be used to undertake infrastructure development. Furthermore, empirical evidence suggests that countries with well-developed financial markets gain significantly from increased FDI. Of equal importance, studies concur that a developed financial sector can also create opportunities for financial inclusion, especially embracing SMMEs and the undeserved segments of the population. In turn, this supports economic diversification, enables economic agents to pool and offset risks, and encourages savings and wealth creation, thereby contributing to inclusive growth and improved living standards. Various indicators or sets of indicators have been used to measure financial development. The World Bank has developed a comprehensive conceptual framework to capture the multifaceted nature of the modern financial system. The framework has four dimensions that reflect the essential characteristics of a good and well-functioning financial system that is: depth, access, efficiency and stability. Staff of the International Monetary Fund (IMF) have built on the World Bank framework by developing indices to measure the level of development of financial institutions and markets in terms of depth, access and efficiency, thus expanding the range of indicators used to assess financial development. These multidimensional indices capture the fact that financial services are provided by multiple financial institutions offering a wide array of products and services. The Africa Financial Markets Index is a valuable addition to this earlier work, where the ABSA Banking Group has partnered with the Official Monetary and Financial Institutions Forum (OMFIF), an independent think tank for central banking, economic policy and public investment. This is with the explicit objective of providing a toolkit for countries seeking to strengthen their financial markets infrastructure. The Bank of Botswana was fortunate to be represented at the original launch of the Index in Washington DC during the 2017 Annual meetings of the IMF and World Bank. As already mentioned, the official launch in Botswana comes shortly after the release of the first annual update of the index. This is itself an important event, as it is through such regular updates that progress can be monitored. It is also to be welcomed that the coverage of the index has already increased, from the original 17 countries, to 20 in the 2018 update. As already explained, the Index ranks the maturity, openness and accessibility of financial markets in Africa based on both qualitative and quantitative criteria, focussing on six fundamental pillars for financial market performance. The 2018 update also pays special attention to policies for enhancing market growth, including financial inclusion and investor education. Most of the surveyed countries are implementing, or preparing to implement national policy frameworks for financial market development. The Index will, therefore, help provide them with valuable insights and tools to improve the state of their financial infrastructure and markets. As Maria Ramos, Chief Executive of the ABSA Group, has correctly observed, the index facilitates a meaningful debate about the maturity and accessibility of Africa’s financial markets, thus helping policymakers, investors, regulators and other market participants to identify the areas and initiatives which will drive the most significant improvements. In as much as I fully concur with the above observations, I should inject a note of caution at this point. In conducting the meaningful debate that Ms Ramos refers to, we should not just highlight the successes, but give equal weight to areas where more progress needs to be made. In this respect, the report highlights continuing room for improvement in several areas. These include, for many countries, the capacity of domestic investors, which hinders the development of new financial products and markets; and the need for further improvements in market infrastructure and regulatory frameworks. Similarly, while we should celebrate the improvement in the ranking of Botswana from third to second in the 2018 index, ranked only behind South Africa and ahead of continental heavyweights such as Nigeria, there is no room for complacency. There is considerable work to be done if we are to develop a truly world class financial sector in Botswana. To put this in perspective, while the ABSA Index ranks Botswana second in Africa, in the latest update of the World Economic Forum Global Competitiveness Index, the country’s financial sector is ranked only 69th out of 140 countries. Thus, while the overall score of 65 percent is encouraging, the Index rightly highlights areas where there is considerable scope for further improvement, for example, low levels of interbank foreign exchange trading, very low bond market and equity turnover and limited product diversity. Similar observations were made in the 2017 Bank of Botswana Annual Report Theme Chapter, which focussed on the importance of financial sector development for inclusive and sustainable economic growth. To some extent, these deficiencies reflect structural factors including the relatively small market size and limited need for government borrowing. But there is also scope for beneficial policy intervention with the relevant sectoral regulators working in partnership with market participants. At this point, let me once again assure you of the Bank of Botswana’s wholehearted commitment to supporting financial sector development in the country. First and foremost, this comes from a relentless and consistent focus on the core mandate of the central bank, namely, maintenance of price stability, thus contributing to broader macroeconomic stability for durable and sustainable growth; second, establishing structures that promote financial stability; and, third, adoption of a regulatory framework that balances prudential requirements with allowing sufficient scope for innovation. And, above all, recognition that "once inflation enters through the door, public confidence and trust in the national currency will escape through the other"! At the recent sixth Botswana Stock Exchange Opening Bell Ceremony, I provided some details on the specific initiatives that the Bank is undertaking to spur the development of the government bond market and stimulate the interbank market, as well as on-going efforts to modernise both the central bank and banking laws. It suffices to conclude these remarks by, once more, underscoring the importance of trust, governance and transparency as the bedrock and essential preconditions for a sound and sustainable financial sector. At the heart of any financial system is public trust; regulation can help confer legitimacy on regulated service providers, but the value of this support is quickly eroded if the underlying integrity of governance structures is not well-entrenched. I do not need to remind you of the details of recent events in Botswana that have severely tested this core principle while, more broadly, in countries such as South Africa and the United Kingdom, the competence and integrity of the accounting profession is once more under intense public scrutiny. To their credit, in each case, the concerned regulators in Botswana have acted without fear or favour in addressing the challenges. The regulatory structure has been tested and not found wanting, and this is gratifying. But poor governance has a corrosive effect that, left unchecked, could undermine public confidence and trust in financial institutions and financial markets, however notwithstanding carefully these designed. governance I related trust that, challenges, Botswana will continue to make progress, cementing its lofty position in the continental rankings. I thank you for your kind attention, and look forward to the next update of the ABSA Africa Financial Markets Index.	bank of botswana	2,018	11
Keynote speech by Mr Moses D Pelaelo, Governor of the Bank of Botswana, at the official launch of BBS Limited Palapye Branch, Palapye, 26 November 2018.	OFFICIAL LAUNCH OF BBS LIMITED PALAPYE BRANCH Keynote Speech by Moses D Pelaelo Governor, Bank of Botswana November 26, 2018 It is an honour and a great pleasure to join you here this morning for the official opening of Botswana Building Society Limited (BBS), Palapye Branch. Palapye is evidently one of the fastest growing villages in the country. Growth, in this instance, is a function of response to economic opportunities, including actual and potential demand for services. I have no doubt that the decision by Botswana Building Society to establish a physical presence here is similarly a realisation of the potential to serve the proximate community, generate business returns and be part of the Palapye growth narrative. Distinguished Guests, by way of background, the Botswana Building Society is an offshoot of United Building Society of South Africa, which started operations in Botswana in November 1971. It subsequently transformed to Botswana Building Society in December 1976, with a primary mandate to provide housing finance against immovable urban property, later extended, in 1986, to cover rural areas, and indeed commercial loans. The latest transformation, from a friendly, mutual society to a public limited company, incorporated in April 2018, is of great significance in many respects. First, it allows broader scope for consideration of strategy, sustainable funding and provision of a wider array of services by Botswana Building Society. In this regard, there is greater potential to respond to economic opportunities, drive operational excellence and capacity to meet diverse customer needs; thus enhance the value of services to customers, as well as prospects for sustainable returns and growth. Second, Botswana Building Society recently placed its shares on the Serala platform, which is for unlisted equities, at the Botswana Stock Exchange and has shares of over P564 million. This development provides yet another opportunity for ownership and strategic control of a home-grown, prudently managed and profitable financial institution by Batswana. The expectation of Bank of Botswana is that this transformation and growth will be prudently managed and achieved in an environment of sound operations, to ensure durable and beneficial impact on the economy. Distinguished Ladies and Gentlemen, it is fitting to recognise the growth and impact of Botswana Building Society on the economic landscape and as part of the financial sector of this country. Taking the twenty years to 2017, the assets of Botswana Building Society have increased at an average annual rate of 13.9 percent. This compares with an annual growth rate of 16.2 percent for commercial banks and 12.3 percent average annual increase in nominal GDP. This suggests a meaningful contribution to the economic and financial development of the country. Dissecting further, the average annual growth in residential mortgage loans was 14.2 percent, compared to 21.8 percent for commercial banks. Another interesting comparison is that outstanding residential mortgages by Botswana Building Society as at the end of June 2018 amounted to P2.9 billion, constituting 31 percent of the total of P9.3 billion for the commercial banks, which for the individual banks, ranged from a smallest value of P2.3 million to the largest amount of P3.2 billion. Distinguished Guests, this represents some of the relevant information that should inform prospective growth areas, strategic initiatives, and resource requirements of Botswana Building Society, going forward. Interestingly, Botswana Building Society Limited is reportedly making efforts to enhance its service offering and, therefore, potentially greater impact on society and the economy. In this regard, I wish to underscore that, to ensure an enduring and mutually rewarding relationship, businesses need to treat customers with respect and dignity. To this end, it is pleasing that Botswana Building Society Limited has, as its motto, “we know you better”, which I suppose means, a moral and corporate commitment that BBS staff will give you the respect and service quality that you deserve, here in Palapye. Distinguished Ladies and Gentlemen, let me now turn to expectations on closing existing gaps with respect to housing finance, resource mobilisation and impact on welfare and sustained increase in incomes. First, it is germane to acknowledge the low level of housing finance in Botswana relative to the size of the economy. For example, residential mortgage lending amounts to 21.6 percent of total bank lending (including statutory banks); 14 percent of total assets of banks; and only 6.9 percent of GDP. Compared to more mature housing markets, these figures are very low. For example, the respective ratios for the United Kingdom are, 70.8 percent of total banking lending; 36.6 percent of total banking assets and 52.7 percent of GDP. This demonstrates the gap in development and the opportunities. Significantly, growth in this area represents an important source of future income growth and wealth generation. This is in several respects. For individuals, this relates to the opportunity to invest earnings meaningfully, use of the value of houses to generate other economic activities and sources of income, and potential for increase in wealth over time, as well as serving as a potent hedge against inflation. For the broader economy, there are benefits in terms of a continuous build-up of the volume and variety of stock of housing, alongside growth in the population and incomes. Potentially, this could also have significant distributional effects and, if housing credit is more inclusive, it can reduce income inequality. Furthermore, developed economies, with well-functioning financial systems, such as the United States of America, attest to the fact that citizens can access, in a disciplined and beneficial manner, the so-called “excess equity” in their mortgaged properties and use their houses as ATMs! Moreover, with unconstrained growth in mortgage finance and housing, there are incidental economic opportunities relating to the construction industry and related services, thus contributing to economic diversification. Distinguished Guests, the second point is that such prospects, however, need support in terms of a land tenure policy that facilitates the use of the various forms of land and real estate across the country to secure mortgage financing. This helps in terms of both financing and marketability of land and property countrywide, with the attendant economic opportunities. Therefore, the Administration, Improvement of Land Procedures and Systems (LAPCAS) project, that should ease constraints to using land acquired under different tenures as collateral for mortgages, is a welcome development. In this regard, it is our expectation that BBS and, of course other financial institutions in this country, will respond positively in providing affordable credit that the average household in Botswana can access. The third dimension, Distinguished Ladies and Gentlemen, is that the supporting services need to be robust and sound. Among others, this relates to professionalism around property valuations to ensure that the resultant loan financing is aligned to housing market realities; thus safeguarding the interests of both the financier and the customer; respectively, as well as the soundness of financial institutions and welfare of households. Going forward, the development of a credible property price index and enhancement of sharing of credit information through well-organised credit bureaux would be helpful. Therefore, we agree with the observation made by the Centre for Affordable Housing Finance in Africa, in their 9th Edition of The Housing Finance Yearbook, that “a combination of a good macroeconomic environment, sound policy, better data and increased access to affordable credit” should spur the development of a vibrant housing market to the benefit of a large segment of the population. Fourth, appropriately structured resource mobilisation is key to successful provision of housing finance and related services. Given that housing finance is inherently long-term in nature and that there is an imperative for further growth in Botswana, it should be supported by a large pool of stable deposits and/or investments. This is afforded by attracting a range of small to large deposits, with associated transactional and return incentives. The point here is that active deposit mobilisation is critical for availing funds that can be deployed to support housing finance without undermining the viability of the financial institution. In addition, a robust capital market that facilitates seamless raising of long-term funds, including corporate bonds to suit various needs, is also needed. It is accepted that, as a matter of prudence, we should not burden short-term finance or worsen the structural maturity mismatches widely prevalent in the country’s financial system. Moreover, there is a need to invest in capacity to develop derivative instruments that facilitate risk sharing, as well as transformation and trading of assets and liabilities; thus alleviate constraints to mortgage financing. Regrettably, in this regard, the Botswana financial system is way behind the curve and, despite banking industry outcry about tight market liquidity in recent years, there is not much evidence of any innovative and structured products, such as mortgage-backed securities, negotiable certificates of deposit or credit default swaps. For its part, the Bank of Botswana has entrenched a largely credible monetary policy framework, with inflation sustained within the objective range of 3 – 6 percent and allowing for maintenance of relatively low interest rates. Furthermore, effective regulatory oversight and prudently managed financial institutions continue to contribute to maintenance of a sound and stable financial system. In this regard, well-anchored expectations, premised on a credible policy framework, supports determination of term structure of interest rates, relevant for both resource mobilisation and pricing of long-term loans. The policy environment is, therefore, conducive for orderly and effective intermediation and productive use of financial resources; and in the context of the theme of my message today, affordable cost of housing finance. Distinguished Guests, the fifth point, I want to highlight is the importance of presence of institutions and access to services, as demonstrated by the opening of the Palapye Branch of Botswana Building Society. Geographical spread of financial institutions allows for proximate access to financial services, in terms of both acquaintance and usage. This augurs well for financial inclusion. Thus, when people know about the existence and benefits of services and facilities, and when these are accessible in a convenient and cost-effective manner, they are more likely to use such services. Increasingly, “virtual” presence and access enabled by digital channels has become a viable platform for access to services and needs to be harnessed accordingly. Overall, presence and accessibility enhance prospects for mobilisation of financial resources, and effective demand for housing finance and other beneficial loan products; ultimately leading to increase in social welfare, as well as the broadening and growth of economic activity. I should, therefore, acknowledge that, currently, Botswana Building Society has offices and branches in Francistown, Gaborone, Kasane, Lobatse, Maun, Selibe Phikwe, Serowe; and now Palapye, in addition to twelve automated teller machines (ATMs) countrywide. More significantly, BBS has and continues to invest in various corporate social responsibility projects worth millions of Pula. Among these projects are a school library in Letswai Primary School in Zutshwa; computer labs at Marapong and Mowana Primary Schools in the Central and North East Districts, respectively, as well as building new ablution facilities and upgrading old ones at Molapowabojang Primary School. These investments in educational facilities will go a long way in contributing towards good education for our children and this is to be applauded. On that note, let me conclude by indicating that it is my expectation that patronage and use of financial services will increase because of this new branch. Thus, with relevant business strategies by Botswana Building Society, as well as facilitative policy environment, this branch will foster and sustain financial inclusion and, in turn, the attendant benefits of productive saving and use of finance, access to payments services, and broadly, enhanced economic activity. I implore you all, Palapye residents, the surrounding areas and beyond, to use BBS and other financial institutions in your area, to save; to access and use credit wisely, for the benefit of your families and sustainable development of the country. It is now my honour and privilege to declare the BBS Limited Palapye Branch officially open. I thank you for your kind attention.	bank of botswana	2,018	12
Opening remarks by Mr Moses D Pelaelo, Governor of the Bank of Botswana, at the official launch of the Financial Stability Council and signing of the Memorandum of Understanding, Gaborone, 26 February 2019.	OFFICIAL LAUNCH OF THE FINANCIAL STABILITY COUNCIL AND SIGNING OF THE MEMORANDUM OF UNDERSTANDING Opening Remarks by Moses D Pelaelo Governor, Bank of Botswana February 26, 2019 Good morning and welcome to the Signing Ceremony for launch of the Financial Stability Council. Ladies and gentlemen, as I look back, the launch is the culmination of several significant steps and consultations. Among these are: first, the initial assessment by the Bank of the need and prospective role of a Financial Stability Council, articulated in the Monetary Policy Statement; second, consultations by officials within the auspices of the Bank of Botswana/Ministry of Finance and Economic Development Working Group, and also involving the Non-Bank Financial Institutions Regulatory Authority and the Financial Intelligence Agency; third, approval for Honourable establishment of the Council Minister Finance and of by the Economic Development obtained in April 2018; and fourth an inaugural meeting to consider an outline of the Macroprudential Policy Framework and review of the draft Memorandum of Understanding in September 2018. The Financial Stability Council comprises the leadership of the Ministry of Finance and Economic Development (MFED), the Bank of Botswana (the Bank), Non-Bank Financial Institutions Regulatory Authority (NBFIRA), and Financial Intelligence Agency (FIA), institutions that are involved in developing legislation and regulations, policymaking and supervision with respect to the whole or facets of the financial sector. It is acknowledged that the respective institutions have unique statutory mandates, objectives, oversight frameworks and operational spheres, albeit mostly related. In this regard, the Financial Stability Council is not established to usurp or dilute the role of the respective institutions, which is neither feasible nor desirable. Rather it is to share information and where, desirable, facilitate collective and coordinated approach to financial sector monitoring resolution. frameworks and crisis Ladies and gentlemen, to reiterate, as indicated in the 2018 Monetary Policy Statement, coordinated oversight is necessary because while the relevant institutions are distinctly and individually supervised at a micro level, the financial system encompasses interconnected relationships and activities and is subject to common and transferable risks. Therefore, the Council is designed to foster collaboration and coordination in the four areas of: sharing of data and information for purposes of monitoring and risk assessment; overseeing and guiding macro-prudential policy framework and implementation; regular briefings, consultations and policy review with respect to relevant developments; and structured and coordinated response to any financial system imbalances and resolution as may be necessary. Todayâ€™s signing of the Memorandum of Understanding by the respective institutions, therefore, represents an undertaking to collectively safeguard the continuing soundness and integrity of the financial system. Moreover, going forward, it also facilitates the development of mechanisms and channels for sharing of data and consultation. The thought process for establishment of a Financial Stability Council also involves consideration of a robust legislative backing for the work of the Council and this will accordingly be facilitated in the revised Bank of Botswana Act; consultations between the Bank and MFED on the review are at an advanced stage. Colleagues, before concluding let me highlight the more urgent work programme for the Council in the short to medium term. First, is publication of the Financial Stability Report, as an anchor publication, providing accountability in the areas of assessment of financial stability risks and mitigation measures. Second is agreement on a Macroprudential Policy Framework that is relevant for Botswana, in terms of risk mitigation, as well as recognising the gaps in financial inclusion and development. Third, there is a specific need to address the challenges arising from implementation of the Anti-Money Laundering and Combatting the Financing of Terrorism protocols and requirements. Fourth and related, thereto, is the requirement to decisively address the incipient misconduct and governance challenges in the financial sector, deriving from greed and/or misunderstanding or incompetence with respect to fiduciary responsibilities, as well as opportunistic crime and fraud. Fifth, consultation during 2019 will also involve consideration of a deposit protection scheme for the country, to guarantee access to deposits up to a specified threshold, in the event of bank failure. Lastly, cooperation and collaboration among the Council members would be critical in the timely update and renewal of legislation and policies to retain and improve effectiveness of supervision, monitoring and guidance for the financial sector. I thank you for your attention and I now call upon Council members to comment, before we proceed to sign the MoU.	bank of botswana	2,019	3
Speech by Mr Moses D Pelaelo, Governor of the Bank of Botswana, at the launch of Botswana's 2019 Monetary Policy Statement, Gaborone, 25 February 2019.	BANK OF BOTSWANA 2019 MONETARY POLICY STATEMENT by Moses D Pelaelo Governor February 25, 2019 Introduction Distinguished Guests, I am honoured to welcome you, on behalf of the Board, Management and Staff of the Bank, to the launch of the 2019 Monetary Policy Statement. This is an important occasion in the Bank’s annual calendar of events. We are therefore most grateful to you, Honourable Ministers and our Distinguished Guests, for having made the time to attend today’s event. The launch and dissemination of the Monetary Policy Statement are key elements of good governance, transparency and accountability in the formulation and implementation of monetary policy. This is intended to promote an understanding of the conduct of monetary policy and its objectives and, accordingly, guide the public’s inflation expectations towards convergence with the Bank’s inflation objective; enhancing the prospects for sustainable maintenance of low, stable and predictable inflation. Specifically, the Bank uses the Monetary Policy Statement to report on the inflation trajectory and policy performance in the past year; to outline and convey its prognosis of economic and other policy developments going forward; and, in turn, the prospective monetary policy response and implementation in the ensuing year. Distinguished Ladies and Gentlemen, the Bank’s monetary policy objective is to achieve price stability, defined as low, stable and predictable level of inflation that is within 3 – 6 percent. Monetary policy formulation is also aligned to safeguarding the stability of the financial system. In this regard, price stability and conducive monetary and financial conditions foster mobilisation of savings, productive investment, prudent allocation of credit and international competitiveness of domestic firms. In turn, a sound and stable financial system is critical for effective transmission of monetary policy signals, facilitating the flow of funds and liquidity, as well as risk mitigation in support of economic activity. Overall, therefore, the conduct of monetary policy and attention to financial stability supports the national objectives of employment creation and sustainable economic growth. Improvements to the Monetary Policy Framework Distinguished Guests, you will recall that when launching the 2018 Monetary Policy Statement, I shared with you the prospective refinements and improvements to the monetary policy framework due for implementation in 2018. Notable in this regard, was the publication of Monetary Policy Reports to further improve on communication of economic and policy developments. I am pleased to report that, for the first time, the Bank published two Monetary Policy Reports in August and October 2018. Going forward, the Bank will, in addition to this February Monetary Policy Statement, publish three Monetary Policy Reports in April, August and October, within seven days following the respective Monetary Policy Committee meetings. For the June and December Monetary Policy Committee meetings, detailed Press Releases will be issued. This is to provide a continuous comprehensive update on inflationary developments as well as a context to policy decisions. I must, however, emphasise that all the six meetings of the Monetary Policy Committee in a year are important and involve a careful consideration of any of the three likely outcomes and policy signals: that is, either to increase, decrease or maintain the level of the policy interest rate, which is currently the Bank Rate. I am also pleased to announce that, the Honourable Minister of Finance and Economic Development approved the establishment of the Financial Stability Council (the Council) for Botswana in April 2018. A Memorandum of Understanding between the four constituent members of the Council, namely, the Ministry of Finance and Economic Development; Bank of Botswana; NonBank Financial Institutions Regulatory Authority; and the Financial Intelligence Agency, will be signed tomorrow, after the first Monetary Policy Committee Meeting of the year. The formation of the Council is a significant step towards facilitating collaboration, cooperation and communication amongst the four government agencies for the purpose of implementing macroprudential policy. The other important facet relates to national contingency planning for a financial sector crisis, anchored on proactive macro-prudential assessments, stress testing and a deeper understanding of cross-sectoral interactions of firms and financial markets. Given the nature and construct of financial intermediation and, in particular, the structure of balance sheets of banks, things will and often go wrong. For these reasons, the strengthening of financial sector safety nets, encompassing effective crisis management, recovery and resolution plans as well as a proposal for the establishment of a deposit insurance scheme in Botswana, will form part of the agenda of the Financial Stability Council in 2019. On this breath, the Bank of Botswana is gravely concerned by the incipient personal greed and reported governance failures in some segments of the financial sector, which has the potential to erode fiduciary responsibilities and, consequently, undermine public confidence in financial markets. I can assure you, Honourable Minister, and indeed the international community that, for its part, the Bank will do all that is necessary, in collaboration with all key stakeholders, to preserve the integrity, safety and soundness of the financial system. This will include working tirelessly to support Government actions and programmes, coordinated by the Financial Intelligence Agency, in continuing to build a robust and sustainable Anti-Money Laundering and the Combating of the Financing of Terrorism architecture for this country. Honourable Minister, Distinguished Ladies and Gentlemen, the Bank evaluates monetary policy implementation framework on a regular basis for effectiveness, and introduces refinements where necessary. In this respect, during this year, the Bank will adopt what is known as “Reserves Averaging” in the determination of Primary Reserves Requirement for banks and also shorten the maturity of the 14-day BoBCs to seven days. Under “reserves averaging”, commercial banks do not have to meet the primary reserve requirement daily but, rather, fulfil this statutory requirement on an average basis over the maintenance period, in our case, a calendar month. Reserves averaging, which is used in some jurisdictions, has been shown to improve liquidity management by commercial banks, foster more effective resource allocation through the interbank market and reduce the demand for excess reserves held for precautionary purposes. The reduction of the maturity period of the primary Open Market Operations tool, namely, the 14-day Bank of Botswana Certificates (BoBCs), to seven days, should enable shorter and simpler forecasting horizon for liquidity management by both the Bank of Botswana and commercial banks, with more accurate outcomes. In turn, it is expected to provide a solid basis for the starting point of the monetary policy transmission mechanism, supporting the extension of the policy signal along the yield curve. These enhancements require input and cooperation from commercial banks and, in that regard, consultations with the banks will commence shortly, with a view to ensure implementation of these measures within a short period of time. In addition, during the coming months, the Bank will consult the market on further possible changes to monetary operations and the “anchor policy rate”; for example, whether the Bank Rate or the BoBC rate is the more proximate to market considerations for policy transmission purposes. The objective of these refinements is to enhance the potency of the policy rate in the transmission of monetary policy signals as well as its influence on subsequent market reaction and posture. Furthermore, there is need to spur the development and efficacy of the money markets, for the purposes of effective policy transmission, as well as management, access and flow of liquidity among the commercial banks. It is envisaged that these consultations will be completed by the middle of the year. Distinguished Guests, alongside these measures, designed to ensure better structural alignment of short-term market rates and desirable policy transmission, any notional ceiling on the issuance of BoBCs will be lifted. This approach allows greater scope and flexibility for unconstrained and, therefore, effective liquidity absorption by the central bank in response to market developments. In addition to these anticipated changes to monetary operations, the Business Expectations Survey which, hitherto, was conducted half-yearly, will be undertaken on a quarterly basis. I must heartily thank those businesses that dutifully participate in the Business Expectations Survey and wish to appreciate their invaluable support and input into the analysis of economic developments and policy responses. I encourage those that are sometimes reluctant to participate, to join us in facilitating comprehensive and informed data and policy analysis. Honourable Minister, Distinguished Ladies and Gentlemen, allow me, at this juncture, to address three other areas, namely, global trends that have influenced inflation in Botswana; highlights of the conduct of monetary policy, both internationally and here at home; and, finally, provide the medium-term inflation outlook and, consequently, offering a view on the likely future policy stance in 2019. External Economic Developments in 2018 Global GDP is estimated to have increased by 3.7 percent in 2018, compared to 3.8 percent in 2017, with mixed performance across countries and regions. Among the advanced economies, growth strengthened in the USA, influenced by fiscal stimulus and stronger consumer demand. In contrast, performance faltered in the euro area, the UK and Japan. This was affected, in the main, by policy uncertainty, adverse impact of rising protectionist sentiments on global trade and constraints to implementation of structural and policy reforms. For the emerging market economies, output expansion remained strong, although slowing slightly, in the context of waning financial markets sentiment, trade policy uncertainty, weaker external demand and concerns about China’s economic outlook. Global inflation rose from 3.2 percent in 2017 to 3.8 percent in 2018, mainly due to the increase in international oil prices during most of 2018, which, however, was moderated by the decrease in international food prices. In particular, inflation was subdued in the Special Drawing Rights (SDR) countries, easing slightly from 1.8 percent in December 2017 to 1.7 percent in December 2018. Inflation in South Africa also decreased from 4.7 percent in December 2017 to 4.5 percent in December 2018. Overall, average inflation for the trading partner countries fell from 3.1 percent to 3 percent in the same period. Domestic Economic Developments in 2018 Domestic output is estimated to have expanded by 5.1 percent in the twelve months to September 2018, compared to lower growth of 2.4 percent in the year to September 2017. This expansion was mainly driven by sustained improvement in nonmining GDP growth and the recovery in mining output. Inflation was low and stable, and fluctuated around the lower end of the objective range of 3 - 6 percent for most of 2018; and the outcome was broadly consistent with projections for the year. The low rate of annual price increase was mostly due to the decrease in food inflation. Food price inflation decreased from 1.1 percent in 2017 to a negative 0.2 percent in 2018. However, fuel prices increased significantly by 16.1 percent during 2018, due to upward adjustments in May, October and November. This compares to a relatively smaller increase of 9.5 percent in 2017. Overall, the increase in administered prices (including fuel prices, public transport fares, as well as electricity tariffs) added 1.86 percentage points to inflation in 2018. Distinguished Ladies and Gentlemen, the overall modest increase in prices in Botswana was in the context of subdued domestic demand pressures, as a result of the restrained growth in personal incomes and largely stable foreign inflation. Monetary policy was, therefore, conducted against the background of below-trend economic activity and a positive medium-term outlook for inflation and moderate fiscal expansion. Government expenditure grew by 6.6 percent in 2018 compared to a contraction of 6.3 percent in the prior year. It should be recognised, in this respect, that beyond the increase in wages, the short-term impact of government spending on domestic demand is moderated to the extent that a significant component involves infrastructure and capacity development. In the context of Botswana, this type of spending tends to be import intensive and the economic benefits of such public investments are derived in the medium to long term. Regarding wage developments, it is notable that government recurrent expenditure included a 3 percent salary increase with effect from April 1, 2018. However, nominal national wages increased by 2.3 percent, on average, which was below the average inflation rate for the period. These developments suggest a modest impact on domestic demand and inflation. On credit developments, growth in commercial bank credit accelerated from 5.6 percent in 2017 to 7.7 percent in 2018 and included a faster increase in lending to businesses, from 3.2 percent in 2017 to 10 percent in 2018. For households, annual credit expansion fell from 7.2 percent in 2017 to 6.2 percent in 2018, in the context of restrained growth in personal incomes. This included a 7 percent increase in personal loans and 4.9 percent for mortgages, compared to respective growth rates of 9.2 percent and 4.8 percent in 2017. Overall, the rate of credit growth continued to be supportive of economic activity, with minimal risk to financial stability. Global Monetary Policy Implementation in 2018 Honourable Minister and Esteemed Guests, monetary policy implementation in 2018 varied at the global level, in response to diverse economic performance and inflation developments across countries and regions. It was, however, generally amply accommodative, with low levels of interest rates and continued liquidity support to the financial sector in the euro area and Japan. However, policy rates were increased in the United States of America towards normalisation and, in the United Kingdom, in order to get inflation back to target. Monetary policy implementation was also mixed in the emerging market economies, with policy decisions mainly driven by the need to support economic activity. Closer to home, the South African Reserve Bank initially reduced the repo rate to 6.5 percent in March but later increased it to 6.75 percent in November 2018 due to elevated upside risks to the mediumterm inflation outlook. Domestic Monetary Policy Implementation in 2018 For its part, the Bank of Botswana continues to conduct monetary policy through a forecast-based policy framework that informs the appropriate response to deviations of inflation from the desired objective range. The analysis also involves assessment of divergence of actual output (GDP) from potential output (technically known as the “output gap”), which is the primary indicator of the direction of future inflation. The forecast incorporates projections of foreign inflation, exchange rate movements and changes in domestic administered prices and taxes. In addition, the Bank undertakes a careful evaluation of risks associated with the projected outlook. In determining the appropriate policy response, the inflation forecast is considered alongside indicators of financial stability and economic activity, including relevant information from the Business Expectations Surveys. As I indicated earlier, monetary policy during 2018 was conducted in an environment of below-trend economic activity and a favourable developments medium-term provided inflation outlook. for maintaining scope These an accommodative monetary policy stance in support of stronger output growth. Therefore, the Bank Rate was unchanged at 5 percent in 2018. Consequently, the prime lending rate of commercial banks was maintained at 6.5 percent, while the deposit rates were, similarly, virtually stable. Monetary policy was implemented with a view to sustain productive commercial bank lending and monetary operations conducted to ensure alignment of market interest rates with the monetary policy stance. Consequently, given the increase in liquidity that needed to be sterilised, outstanding BoBCs amounted to P8.2 billion in December 2018, an increase from P6.3 billion in December 2017. BoBC yields increased modestly in 2018, reflecting a continuing process of normalisation in the money market interest rate structure. Global Economic Prospects in 2019 Looking ahead, while global growth remains strong, the pace is moderating. The global economy is expected to grow by 3.5 percent in 2019, lower than estimated expansion of 3.7 percent in 2018. The projected lower growth is premised on anticipated slower expansion in advanced economies, mostly reflecting subdued performance in the euro area. The US GDP growth is forecast to decline from 2.9 percent in 2018 to 2.5 percent in 2019, as the impact of the fiscal stimulus dissipates. Growth in emerging market and developing economies is projected at 4.5 percent in 2019, slightly lower than the 4.6 percent in 2018. Overall, risks to the global economic activity are skewed to the downside, with prospects for escalation of trade tensions, tightening financial conditions, a no-deal Brexit and relatively weaker growth in China presenting key risks to the outlook. Global inflationary pressures are forecast to be modest in the short to medium term, reflecting below-potential output. In this environment, it is anticipated that monetary policy will remain accommodative in most economies, complemented by measures aimed at facilitating financial intermediation, while fostering resilience of the financial sector, to support growth in economic activity. It is, therefore, notable, that the earlier anticipated monetary policy normalisation (or increase of interest rates) in the advanced countries is being re-assessed and restrained with the advent of generalised weaker economic performance and heightened policy uncertainty. Domestic Economic Prospects Distinguished Guests, as the Honourable Minister of Finance and Economic Development indicated in the 2019/20 Budget Speech, the domestic economy is forecast to grow by 4.2 percent in 2019, slightly lower than the estimate of 4.5 percent for 2018. The main factors expected to support growth in economic activity include conducive financing conditions associated with an accommodative monetary policy stance and a sound financial environment. The budgeted 3.6 percent expansion in government spending in 2019/20 and the implementation of initiatives such as the doing business reforms, are expected to further support growth in economic activity and employment creation. The crawling band exchange rate policy framework has served the country well and will continue to complement monetary policy. This bodes well for maintenance of international competitiveness of domestic industries and macroeconomic stability. As announced at the beginning of the year and broadly consistent with Botswana’s trade pattern, the weights of the constituent currencies in the Pula Basket were maintained at 45 percent for the South African rand and 55 percent for the SDR. An annual upward rate of crawl of 0.3 percent of the nominal effective exchange rate is also being implemented in 2019, in order to stabilise the real effective exchange rate. Overall, both external and domestic pressures on inflation are expected to be benign, and it is projected that inflation will remain within the 3 – 6 percent objective range in the short to medium term. This forecast incorporates the estimated impact of the increase in public service salaries and prospects for continued accommodative monetary conditions. Having said that, it is worth underscoring the point that any upward adjustment in administered prices and government levies and/or taxes and any increase in international commodity prices that is substantially beyond current projections present upside risks to the inflation outlook. In contrast, downside risks to inflation arise from the restrained growth in global economic activity, the tendency of the ongoing technological progress to lower costs and the reduction in commodity prices. Monetary Policy Stance Distinguished Guests, based on available data, the current projections suggest that domestic inflation will, in the mediumterm, remain within the Bank’s objective range of 3 – 6 percent. This favourable medium-term outlook for inflation is in the context of moderate growth in economic activity and a sound and stable financial system. Therefore, prospective developments augur well for maintenance of an accommodative monetary policy that supports productive lending to businesses and to households, for welfare enhancements that also drive economic activity. The Bank’s implementation of monetary policy will continue to focus on entrenching expectations of low, predictable and sustainable inflation, through timely responses to price developments; while at the same time, taking due care to ensure that policy decisions are consistent with ensuring financial stability and supportive of sustainable economic growth and employment creation. Conclusion Honourable Minister and Distinguished Guests, as I conclude, it is important to note that the continuing success in containing inflation within the desired 3 – 6 percent medium-term inflation objective, to which the Bank remains fully committed, must in the end, involve the cooperation of all key players in the economy, including Government, parastatals and the private sector. I thank you for your kind attention.	bank of botswana	2,019	3
Welcome remarks by Mr Moses D Pelaelo, Governor of the Bank of Botswana, at the 2019 Media Economic Briefing, Gaborone, 21 May 2019.	BANK OF BOTSWANA 2019 Media Economic Briefing - Welcome Remarks by Moses D Pelaelo Governor May 21, 2019 Let me thank you, Distinguished Members of the Media, for honouring the Bank’s invitation to today’s Economic Briefing, which also marks the launch of the 2018 Bank of Botswana Annual Report. As I have repeatedly indicated, the Bank of Botswana values greatly the critical role played by the Media in the dissemination of financial, economic and other information to the nation; it is, therefore, not a coincidence that this economic briefing comes immediately after the briefing of His Excellency The President and Members of the Cabinet. The Annual Report is published in compliance with the Bank of Botswana Act and, as a statutory requirement, contains a report on the Bank’s operations and audited financial statements, that is to say, it is the primary vehicle for accountability to the nation on the operations and financial performance of the Bank. In addition to the statutory aspects of the report, it is a tradition that the Annual Report also includes a review of economic developments and outlook, as well as a theme topic section. The review provides an analytical content and explanations for economic developments and prospects, as well as background to policy conduct and operations by the Bank. In particular, this is with respect to monetary and exchange rate policies, financial stability, banking sector regulation, currency management, payments infrastructure and the management of foreign exchange reserves. The successive theme topics contribute to national economic policy analysis and evaluation and, hence, the requisite response and transformation needed to sustain the desired level of inclusive and diversified growth of the economy. Distinguish Ladies and Gentlemen, the Bank’s financial performance and operations in 2018 is against the background of moderation in the pace of global economic growth, associated with slack in growth of demand in an environment of policy uncertainty induced by increasingly inward looking policies, heightened trade and geopolitical tensions, lack of progress on Brexit and adverse climate. Meanwhile, in the region and domestically, prospects for growth and transformation continue to be adversely affected by both the inadequate pace and lack of traction of structural and policy reforms. Distinguished Members of the Media, you will note that the combination of international developments and the domestic context affect the immediate as well as the medium- to long-term outcomes. The first presentation this morning will relate more to the immediate outcomes, being the report on the Bank’s Operations and Financial Statements by the Chief Financial Officer, Mr Daniel Loeto. Mr Loeto will, among others, highlight the performance of the foreign exchange reserves that, in turn, have a major impact on the Bank’s financial performance and resulting revenues to government, and identify the various influences. At this stage, I will just preface his detailed explanations by indicating that the significant influences include, an environment of low global interest rates, volatile valuations of assets traded in global markets and currencies, trade and capital flows, government operations and fiscal balances as well as changes in the Bank’s investment guidelines and associated portfolio rebalancing. Distinguished Media Practitioners, as you would be aware, the Bank of Botswana is one of the few central banks in the world whose financial statements are prepared and audited in accordance with international reporting and auditing standards. I also wish to add that, the Bank’s financial statements, as has been the norm over the 43 years of the Bank’s existence, have obtained a clean audit report that confirm appropriate maintenance of accounts, existence of sound risk management and internal control environment and, in general, effective governance structures at the Bank of Botswana. In this respect, I would like to assure the nation and other stakeholders globally, that contrary to some unfortunate and inaccurate reporting by some in the Media, that there is no single Thebe that is not fully accounted for by the Bank of Botswana. For the record, kindly note that, the Bank of Botswana is not audited by the Auditor General; the Bank of Botswana is a separate legal entity, a central bank, audited by an independent statutory public audit firm appointed in accordance with the provisions of Section 67 of the Bank of Botswana Act. These public audit firms are subject to rotation rules, of both the lead engagement partner and the audit firm itself, after a prescribed period of time in accordance with international best practice. Distinguished Ladies and Gentlemen of the Media, you will also hear from the Director of Research and Financial Stability, Dr Tshokologo Alex Kganetsano, who will lay out the outcomes and explanations for economic developments in 2018, as well as prospects going forward. He will specifically discuss output, inflation, credit and interest rates, exchange rates, as well as the main components of the balance of payments and their impact on the nation’s foreign exchange reserves. Following the review of economic developments, Dr Kganetsano will summarise the theme topic for 2018, which is “Financing Strategies for Industrialisation and Transition to High Income Status”. He will explain that this theme topic is a sequel to the 2016 and 2017 ones; intended to complement and further enrich the policy analysis and prospects for success of the national industrialisation strategy. This is through highlighting areas for improvement, especially relating to funding and related institutional governance and operational effectiveness necessary for beneficial mobilisation and harnessing of financial resources using, where relevant, cross-country examples, such as Brazil, Singapore and the Republic of Korea. You may recall that, last year I alluded to disharmony or misaligned nexus between a stable macroeconomic environment and weak economic outcomes; specifically insufficient growth rates, high unemployment levels and income inequality, and the resulting slow pace towards attainment of the high-income status. Let me bring to your attention a recent study by the International Monetary Fund on “Growth in Southern Africa: Issues and Reform Options”; it is not contained in the Annual Report; but pertinent for public discourse on the “middle-income” trap. The study identified three factors that continue to detract from growth prospects and transition to high-income status. First, the lacklustre relative export performance and shrinking tradeable sector. In contrast to countries that attained middle-income status rapidly (in Latin America and South-East Asia, for example), for Botswana, over the last few years, the private tradeable sector declined as a share of the country’s GDP. The second factor relates to the low and declining total factor productivity encompassing land, capital and labour. The third one is the relatively large public sector, including state-owned enterprises, with the resulting sub-optimal delivery of services and utilities, compared to middle-income peers. In their respective country assessments, the rating agencies, Moody’s and S & P Global Ratings, also emphasise this last point, namely, the need for a dynamic and expanded role of the private sector in the economy, to achieve economic diversification and inclusive growth. The combination of these factors contributes to declining competitiveness in the country, in terms of access to infrastructure and utilities, skills and, ultimately, tradeable goods and services. Distinguished Ladies and Gentlemen of the Media, while the analysis is obviously relative and involves country rankings, the Bank suggests that the study provides relevant issues for consideration of policy responses. Notably, this is in the areas relating to the balance between inward versus outward-looking industrialisation options, land economy and management, governance and accountability frameworks of institutions, domestic resources mobilisation and allocative efficiency, capital markets development and skills transformation, among others. I suggest that, to sustain medium to long-term prospects for the economy, diversified and inclusive growth and transition to high-income status, policy should focus on raising potential growth through structural and fiscal reforms, while maintaining sound macroeconomic policy frameworks and a stable financial sector, as well as rebuilding buffers to boost resilience. The 2018 theme topic is, therefore, a contribution in this regard. Distinguished Ladies and Gentlemen, allow me to introduce to you my colleagues here in the room and, thereafter, call upon the Chief Financial Officer, Mr Daniel Loeto to kick-start the presentations. I thank you for you kind attention.	bank of botswana	2,019	6
Welcome remarks by Mr Moses D Pelaelo, Governor of the Bank of Botswana, at a conference, Gaborone, 24 June 2019.	BALANCING FINTECH OPPORTUNITIES AND RISKS: IMPLEMENTING THE BALI FINTECH AGENDA Welcome Remarks by Moses D Pelaelo Governor June 24, 2019 It is with great pleasure and honour to warmly welcome you all to this small but vibrant city of Gaborone; the capital of Botswana, ranked the 48th largest country in the world (approximately the size of France, Kenya, Madagascar or Texas) but with a population of just over 2.3 million people – Our Pride, Your Destination. Allow me to extend a special welcome to the delegates, moderators and other resource persons to this important and timely two-day high-level conference on Balancing Fintech Opportunities and Risks: Implementing the Bali Fintech Agenda. While encouraging you to work very hard over the next one and half days, those from outside Botswana please do not forget that, once back home, you will be invariably asked about the City of Gaborone’s landscape of shopping malls and other social amenities. I have no doubt that it will be an incomplete story and a big disappointment if all you can say is that the Conference was successful. Distinguished Ladies and Gentlemen, I wish to start, first, by acknowledging the presence of the Honourable Minister of Finance and Economic Development, Mr Kenneth Matambo, who has kindly agreed to perform the official opening of this Conference. In many respects, Honourable Minister Matambo leads the infusion and integration of modern technology in the provision of financial and government services. He has also lived through and witnessed the evolution from brick and mortar as well as paper to virtual and digital channels, both as a professional in various positions in the Public Service of this country and as a consumer of services. It is, therefore, fitting that he will perform the official opening of this Conference and give insights and inspiration on prospects for Fintech and its potential impact on the development agenda of our region. Second, we are also pleased to have amongst us the First Alternate Executive Director for Africa Group I Constituency at the International Monetary Fund, Ms Ita Mannathoko who, incidentally, is a Botswana citizen; Deputy Director, Monetary and Capital Markets Department at the IMF, Mr Aditya Narain; Division Chief in the African Department of the IMF who is also the Mission Chief for Botswana, Mr Papa N’Diaye, together with all the staff of the Fund and the World Bank Group here present. Let me say to you, individually and collectively, that your participation in this Conference is highly appreciated. We look forward to your wise counsel, guidance and infusion of expertise during the Conference. Third, I wish to welcome and appreciate the efforts of those that will moderate and lead the discussions during the Conference. I expect that their preparatory work, effective leadership of sessions, and animated dialogue on the relevant issues will stimulate and contribute to beneficial sharing of expertise and perspectives on both the benefits and challenges of harnessing Fintech. To all delegates, local and from outside Botswana, I have no doubt that the diversity in this room will surely enrich and add to the value and benefit of the Conference in terms of both inputs into the deliberations and implementable takeaways for policy and regulation, as well as ideas for innovation, with respect to business development and service provision. Indeed, the idea of the Conference is to propagate and entrench, globally, the broad themes of the Bali Fintech Agenda, which you will get to hear about over the next one and half days. For this reason, similar conferences, led by the International Monetary Fund, are being held in other regions. The cross-participation by policymakers, regulators and private sector practitioners in these conferences also enriches networking and the sharing of ideas; thus a common view, globally, about the prospects for Fintech and, where there are potential systemic and global challenges, inculcate forward-looking preparations for both localised and coordinated, cross-border mitigation approaches. In this regard, I wish to note that, as a practical approach, the SADC region has established a Fintech regional monitoring group comprising representatives from the respective central banks. This is intended to build institutional knowledge of Fintech developments on an ongoing basis and, therefore, continually provide the SADC Committee of Central Bank Governors with a comprehensive picture of existing and emerging technologies, the application and market penetration of these technologies, as well as the attendant risks. We, therefore, look forward to hearing your thoughts on the broad range of areas that are relevant for balancing Fintech opportunities and risks. I acknowledge and fully appreciate, in this respect, that the effort by the International Monetary Fund to lead the integration of Fintech into the global development and policy agenda provides for a useful, knowledgeable and accessible partner to support the domestication of this agenda. Having said that, I take it you will agree with me that, while policy and regulation can guide and safeguard, at the end of the day, the more impactful and beneficial aspect of Fintech should be on private business activity and associated adoption by customers, such that there are clear benefits in terms of productivity social and welfare enhancement. Even then, conferences, such as this one, are valuable for policy makers to reflect on prospective opportunities and vulnerabilities and to deliberate on responsive growth strategies. Distinguished Guests, Ladies and Gentlemen, for this purpose, there is no better qualified person than the distinguished Minister of Finance and Economic Development, Honourable Matambo to break the ground for this Conference and lead us in navigating the linkages between Fintech evolution, economic growth dynamics and benefit risk equation. Please joining me in welcoming, most warmly, Honourable Minister Kenneth Matambo to officially open the Conference. Thank you for your kind attention. Minister Matambo Sir!	bank of botswana	2,019	8
Speech by Mr Moses D Pelaelo, Governor of the Bank of Botswana, at the launch of Botswana's 2020 Monetary Policy Statement, Gaborone, 25 February 2020.	BANK OF BOTSWANA 2020 MONETARY POLICY STATEMENT by Moses D Pelaelo Governor February 25, 2020 Introduction Distinguished Guests, on behalf of the Board, Management and Staff of the Bank, I am honoured and most delighted to welcome you to the launch of the 2020 Monetary Policy Statement. I extend a special word of welcome to the Guest of Honour, Honourable Minister of Finance and Economic Development, his Cabinet colleagues, Members of Parliament and all Distinguished Guests attending this event for the first time. We are most grateful to you all for having made the time to attend the launch. Distinguished Ladies and Gentlemen, the publication and launch of the Monetary Policy Statement is an important event in the Bank’s calendar of events, for a good public policy reason. It is a key aspect accountability in monetary policy. of good the governance, formulation and transparency and implementation of Through the Statement, the Bank seeks to promote an understanding of the monetary policy framework and its objectives. This helps to guide the public’s inflation expectations towards convergence with the Bank’s inflation objective and, therefore, enhancing prospects for sustained maintenance of low, stable and predictable inflation. Specifically, the Bank uses the Monetary Policy Statement as an instrument to report on the inflation trajectory and policy performance in the past year; to outline and convey its prognosis of economic and other policy developments going forward; and, in turn, the prospective monetary policy response in the year ahead. Background and Context In essence, the Statement commits the Bank with respect to its role in contributing to macroeconomic stability. In this regard, it is propitious that the 2020 launch of the Monetary Policy Statement follows a Budget Speech that proposes a new direction for policy and economic management. In addition, and coincidentally, the Bank, in collaboration with the International Monetary Fund and other development partners, recently concluded a workshop in Kasane on “fostering diversification to escape the middle-income trap” for Botswana. The Workshop benefitted from contributions by representatives of countries, such as Chile, Costa Rica, Estonia, Mauritius and South Korea, which are considered to have been successful in advancing export and economic diversification. Distinguished Guests, there are common themes that emerge from both the recent Budget Speech and the Kasane Workshop; and to which the Bank is also fully aligned. First, that Botswana faces challenges of inclusive growth and evident structural transition, from historically higher growth rates of early years of its development to the current modest and inadequate levels to propel the economy to high-income status by 2036. This is reflected by, or indeed because of, weak traction of export-led industrialisation strategy with a shrinking tradable sector and, in general, narrow economic base, high unemployment rates, as well as relatively high levels of poverty and income inequality, even as levels of incomes and prosperity are increasing somewhat. Clearly, this situation requires urgent attention if the aspirations espoused in Vision 2036 and the desire to transit to high-income status are to be realised. Second, is the need for structural reforms and transformation to improve productivity, ease of doing business, policy transmission and impact, institutional performance and leadership accountability, as well as the economic benefit of spending on infrastructure development and social services. Third, is the imperative to improve on implementation of reforms and initiatives through timely evaluation of the impact and outcomes of the reforms as well as performance of responsible entities. Fourth, it is critical to maintain macroeconomic balance, some aspects of which fall within the Bank’s statutory mandate and, therefore, covered in the Monetary Policy Statement. These relate to stability with respect to prices (inflation), the exchange rate and the financial sector. The other element of macroeconomic stability is fiscal sustainability, which was eloquently covered by the Honourable Minister in his maiden Budget Speech. It would be remiss for me, however, if I do not mention that, while Botswana is ranked 91 out of 141 by the World Economic Forum 2019 Global Competitiveness Report, it is ranked number 1, with 32 other countries, on the macroeconomic stability pillar. Honourable Minister and Distinguished Guests, the reason for this background is to highlight the fact that the Bank is alive to the development aspirations of the country and related challenges. Furthermore, within the confines of its role and mandate, the Bank contributes to efforts to address the constraints to diversification and inclusive economic growth. In essence, by focusing and consistently delivering on its specific roles, the Bank contributes to maintenance of a conducive macroeconomic environment for structural reforms and transformation initiatives to gain traction, potentially leading to higher rates of growth needed to elevate the economy to high income status. Policy Track Record Honourable Minister, as we come to the end of the second decade of the third millennium, it is important to reflect on the Bank’s contribution, thus far, to macroeconomic stability. After all, a key role for a central bank, by which it is ultimately judged, is the extent to which it succeeds in preservation of the value and integrity of the national currency, Pula and thebe. Notably, the evolution of the monetary policy framework from the early 2000s has resulted in beneficial transition from high and volatile to the current low, stable and predictable inflation. Similarly, the adoption of the crawling band exchange rate regime in 2005 and the subsequent public announcement of its key parameters, the coefficients of the basket currencies and the annual rate of crawl, have contributed to stability of the inflation-adjusted exchange rate. It was also key to the success in achieving the inflation objective. In addition, there has been, broadly, sound and effective banking supervision as well as beneficial collaboration by the various regulatory authorities that has contributed to stability of the financial sector, its growth and enhanced support for broader economic activity. developments is A a major lesson reinforcement of learnt from these the position that transparency, consistency and predictability of the policy framework are essential ingredients for sustainable growth objectives and public confidence. Distinguished Guests, I have to admit, however, that the levels of development of money and capital markets in Botswana need to be raised significantly. This is with a view to improve on transmission and potency of macroeconomic policies and to have a greater impact on economic activity. As of 2017, the composite financial index for Botswana (encompassing access, efficiency and depth) was two thirds that of Namibia, and a third and a quarter, respectively, of that for South Africa and Singapore. Therefore, this is one of the areas to attend to in the transformation agenda. Within such composite measures, Botswana falls short of international norms by nearly every metric and compares unfavourably with peer upper-middle income countries. The nascent development of the interbank market and stock exchange are good examples in this regard. Of particular concern is the paucity of supply of high-quality corporate debt instruments, fragmented credit markets and low level of development of the government bond market. This situation presents undue constraints and risks to long-term infrastructure financing, fiscal sustainability and, more broadly, a headwind to capital markets development. In other countries, a vibrant and highly liquid government securities market provides a source of funding for government spending, including local authorities and other public sector entities. This option is currently limited in Botswana and, therefore, its development offers a viable avenue for cost-effective domestic resource mobilisation for long-term investment and funding of government projects. Going forward, therefore, policy consultations, involving the Ministry of Finance and Economic Development and the Bank, are focussed on designing a transparent and more frequent issuance of a sufficient quantum of domestic government securities in a predictable arrangement that, hopefully, will attract a larger pool of participants and support deficit financing, with lower risks. This would be premised on the adoption of a strong governance architecture around public debt management, underpinned by the country’s well-established track record of prudent fiscal policy and strong institutions. Furthermore, given the vulnerability of Botswana to trade shocks, climate change and consequent prolonged droughts, there is need to maintain sufficient fiscal and external buffers. This means building sufficient resilience to afford the fiscal space to undertake countercyclical stabilisation when necessary. The contribution of the Bank, in this regard, is through continued judicious management of the foreign exchange reserves to preserve capital, generate returns for organic growth, and to ensure availability of foreign exchange, necessary for uninterrupted economic activity. Monetary Policy Framework Distinguished Ladies and Gentlemen, the objective of the Bank’s monetary policy is to achieve price stability, defined as a low, stable and predictable level of inflation within 3 – 6 percent, in the medium term. Monetary policy formulation is also aligned to safeguarding stability of the financial system. In this regard, price stability as well as conducive monetary and financial conditions foster mobilisation of savings, productive investment, prudent allocation of credit and international competitiveness of domestic firms. In turn, a sound and stable financial system is critical for effective transmission of monetary policy signals, facilitating the flow of funds and liquidity, as well as risk mitigation in support of economic activity. Overall, therefore, the conduct of monetary policy and attention to financial stability support the national objectives of employment creation and sustainable economic growth. Price and financial stability also help to preserve the value of incomes and long-term savings, especially for low income earners and pensioners, with less opportunity or wherewithal to protect their incomes or generate wealth by other means. At this juncture I will, in turn, address three areas, namely, global trends that have influenced inflation in Botswana; highlights of the conduct of monetary policy, both internationally and here at home; and, finally, provide the medium-term inflation outlook and outline the likely policy stance in 2020. External Economic Developments in 2019 Global GDP growth declined to an estimated 2.9 percent in 2019 compared to 3.6 percent in 2018. The slowdown was widespread across countries and regions. Global economic performance and sentiments were negatively affected by trade tensions between the US and China, as well as uncertain prospects for Brexit. In the circumstances, global inflation eased from 3.6 percent in 2018 to 3.4 percent in 2019. Inflation was subdued in the Special Drawing Rights (SDR) countries, increasing slightly from 1.7 percent in December 2018 to 2 percent in December 2019. In South Africa, inflation decreased from 4.5 percent in December 2018 to 4 percent in December 2019. Therefore, average inflation for the trading partner countries was constant at 2.9 percent in both 2018 and 2019. Domestic Economic Developments in 2019 Domestic output expansion is estimated at 3.7 percent in the twelve months to September 2019, compared to 5 percent in the year to September 2018. The lower increase in output is attributable to, in the main, weaker performance of the mining sector. Growth in non-mining GDP also slowed, from 5.1 percent in the year to September 2018 to 4 percent in the corresponding period ending September 2019. Inflation was below the lower bound of the objective range of 3 - 6 percent for most of 2019; and the outcome was broadly consistent with earlier projections. Average inflation decreased from 3.2 percent in 2018 to 2.8 percent in 2019, largely because of base effects. This is because the increase in some administered prices in 2018 was not repeated in 2019. Overall, low inflation in Botswana was in the context of moderate domestic demand pressures and benign foreign inflation. I hasten to mention that food prices reversed the 0.4 percent decrease in 2018 to a 3 percent increase in 2019. The subdued pressure on inflation is also apparent from belowtrend economic activity, signified by a negative output gap, as the economy continues to operate below potential. However, Government expenditure grew by 15.4 percent in 2019 compared to an increase of 6.6 percent in the prior year. Within this, personal emoluments rose by 14.4 percent, following the April 2019 public sector salary increase, and this would have been replicated by other major employers. Nevertheless, the impact on inflation was muted. It should be recognised, in this respect, that there is significant externalisation of spending by both government and the private sector, including ready availability of imports, hence moderate impact of increased government expenditure and wages on domestic prices. The other point to highlight is that the short-term impact of government spending on domestic demand is moderated to the extent that a significant component involves infrastructure and capacity development. For Botswana, this type of spending tends to be import intensive. Therefore, the economic benefits of such public investments are derived in the medium to long term. At the same time, the recent labour force survey results, by Statistics Botswana, for the third quarter of 2019, indicate an unemployment rate of 20.7 percent. This reinforces the assessment of below-potential performance of the economy, modest aggregate demand and, consequently, subdued pressures on inflation. Distinguished Guests, the other component of demand, growth in commercial bank credit, eased marginally from 7.7 percent in 2018 to 7.6 percent in 2019, driven by a deceleration in lending to businesses, from 10 percent growth in 2018 to a contraction of 1.7 percent in 2019. For households, annual credit growth increased from 6.2 percent in 2018 to 13.8 percent in 2019, in the context of the increase in public sector wages. Likewise, faster growth was recorded for personal loans, while the increase in mortgage loans was smaller in 2019 compared to 2018. Overall, the rate of credit growth continued to be supportive of economic activity, with minimal risk to financial stability. Global Monetary Policy Implementation in 2019 Honourable Minister and Esteemed Guests, monetary policy implementation in 2019 was mixed at the global level, in response to weak economic performance and restrained inflation across countries and regions. It was, however, generally accommodative, with low levels of interest rates and continued liquidity support to the financial sector in some of the major economies. Most central banks in the emerging market economies reduced their policy rates, given the need to support economic activity. For example, closer to home, the South African Reserve Bank reduced the repo rate by 25 basis points to 6.5 percent in July 2019, and further to 6.25 percent in January 2020. Domestic Monetary Policy Implementation in 2019 For its part, the Bank of Botswana continues to conduct monetary policy through a forecast-based policy framework, and that informs the response to deviations of inflation from the objective range, in a forward-looking manner. The analysis also involves assessment of divergence of actual output from potential output (the output gap), a primary indicator of the direction of future inflation. The forecast incorporates projections of foreign inflation, exchange rates and changes in domestic administered prices and taxes. In addition, the Bank evaluates the risks associated with the projected outlook. In determining the appropriate policy response, the inflation forecast is considered alongside indicators of financial stability and economic activity, including relevant information from the quarterly Business Expectations Surveys. In 2019, monetary policy was conducted in an environment of below-trend economic activity and a favourable medium-term inflation outlook; therefore, providing scope for maintaining an accommodative monetary policy stance in support of stronger output growth. Hence, the Bank Rate was reduced by 25 basis points, from 5 percent to 4.75 percent in August 2019. Consequently, the prime lending rate of commercial banks declined from 6.5 percent to 6.25 percent. Deposit interest rates generally increased despite the high levels of market liquidity. This seemingly paradoxical outcome can be explained by the funding structure of banks, characterised by competition for corporate and other volatile institutional deposits that are important for several of the commercial banks. The increase in market liquidity that needed to be sterilised resulted in outstanding Bank of Botswana Certificates (BoBCs) of P8.6 billion in December 2019, an increase from P8.2 billion in December 2018. BoBC yields decreased following the reduction of the Bank Rate. Distinguished Guests, as I indicated last year, the Bank continuously evaluates monetary policy framework for effectiveness and, where appropriate, makes changes. In 2019, the Bank introduced the 7-day BoBC as the main instrument for conducting monetary operations, replacing the then 14-day paper, together with what we called ‘reserves averaging’ in the determination of the Primary Reserves Requirement for banks. This was with a view to improving the efficiency of liquidity management and policy transmission. Both measures were welcomed by the market, with a positive effect as expected; that is, better liquidity management by both the Bank and the commercial banks. Over time this is expected to reduce demand for excess reserves held for precautionary purposes; therefore, freeing up additional resources for productive lending by banks. I am also pleased to report that the Financial Stability Council (FSC), whose primary mandate is to coordinate macro-prudential policy analysis and respond to threats to financial stability, was launched in February 2019. As indicated, the Council comprises the Ministry of Finance and Economic Development, Bank of Botswana, Non-Bank Financial Institutions Regulatory Authority and the Financial Intelligence Agency. The Council commenced work and achieved three important milestones. First, is the publication of the maiden Financial Stability Report in September 2019. The Report concluded that the Botswana financial sector was sound, stable and resilient, even looking ahead. However, there is a continuing need to address market conduct and governance in some segments of the industry. Furthermore, there are outstanding matters relating to effective compliance with the anti-money laundering and combating the financing of terrorism requirements. Notwithstanding, significant progress continue to be made for the country to be removed from the Financial Action Task Force (FATF) grey listing by December 2020. Second, the framework for Council adopted Botswana, a which macroprudential outlines the policy analytical framework and tools to be deployed to mitigate systemic risk. Third, consultations were initiated on prospects for establishing a Deposit Protection Fund. The Fund would provide insurance and a mechanism for paying out a predetermined amount of customer deposits in the event of a bank failure. It will, therefore, be complementary to the existing framework of banking regulations, minimum prudential standards, ongoing supervision and resolution frameworks. Subject to the outcome of the industry consultations, the Financial Stability Council will seek authority for promulgation of the law to establish the Fund. Global Economic Prospects in 2020 Honourable Minister and Distinguished Guests, now looking ahead, the global economy is expected to grow by 3.3 percent in 2020, higher than the estimated expansion of 2.9 percent in 2019. The projection is premised on anticipated recovery of the underperforming emerging market economies. Overall, risks to the global economic activity are, however, skewed to the downside. The key risks to the outlook include continuance of geopolitical tensions, uncertain trade relations, social unrest in some jurisdictions, as well as the adverse impact of Covid-19. Global inflationary pressures are forecast to be modest in the short to medium term given below-potential output. In this environment, monetary policy will remain accommodative in most economies, complemented by measures aimed at facilitating financial intermediation, while fostering resilience of the financial sector, to support growth in economic activity. Domestic Economic Prospects in 2020 Distinguished Guests, the domestic economy is forecast to grow by 4.4 percent in 2020, higher than the estimate of 3.6 percent for 2019. The improvement is premised on conducive financing conditions associated with accommodative monetary policy and a sound financial environment. The implementation of ease of doing business reforms and concerted efforts towards economic transformation should also be positive for economic activity. The crawling band exchange rate policy has served the country well and will continue to complement monetary policy. This bodes well for maintenance of international competitiveness of domestic industries and macroeconomic stability. As announced at the beginning of the year and broadly consistent with Botswana’s trade pattern, the weights of the constituent currencies in the Pula Basket are 45 percent for the South African rand and 55 percent for the SDR. A downward rate of crawl of 1.51 percent of the nominal effective exchange rate is also being implemented in 2020. With low inflation, the policy framework allows flexibility to further loosen real monetary conditions through a downward crawl to enhance competitiveness of the domestic industry and support economic growth. Overall, both external and domestic pressures on inflation are expected to be benign, and it is projected that inflation will revert to within the Bank’s 3 – 6 percent medium-term objective range from the second quarter of 2020. The forecast incorporates a possible hike in water and electricity tariffs, as well as the announced increase in public service salaries in the 2020/21 financial year. Furthermore, it takes into account the small impact of the 1.51 percent downward rate of crawl on import prices. Having said that, I should be quick to caution that any upward adjustment in administered prices and government levies and/or taxes and any increase in international commodity prices that is substantially beyond current projections present upside risks to the inflation outlook. In contrast, downside risks to inflation arise from prospects of weak global economic activity, the tendency of the ongoing technological progress to lower costs and prices as well as a possible fall in international commodity prices. Monetary Policy Stance Distinguished Guests, based on available data, the current projections suggest that domestic inflation will, in the short term, revert to and remain within the Bank’s medium-term objective range of 3 – 6 percent. This favourable medium-term outlook for inflation is in the context of moderate growth in economic activity and a sound and stable financial system. Therefore, prospective developments augur well for maintenance of an accommodative monetary policy that supports productive lending to businesses and households, resulting in welfare enhancements that also drive economic activity. The implementation of monetary policy will continue to focus on entrenching expectations of low, predictable and sustainable inflation, through timely responses to price developments; while at the same time, taking due care to ensure that policy decisions are consistent with durable financial stability and support sustainable economic growth and employment creation. Conclusion Honourable Minister and Distinguished Guests, I wish to conclude by underscoring that the continuing success in achieving price and financial stability, to which the Bank remains fully committed must, in the end, involve the cooperation of all key players in the economy, including Government, parastatals and the private sector. The other point to conclude with is that, given that monetary and fiscal policies are expansionary for longer, immediate and effective implementation of transformation initiatives and structural reforms (so-called policy rotation) would raise prospects for faster growth and economic diversification, needed to attain high-income status within the Vision 2036 period. Honourable Minsters, Distinguished Guests, it is worth reminding us all, that, in as much as prices matter, ultimately, total factor productivity, global competitiveness of domestically produced goods and services as well as innovation and environmentally sound policies are critical for greater prosperity and social welfare. Furthermore, nothing that I have said today suggest, in any way, that, aggregate demand management is easy, however one is well informed. On the contrary, central banks across the globe are subject to intense and often critical scrutiny, especially at periods such as now of “low inflation and for long” with the likely danger of build-up of global financial vulnerabilities. All I have tried to do, today, is to share with you the likely considerations that would guide monetary policy decisions in 2020, putting these in the wider context of challenges facing not just the domestic but also the global economy. The Speaker of the National Assembly, Honourable Ministers, Honourable Members of Parliament, Distinguished Guests, Ladies and Gentlemen, I thank you for your kind attention.	bank of botswana	2,020	3
Welcome remarks by Mr Moses D Pelaelo, Governor of the Bank of Botswana, at the 2020 Media Economic Briefing, Gaborone, 14 July 2020.	BANK OF BOTSWANA 2020 MEDIA ECONOMIC Briefing - Welcome Remarks by Moses D Pelaelo Governor July 14, 2020 at 09:00 hrs Good morning. Distinguished, Ladies and Gentlemen of the Media, once again, it is my pleasure, on behalf of the Board, management and staff of the Bank of Botswana, to welcome you to this economic briefing marking the launch and dissemination of the 2019 Bank of Botswana Annual Report, in fulfilment of the Bank’s accountability to its key stakeholders, in this instance, members of the fourth estate, Media Practitioners. I also want to take this opportunity to recognise and appreciate your continuing coverage of the Bank’s events, including joining us this morning for this economic briefing, notwithstanding the COVID-19 pandemic constraints and related challenges. Communication is increasingly becoming key in our policy “tool-kit”, being a means to meet public expectations of a transparent and accountable central bank as well as anchoring policy credibility. The Bank continues to explore ways and means to increase channels for sharing information with the public, on various aspects of its operations. Therefore, in addition to the revamping of the Bank’s website in 2019, other platforms, such as social media, are under consideration. To recap, Distinguished Members of the Media, the Annual Report is published in compliance with the Bank of Botswana Act and, as a statutory requirement, contains a report on the Bank’s operations and audited financial statements; therefore, the Annual Report is the primary vehicle for accountability to the nation on the operations and financial performance of the Bank. Also, as a statutory requirement, the Bank publishes a monthly Statement of Financial Position in the Government Gazette and submits an annual Banking Supervision Report to the Minster of Finance and Economic Development by June 30, each year. I am happy to confirm that these statutory requirements have been consistently adhered to throughout the existence of the Bank. The economic briefing this morning has three parts. First, Chief Financial Officer, Mr Daniel Loeto, will provide highlights of the Bank’s financial performance and operations in 2019 and updates, where relevant. Second, it is a tradition that the Annual Report also includes a review of economic developments and outlook. The review provides an analytical context and explanations for economic developments and prospects, as well as background to policy conduct and operations by the Bank. Tshokologo Alex This will be presented by Dr Kganetsano, Director, Research and Financial Stability Department. Dr Kganetsano’s presentation will include an overview of structural features of the Botswana economy, including the related challenges of slow progress on economic diversification, evidenced by continuing over-reliance on a single commodity for exports, government revenues and growth. Notwithstanding the current environment of extreme volatility and uncertainty in global economy and markets, the presentation will also cover economic outlook for 2020 and prospects for recovery in 2021. It suffices for me to indicate that the locomotives of the Botswana’s economic growth performance, namely, the diamond revenues and catalytical role of the government activities, would be severely constrained by macroeconomic the COVID-19 pandemic amidst shock which, according to a many commentators, is estimated to likely lead the global, regional and domestic economy into a recession of uncertain magnitude and duration; most likely not experienced since the Great Depression of the 1930s. The third presentation will be a summary of the theme topic for the 2019 Annual Report, on “Central Bank Governance and Functions in Pursuit of Price and Financial Stability” by Deputy Director in the Research and Financial Stability Department, Mr Innocent Molalapata. This theme topic is intended to explain the role of central banks in the economic management of any country, evolving institutional structures, mandates and objectives. Among others, Mr Molalapata will highlight the importance and linkages of the triad of central bank operational autonomy, transparency and accountability in facilitating effective discharge of the central bank mandates and maintenance of macroeconomic stability, attainment of inclusive and sustainable economic growth. He will also reinforce the need for central bank adaptability in an environment of fast and disruptive developments in financial technology, aligned to the nation’s aspirations for digital transformation and knowledge-based economy. Distinguished Members of the Media, in tying together the various strands out of the presentations to be delivered by my colleagues this morning, some key messages become apparent, clearly suggesting that the current growth model for Botswana will, going forward, be difficult to sustain. First, that a key driver of economic and welfare prospects for Botswana, namely, the export potential has, over the last few years, faltered and shrunk as a proportion of GDP; therefore there is an urgent need for rejuvenation by redesigning the country’s industrial policies to promote exports and, given the size of the domestic market, to grow the private sector through a better integration into regional and global value chains. Second and related thereto is that, despite the large public investment in infrastructure and related social spending by Government, as well as policy output dedicated to the economic diversification efforts, the narrow economic base persists, with limited success on economic diversification. This will require development of the non-tradeable sector and address gaps in the quality of the regulatory frameworks, human capital competitiveness. and innovation to boost global The third aspect relates to prospective transition to structural fiscal and balance of payments deficits and the consequent decline of the official foreign exchange reserves. In this regard, and with an eye on slowing the depletion of external and fiscal buffers, there is need to enhance domestic resource mobilisation, by broadening the tax base, increase the progressivity of the personal income tax, streamlining and rationalisation of distortionary subsidies and VAT exemptions. Furthermore, and with the right governance architecture, there is considerable scope for enhanced and more optimal domestic borrowing programme to tap into resources accumulated by the retirement funds, annuity providers infrastructure and financing other and institutional increasing the funds for productive capacity of the economy. Having said the above, I am not inviting you, the Media, to discuss with the Bank fiscal policy options; this is the preserve of elected government, and, in this regard, led by the Ministry of Finance and Economic Development. However, I can say, without risking any transgression into the fiscal policy space that, subject to the effectiveness of the policy responses and the success of the transformation agenda, the issues I outlined above have the potential to undermine the resilience of the economy to any future economic shocks including the effects of climate change, prolonged droughts and water scarcity, as well as erosion of macroeconomic policy discretion hitherto provided by strong fiscal and external buffers. It is, therefore, important to reinforce the focus on the Vision 2036 aspirations to achieve high-income status and inclusive diversified growth. The thrust required is to galvanise efforts towards structural and economic transformation as well as harnessing opportunities enabled by the fourth industrial revolution by upscaling investment on digital infrastructure, adoption of ICT and digital skills. Global competitiveness reports suggest that Botswana lags peer countries in this regard. This speaks to the need for accelerated digital transformation and pace of eGovernment agenda to increase efficiency, the result of which should be easing of policy implementation constraints and focusing resources on more impactful programmes. Comparative country studies and experiences suggest that deliberate promotion of large-scale industries and dedicated implementation of industrialisation policies would be instrumental to successful escape from the middle-income trap and transition to high-income status. In addition, and coincidentally, in February this year, the Bank, in collaboration with the International Monetary Fund and other development partners, concluded a workshop in Kasane on “Fostering Diversification to Escape the Middle-income Trap” for Botswana. The Workshop benefitted from contributions by representatives of countries such as Chile, Costa Rica, Estonia, Mauritius and South Korea, which are considered to have been successful in advancing export and economic diversification. These countries made progress towards high levels of income by implementing outward-looking policies and fostering the growth of competitive product markets. The Bank of Botswana remains fully aligned to the long-term economic objectives of the country, and focussed on its mandate to contribute to macroeconomic stability, financial sector development and, also, financial inclusion to support broad-based, durable economic development. The envisaged modernisation of the Bank of Botswana Act and the institutional governance arrangements should help strengthen the Bank’s performance and roles in this regard. As Mr Molalapata will ably demonstrate, an effective central bank is key to durable and sustainable economic performance and, for Botswana, prospects for transition to high-income status. Distinguished Guests, in this instance, an effective central bank is defined as having de jure operational autonomy, transparent and accountable. Distinguished Ladies and Gentlemen of the Media, following the presentations, as always, the Bank benefits immensely from your observations, questions and comments on these various subjects. At this stage, allow me to introduce my colleagues here in the Auditorium and then call upon the Chief Financial Officer, Mr Loeto, to kick-start the presentations. I thank you very much for your kind attention.	bank of botswana	2,020	8
Welcome remarks by Mr Moses D Pelaelo, Governor of the Bank of Botswana, at the workshop on "Fostering diversification to escape the middle-income trap", Kasane, 6 February 2020.	Botswana: Fostering Diversification to Escape the Middle-Income Trap February 6 – 7, 2020 Kasane, Hotel Cresta Mowana Lodge Protocol Distinguished Guests, it is an honour and privilege to welcome you to Botswana; this time to Kasane, a tourist town located in a pristine natural environment that includes the Chobe National Park, with abundant flora and fauna and the confluence of two of the greatest rivers in the region, if not Africa, the Chobe and Zambezi rivers. It also happens to be located virtually at the point where four countries meet, Botswana, Namibia, Zambia and Zimbabwe, while Angola is not very far off. In addition, barely a 100 kilometres away is the majestic Victoria Falls. Thus, the geography and natural environment are just what is needed, and fitting for our agenda in the next two days, being proximate to, and illuminating, the economic potential for Botswana and the region, not least the attraction of tourists and employment potential, but also enhanced regional trade. Honoured Guests, I wish to recognise the efforts of our partners in arranging this closed workshop on Fostering Diversification to Escape the Middle-Income Trap for Botswana. Notable, in this regard, is the role of the International Monetary Fund, represented today by the Deputy Managing Director, Mr Tao Zhang and his colleagues (particularly, the Article IV Consultation Mission Chief for Botswana, Mr Papa N’Diaye). In this regard, the identification and securing of facilitators and speakers and related logistical arrangements is an immense contribution to the successful conduct of this workshop. The partnership and contribution of the European Union Delegation and the United Kingdom Department for International Development is also significant. This is with respect to both the logistical support (transport and accommodation) and, especially, in looking forward to the potential impact of their continued involvement on the quality, pace and effectiveness of the transformation agenda at various levels, including political influence and leadership, policy development and technical support. May I also warmly acknowledge the presence and sacrifice made by the various speakers and contributors, several of them coming from very far; we look forward to hearing their insights and sharing of experiences, not only in this workshop, but hopefully also being the start of networks for ongoing consultations and benchmarking arrangements. Distinguished Guests, the workshop comes at the right time for Botswana, and derives from an assessment of economic performance of the country and consequent need for urgent discussion on transformation approaches to address the seemingly intractable challenges and, indeed to help transition the country to high-income status. As indicated in the programme, the line-up of speakers and roundtable discussions will articulate the history and impact of policy development and industrialisation efforts; the challenges Botswana faces; the consequences of not reforming or not responding appropriately; narrate the experiences of more successful jurisdictions in transiting to high-income status; and put forward, for evaluation, initiatives and agenda for transformation. Fortunately, it is propitious that the workshop is held in the same week that the first Budget Speech of the 12th Parliament was delivered by the Honourable Minister of Finance and Economic Development; thus an opportunity to examine prospective initiatives coming from this workshop alongside the most recent policy pronouncements by the Government. For my role this morning, allow me to perhaps preface and anticipate what is to come during the workshop by highlighting a few areas that could be top of our minds as we appraise prospects for transformation. First, given the challenges the country faces, there is a need to acknowledge and embrace the transformation aspirations of the Government, including the transition to a knowledgebased economy, cluster industrialisation approach and highincome status. In this regard, national policy dialogue and agenda should be on identification, prioritisation and sequencing of reforms, as well as urgent development of effective implementation frameworks and approaches. Overall, policies and their implementation, institutional energy and social engagement should focus sufficiently on attainment of the Vision 2036 aspirations. Second, is to highlight the misaligned nexus between macroeconomic stability, economic growth and development outcomes (economic diversification, inclusive growth, employment, in equality and poverty reduction). Here, we need to also recognise that, while previously all elements of macroeconomic stability were well anchored, the recent past clearly shows a transition to structural government budget deficits and resultant deterioration of fiscal buffers. Therefore, while the economic benefits from macroeconomic stability remain sub-optimal and there is need for substantial improvement, it is now also necessary to urgently address sustainability of the fiscal position and evaluate opportunities to rationalise the role of Government and domestic resource mobilisation and funding options. Third, and related to the first two (that is, identification of new sources of growth and impact on fiscal position) is the demonstrable nearing of the end of the diamond era, because of the combination of exhaustion of the mineral resource, increasing relative costs of production, changing lifestyles and consumer choices, including the impact of synthetic diamonds. The fourth point relates to prospective changes in regional and indeed international trade arrangements. In this regard, a more immediate policy assignment is to evaluate prospects for the Southern African Customs Union and the African Continental Free Trade Area, in order to appreciate the potential adverse developments for Botswana and also to identify opportunities that may be harnessed for prospective positive impact on the domestic economy. Fifth, is the evident climate change involving unreliable and unpredictable weather patterns, that is having a broad-based impact on economic performance in various sectors and areas, prospects for macroeconomic and financial stability and socialisation. Therefore, the requirement for appropriate policy responses and recognition of its relevance in the policy and transformation agenda, which might also involve adjusting to new global standards and prescriptions, business models and investment constraints or guidelines. Ladies and gentlemen, I hope that I have given you a flavour of some of the relevant issues for fostering diversification in Botswana to escape the middle-income trap and reinforced the urgent need to reform and implement transformational policies. Given the context that I have illuminated, it is evident that prospects for Botswana are currently predominantly unfavourable and not sufficiently aligned when assessed against the development aspirations of inclusive growth and transition to high income status. The positive note is that, I am confident, on account of the combined expertise and experience of delegates, that we will have frank, insightful and fruitful discussions, assessments and suggestions over the next two days, interspersed with a refreshing social programme. Therefore, there is a reason to look forward optimistically to rich and strong proposals on practical strategies for transformation of our economy. I thank you.	bank of botswana	2,020	12
Welcome remarks by Mr Moses D Pelaelo, Governor of the Bank of Botswana, at the 2020 Media Economic Briefing, Gaborone, 29 June 2021.	Moses D Pelaelo: Welcome remarks - 2021 Media Economic Briefing Welcome remarks by Mr Moses D Pelaelo, Governor of the Bank of Botswana, at the 2020 Media Economic Briefing, Gaborone, 29 June 2021. * * * Good morning; it is a pleasure to welcome you, Distinguished members of the Press to this annual economic briefing, which also serves as the launch and dissemination of the contents of the 2020 Bank of Botswana Annual Report. This started with a briefing of His Excellency The President and Cabinet yesterday. In this regard, the dissemination of the Bank’s Annual Report is the primary vehicle for accountability to the nation on the operations and financial performance of the Bank of Botswana. As we are all aware, the Covid-19 pandemic is still with us with devasting impact on the economy and social welfare. While some advanced economies are at advanced stages of reopening as a result of access to vaccines and successful rollout of vaccination programmes. Regrettably, in other parts of the world including in our region and here at home, we have witnessed a resurgence of infections and, consequently, a surge in COVID-19 active cases. In this regard, besides potential adverse impact on economic growth profile and estimates for 2021, I have to acknowledge the challenging effect of COVID-19 on work arrangements, where given the status of the Bank as a key national institution and an essential services provider, mainly currency and related security operations as well as domestic and international payments, we had to readjust resource deployment to ensure business continuity and uninterrupted service to the nation, while attending to staff welfare and strict observance of the disease containment protocols. As my colleagues will indicate in their presentations, the Bank also made the requisite policy adjustments, that is, monetary and exchange rate policy, financial sector policies and injection of liquidity into the banking system, including working with the banking industry to be fully aligned on the measures designed to address the national economic challenges occasioned by the COVID19 pandemic. Together with coordinated fiscal and government response measures, these interventions helped with stabilisation and, more significantly, preparing the country’s economy for strong, durable and sustainable recovery. In addition to the immediate responses to the shock occasioned by the pandemic, the Bank continues to focus on long-term prospects for the economy, that is, inclusive, sustainable growth and transition to high income status as well as attainment of the Vision 2036 aspirations. Therefore, while COVID-19 pandemic may, potentially, have damaged the country’s productive capacity in sectors such as, for example, tourism and related hospitality industries, there is limited window of opportunity to build economic resilience underpinned by embracing of innovation and technology upgrade; entrenchment of policy and institutional arrangements necessary for durable welfare enhancements and improvements in livelihoods. I will shortly sketch out elements of this in my remarks, while my colleagues will, in their presentations, address the details. We have three presentations this morning, namely, the highlights of the Bank’s financial position and performance in 2020 and updates, where relevant by Chief Financial Officer, Mr Daniel Loeto. Mr Loeto will indicate that the Bank recorded net income of P8.8 billion in 2020, of which P2.9 billion was net distributable income paid to Government. This will be followed by a review of performance and outlook for the foreign exchange reserves by Director of Financial Markets Department, Mr Lesego Castor Moseki. Mr Moseki will show that notwithstanding the near collapse of commodity prices in 2020 (notably diamonds) as well as net capital outflows, the country relied on accumulated government savings and relatively strong external position to 1/3 BIS central bankers' speeches supply the economy with foreign exchange. While the country is exploring external borrowing as one of the options for financing the “twin deficits”, that is trade and fiscal deficits, it is doing so in an orderly and coordinated manner, in the context of a prudent and sound debt management strategy. The third presentation by Dr Lesedi Says Senatla, Director, Research and Financial Stability Department will review economic developments in 2020 and provide relevant updates under the theme topic, “The Impact of COVID-19 Pandemic on Botswana Economy, Policy Responses and Opportunities”. Admittedly, it is early days to provide conclusive empirical evidence on the extent of the damage done by COVID-19 pandemic and the necessary containment measures on the economy and society in general given the continuing uncertainty and paucity of data in some areas. Aligned to the key lessons that you will hear from the presentations by my colleagues, allow me to rehash and reinforce some of the key messages from the previous economic briefings. I believe that these should continue to underpin the thought processes around policy and institutional reforms as well as economic transformation; as recently announced by His Excellency, The President, “the Reset Agenda” or “Reinventing Government” as one American President once put it. In this respect, it is significant that both the internal and external assessments, for example, by the sovereign credit rating agencies (S&P Global Ratings and Moody’s Investor’s Service), as well as the recent IMF Article IV Missions, converge: one, on the evaluation and prognosis of the country’s recent economic performance and challenges; and two, on the reforms and innovation needed for structural adjustment, economic transformation and a return to faster rates of economic growth, this time in a more inclusive economy. I will briefly summarise four of these issues. First, Botswana’s economy is at a critical juncture where mineralled and public sector-led growth model can no longer generate sufficient growth, at least an average of 8 percent per annum over the next 15 years, to address the current development imperatives. Furthermore, a key driver of economic and welfare prospects for Botswana, namely, the export potential has, over the last few years, faltered and shrunk as a proportion of GDP; therefore, there is an urgent need to diversify sources of growth, including redesigning the country’s industrial and trade policies to promote exports in non-traditional sectors, attraction of foreign direct investment specifically targeted and linked to integration into regional and global production value chains; and strengthening export and investment promotion agencies. This requires a transition towards sufficient scale of industrialisation to generate diversified economic base and exports as well as better articulation of import substitution with performance incentives, the goal being to enhance international competitiveness of domestic firms and fostering productivity gains. Comparative country studies and experiences suggest that deliberate promotion of largescale industries and dedicated implementation of industrialisation policies are instrumental to a successful escape from the middle-income trap and transition to highincome status. The second aspect relates to prospective transition to structural fiscal deficits and depletion of the official foreign exchange reserves. In this regard, and with an eye on slowing the depletion of external and fiscal buffers, there is need to enhance domestic resource mobilisation, by broadening the tax base and coverage, streamlining incentives and rationalisation of distortionary subsidies. The country needs to grow a vibrant middle-class; and have more tax-paying citizens by investing more on innovation, empowerment and home ownership. The third aspect relates to financial deepening and inclusion. This requires sustained financial sector focus and dedication to the transformation and development agenda involving both the private and development finance institutions in financing infrastructure, green economy, digital and outward-looking industrialisation. This also requires clarity of roles of development finance 2/3 BIS central bankers' speeches institutions, namely, BDC, NDB, CEDA and BSB, with respect to alignment of their respective mandates to strategic sectors. Furthermore, a sustained focus on the development of the domestic capital market, underpinned by the right governance architecture and macroeconomic stability, is critical to internally orientate and tap into resources accumulated by pension funds, annuity providers and other institutional funds, the bulk of which are currently invested offshore in search of yield. As at February 2021, pension funds assets amounted to P106.1 billion, of which P68.3 billion or 64.4 percent of the total were invested offshore. As at that date, this was more than the official foreign exchange reserves at P55.8 billion. In this regard, the “reset agenda” needs to continue to prioritise sufficient and diversified mobilisation of financial resources by Government for funding infrastructure and cost-effective and, increasingly digital provision of services while ensuring budget sustainability and rebuilding of fiscal and external buffers which, hitherto, anchored the country’s economic resilience. In this regard, the Bank is fully aligned to, and agrees with the multi-pronged financing strategy adopted by the Ministry of Finance and Economic Development for financing National Development Plan 11. Given the prevailing low interest rates environment and relatively low public debt matrices, it is indeed propitious to access global credit markets for funding growth-friendly and capacity building infrastructure, health eco-systems and rebuilding of the external buffers in readiness for the next negative external shocks including droughts. Fourth, with respect to the Vision 2036 aspirations, notably to achieve high-income status and inclusive diversified growth, a sustained focus on structural and economic transformation remains necessary. This requires harnessing opportunities offered by ICT as a singular sectoral growth area as well as an effective and influencer of economic activity. The country will need to continue to upscale investment on digital infrastructure to improve availability and affordability of IT equipment, internet and development of a critical mass of digital skills. At this juncture, I would like to ask the Chief Financial Officer, Mr Daniel Loeto to kickstart the Economic Briefing with a presentation on financial performance and highlights of the Bank’s operations in 2020, with updates where appropriate. 3/3 BIS central bankers' speeches	bank of botswana	2,021	7
Remarks by Mr Moses D Pelaelo, Governor of the Bank of Botswana, at the commemoration of the acquisition of African Banking Corporation of Botswana Limited by Access Bank plc, Gaborone, 7 October 2021.	BANK OF BOTSWANA BOTSWANA STOCK EXCHANGE OPENING BELL CEREMONY COMMEMORATION OF THE ACQUISITION OF AFRICAN BANKING CORPORATION OF BOTSWANA LIMITED BY ACCESS BANK PLC REMARKS by Moses D Pelaelo Governor October 7, 2021 Director of Ceremonies, I am delighted to join the Honourable Minister in acknowledging today’s two-themed momentous occasion of, one, continuing the tradition of monthly recognition and promotion of capital market activity through the symbolic ringing of the bell to mark the start of share trading, and, two, the coming into the Botswana banking sector and market of Access Bank PLC, through the acquisition of the majority shareholding in African Banking Corporation of Botswana Limited (BancABC). I will, therefore, complement the Honourable Minister’s insightful observations by projecting a central bank and regulatory perspective on some key aspects. Distinguished Guests, while the Bank of Botswana has clear mandates as enshrined in Section 4 of the Bank of Botswana Act, I will, for the purposes of today’s event, distill and project three aspects deriving from those mandates. These are the interrelated roles relating to sectoral regulation and supervision; promoting financial sector development and inclusion; and safeguarding financial stability. Regulation and Supervision of the Banking Sector First, it is important to appreciate that the coming into the market by a new entity, especially an internationally-active banking group, such as Access Bank PLC, requires careful and extensive evaluation that involves several elements. These include evaluation of the ownership and governance structures and scale of operations; financial strength and performance; strategic intent, market, and developmental impact; business conduct, reputation, and integrity issues; as reflected in performance and strategic direction. context, the “supervisory risk-perimeter” In this takes a consolidated view of the banking group, not only to identify sources of strength, but also likely sources of adverse impact on financial condition, reputation and overall safety and soundness of the financial system. Moreover, this evaluation also entails consultations, confirmations, and validations with the home supervisor, in this case, the Central Bank of Nigeria, through which we also make a judgement on effectiveness of supervision (of a large pan-African bank with multi-jurisdictional presence) and prospects for continuing supervisory collaboration, as well as jurisdictional facilitation of support to the foreign subsidiary. Honourable Minister, and Distinguished Guests, I can confirm that in all these aspects the assessment was positive, leading to the Bank of Botswana Board concluding that Access Bank PLC met the licensing and prudential requirements to be licensed as a bank in Botswana, hence the approval, in principle, of the acquisition of 78.15 percent of ABCH shares in BancABC, in March 2021. Promoting Financial Sector Development and Inclusion Turning to the promotion of financial sector development and inclusion, the Bank of Botswana recognises, Distinguished Guests, that in the first instance, the licensing requirements and ongoing prudential supervision are meant to allow those that meet the criteria and operate prudently to pursue their business and profit/return interests and aspirations freely, albeit within a regulated environment that safeguards safety of deposits and integrity and stability of the broader financial system. However, at the same time, the activities and operations of banks play an important role in promoting and fostering economic development, financial discipline and innovation. In this regard, going back to economic history, a preeminent father of the economics profession, Adam Smith in his classic/seminal works, “An Enquiry into the Nature and Causes of Wealth of Nations”, alluded to “the invisible hand”, a concept that describes unseen market forces of supply and demand, leading to the unintended greater social benefits and public good as a result of individuals acting in their selfinterest. Hence, the need, as promoted by the Bank of Botswana, to accentuate the developmental role of banks in the interest of economic prospects and welfare improvements for society. Therefore, where opportune and prudent, the Bank will continue to implore banks, including Access Bank, into active participation and contribution to the national development and transformation agenda. Distinguished Guests, I have, therefore, in my engagement with the leadership of the incoming bank highlighted the pertinent and immediate developmental issues for Botswana, where I observed a positive response by Access Bank, supported by a demonstrable track record in markets in which it currently operates. The overriding issue for Botswana is financial inclusion generally, where it is expected that Access Bank PLC will add to vibrancy of market competition and broader coverage in attracting customers, diversity of products and services, quality of service provision and related cost rationalisation, for the benefit of both its investors and customers. Beyond this generalisation, there are specific areas of need where the Bank of Botswana has observed what I would call “cherry-picking” of easier to deal with customers and sectors and eschewing of some areas of greater need where the developmental impact can be larger and more pervasive. Here I am referring to support for small and medium scale enterprises (SMMEs), owner-occupied residential mortgages and project financing. Needless to state, banking, by definition, is the business of trust and risktrading, of course in a prudent, safe and sound manner. In terms of potential impact, there is evidence, globally, that SMMEs are the lifeblood of any economy and are responsible for much of employment creation, innovation and economic growth, broadly. This is more so in our continent, Africa. Access to mortgage finance and house ownership adds to economic freedom and security and has great potential to unleash wealth-enhancing possibilities in several directions. The current estimated 15 percent share of mortgages in total commercial bank loans in Botswana (very low compared to peer upper middle-income economies) need to improve markedly, which will go a long way towards helping the economy to realise its potential. The other area is an increasing need to complement government efforts in funding infrastructure development and this includes active engagement in fostering the development of the bond market or, more broadly, capital markets, where Access Bank PLC has the experience of operating in other African markets and emerging economies. This, combined with medium- to long-term project financing, would help build the nation’s productive capacity and therefore attract investment and stimulate innovation and more vibrant and efficient production of goods and provision of services. Channelling back credit in this direction should, therefore, generate more business for you, Access Bank PLC, in Botswana. Honourable Minister and Distinguished Ladies & Gentlemen this plea for enhanced funding of productive domestic economic activity is against the background of ample domestically mobilised financial resources, especially by the pension fund industry. A substantial part of these resources is, for prudence and optimisation purposes, rightly invested abroad to preserve capital and generate return, given the domestic constraints. However, I suggest that the banking industry, the broader financial sector and local industry need to actively engage and innovate around finding local opportunities for productive domestic deployment of these resources. This would massively impact domestic economic activity, employment creation and enhanced inclusivity. In the area of digitalisation, an aspect of the so-called “new normal”, I also appreciate that Access Bank PLC is active in deployment of digital channels that affords financial inclusion and promotes enhanced access to payments platforms, funds transfer and remittances, which, as well as being convenient, help promote economic activity and potential for increasing innovation, efficiency and business development. Honourable Minister and Distinguished Guests, it is notable that, Botswana now has a majority of regional banks or panAfrican banks. aspirations. This is fitting for regional integration However, the immediate practicality is the potential to facilitate regional trade, which by extension, implies a larger market and improvement of prospects for industrialisation, economic diversification and inclusive growth, particularly given trade facilitation afforded by the African Continental Free Trade Area Agreement, as well as the support provided by the regional economic communities such as SADC. The expectation is that the appreciation and knowledge of the African context and institutions by the panAfrican banks would enable easier and productive engagement of the banks with local businesses. Given what I have said about areas of financing need, digitalisation and trade opportunities, it is fitting to, therefore, introduce Access Bank PLC to Botswana’s Economic Recovery and Transformation Plan (ERTP). I look forward to your active participation alongside your competitors in this national development and economic transformation effort, intended to accelerate economic diversification and inclusive growth and help to transition the country to high-income status by 2036. At a high level, the critical elements include promoting export-led growth involving integration of the domestic industry into the global value chains (incidentally your presence in Botswana is exactly that); harnessing of information and communications technology, digitalisation, for the purposes of efficiently and competitively driving economic activity industries/businesses; and for growth of new promoting enhanced use and productivity of domestically mobilised financial resources and therefore generate higher levels of industrialisation; fostering infrastructure development and efficiency of provision of government services for greater impact on private sector operations. I believe, Mr Wigwe, that these are well aligned to your strategic intent for the Botswana market and that you are well endowed to be part of this, especially as I believe you have aspirations to improve on the current position of the bank, of a P9.1 billion asset base (as at August 31, 2021) and 5th largest bank in the Botswana market. Operating Environment, Strong Banks and Financial Stability Honourable Minister and Distinguished Guests, what I have spelt out is only possible in a stable and conducive operating environment. From the side of Government and the Bank, I can confidently state that Botswana offers a well-developed public infrastructure, encompassing a liberal business operating environment, legal protection and respect for property rights, efficient and independent judiciary and, in general, macroeconomic stability, as the credit rating institutions (Moody’s and S&P Global Ratings) would say, anchored on strong institutions and predictable policies, including successful monetary policy and stable financial conditions. Added to this is a strong, effective and responsive regulatory framework for the banking industry and financial sector, broadly. Indeed, both the Bank of Botswana Act and the Banking Act are at advanced stages of review to modernise and align these laws to best international standards and practices. The expectation is that Access Bank will, as an individual entity, continue to be well governed, operate in a sound manner and adhere to the prudential requirements and regulatory guidelines and therefore contribute to enduring strength and stability of the banking system and the broader financial sector. In addition to the prudential and conduct aspects, there are national requirements and preferences regarding localisation of resource procurement, including staff of the bank (without undermining the group-wide staff and leadership development interests) and maintenance of good labour practices, as well as the general attention to staff welfare. In this regard, let me add that it would be difficult for Access Bank to achieve its strategic goals if policy making and decision making are overly centralised in Lagos or some foreign capital without the benefit of the local board and Botswana citizens playing a meaningful role in executive leadership in core banking areas such as credit underwriting, treasury or risk management. Above all, of course, a banking licence bestows upon the Board and Management of Access Bank PLC a huge fiduciary responsibility – which requires a high standard of ethical conduct and integrity. Again, we are well aware that public trust is the single most important asset of a bank. Therefore, Honourable Minister, the nexus of individual bank strength and compliance and a conducive operating environment makes for financial stability, which has several benefits. Among these are, first, sustained capability of individual institutions to play their roles of financial intermediation, risk mitigation, continuity of efficient payments and beneficial innovation, profitably, to the greater benefit of society. Second, a stable financial system and prudently managed banks facilitate effective policy transmission and therefore good prospects for countercyclical or policy measures to have the desired impact on the economy. Third, stability engenders system integrity and, therefore, patronage of the sector with all the resultant and incidental developmental and welfare-enhancing benefits for society. Thus, the focus of the Bank of Botswana in ensuring viability and soundness of individual banks and integrity and stability of the financial system (including the payments system). As I conclude my remarks, let me appreciate the role of the Botswana Stock Exchange in being integral to resource mobilisation, where the floatation and trading of shares signal economic and return prospects and accordingly channel funds to those. In addition, the payments settlement function of the stock exchange is not only facilitative, but also engenders confidence and patronage of the stock exchange. In these respects, I applaud the visible and relentless promotion of the Botswana Stock Exchange and the opportunities it affords. Well done Mr Tsheole. Honourable Minister, Distinguished Guests, I thank you for your kind attention.	bank of botswana	2,021	12
Speech by Mr Moses D Pelaelo, Governor of the Bank of Botswana, at the launch of Botswana's 2021 Monetary Policy Statement, virtual, 23 February 2021.		bank of botswana	2,021	12
Keynote speech by Mr Moses D Pelaelo, Governor of the Bank of Botswana, at the Official opening of Botswana Savings Bank Limited Hukuntsi branch, Hukuntsi, 30 November 2020.	OFFICIAL OPENING OF BOTSWANA SAVINGS BANK LIMITED HUKUNTSI BRANCH Keynote Speech By Moses D Pelaelo Governor, Bank of Botswana November 30, 2020 Salutations It is with great pleasure and honour for my delegation and I to be joining the Hukuntsi community and the Managing Director of Botswana Savings Bank (BSB) and his staff for the official opening of a branch here in Hukuntsi. Director of Ceremonies, let me mention that I gladly accepted the invitation from the Managing Director, Mr Marumuloa, to perform the official opening because of the significance of this occasion to the people of this region, which extends beyond the narrow confines of a bank branch building. First, it is important to acknowledge that, save for the Botswana Postal Services, this is the first permanent physical branch of any bank in Hukuntsi and the surrounding Matsha villages. Hitherto, notwithstanding its population, geographic size, proximity to wildlife conservation areas, importance of cattle farming, as well hosting many Government and subdistrict facilities, the entire Kgalagadi North constituency had only one bank branch in Kang and two ATMs providing financial services. Therefore, the opening of this branch is expected to make a huge beneficial impact to the inhabitants of the area, many of whom have historically had little or no access to formal financial services. Second, the opening of a BSB branch in this area within two weeks of that of the Palapye one by the Minister of Finance and Economic Development, Honourable Dr Thapelo Matsheka, is a clear demonstration of commitment and forward-looking business strategy on the part of BSB towards expansion and provision of convenient access to banking services in towns and villages, while meeting commercial objectives. Third, the development we are celebrating today is fully aligned and resonates well with the Government strategy on financial inclusion. The strategy, Making Access Possible, is designed in recognition that cost-effective access to financial services by all citizens is positive for financial sector development and inclusive economic growth. Access to banking and financial services eases the ability to meaningfully pursue economic activities that are desirable for individual welfare enhancement, employment creation, raising living standards, and, hence, sustainable national economic development. As you would be aware, financial inclusion is part of the United Nations Sustainable Development Goals number 8 on Decent Work and Economic Growth. Financial inclusion and value addition Director of Ceremonies, financial inclusion has, at a minimum, four elements, namely, access to a savings account, credit, insurance, and facilitation of payments at reasonable cost and minimal impediments. The ultimate objective is for such access to add economic value in terms of increase in welfare and living standards for the individual, the community and the broader economy. To illustrate, first, savings products entail value addition in terms of safety of funds; possibility to earn interest income and protection against value erosion; and the saved funds are available for lending to others for productive use, based on properly assessed credit worthiness and prospects for a positive return. Second, credit eases the financial constraints and, used appropriately, it creates additional value in many respects. As examples, a shop owner is able to get credit to buy stock, serve the community, earn a profit and pay back the bank; a good cattle farmer can get credit to buy a pedigree bull, breed and sell higher value cattle and repay the bank loan; a young engineer, after a few years of working, is able to borrow to build a house and repay the loan from future earnings, over a period of time, as she progresses in life (technically referred to as consumption smoothing); a young public officer may see an opportunity to pursue higher education after working hours and borrow for this purpose, potentially improving his/her livelihood. Ladies and gentlemen, examples are abound. In the process all these generate added income and welfare for the borrowers, the bank and savers, as well as employment, for the store owner, farm workers, builders, teachers and so on. Third, insurance is obtained for the purpose of mitigating risks. It enables unconstrained pursuit of economic activity and productive use of resources premised on the knowledge that related and incidental risks are covered; and that there will be compensation for the insured losses. Examples of insurable risks are also many such as risks of fire, accidents, theft, etc, as well as mortgage protection, life assurance and medical insurance. Fourth, the facilitation of payments eases the conduct of trade and person to person transfer of funds and affords convenience. Therefore, it has a positive influence on the decision to pursue economic activity. This is particularly pertinent in the advent of new technology and payments platforms. Director of Ceremonies and Distinguished Guests, from the perspective of what I just said, it is evident that being financially excluded or lack of convenient access to financial services could otherwise be debilitating and constrain development and growth. That is, even with an abundance of resources in terms of land, livestock, labour, skills and ability, as well as public infrastructure and services, their productivity and benefit to society will be suboptimal in the absence of cost-effective access to financial services. Financial technology Traditionally, the key elements of financial inclusion and access have been anchored on physical presence of institutions (brick and mortar), such as the branch that is being opened today; payments instruments such as cheques and banknotes and coin; paper statements of account, passbooks and agreements; as well as personal contact between a customer and a bank official. While these channels and instruments remain relevant and important in many respects, the advent of technology, electronic means of payments, mobile money and other digital platforms offers greater opportunities for more efficient, adaptive and sustainable means for provision of financial services, particularly in the context of low-population density countries, such as Botswana. I, therefore, wish to take this opportunity to implore the Hukuntsi community to adapt and embrace these new normal in order to enter or retain the financial inclusion status. There are several reasons for this. The first is that the traditional approaches will, over time, likely to disappear due to lack of patronage and support, as the demand and supply of new approaches accelerate and become the new normal. Second, digital and mobile banking affords greater convenience for managing and executing payments and concurrent linkages to other services, including instant remittances. For example, the ability to order and pay remotely for plumbing, veterinary and other services in Hukuntsi while you are in Gaborone; access account information and pay for utilities while sitting at home or as you travel (the so called 24/7 access). Once you are digitally-connected, it becomes possible to transact everywhere, anytime and subject to adherence to advised protocols, in a safe and secure manner. Third, the backbone service infrastructure, including access to government services, utilities and enabling platforms to access and/or purchase basic goods and services are fast becoming electronic and digital. As it has always been, financial inclusion stimulates economic inclusion; but now the combination includes digital inclusion (connectivity). Significantly, digital, electronic and mobile phone services transcend the traditional barriers to access and financial inclusion (that is, distance, physical infrastructure, population density, education and income levels). In this context, it is true that the future of finance is technology. Director of Ceremonies, at this juncture, it is pertinent to highlight some of the undesirable aspects that come with digitilisation and financial technology that the community should be aware of. This includes the susceptibility to cybercrime, card fraud and identity theft. In this instance, such crime can happen with speed, with wider reach and impact, resulting in financial loss, disable key processes and, potentially, reduce public trust in the banking system. Customers, therefore, need to be vigilant in safeguarding their personal and account access credentials and in responding to unsolicited offers and requests for personal information. Such vigilance and risk awareness are attributes of financial inclusion. Enabling Factors for Financial Inclusion Distinguished Guests, the broadening of access to financial services or financial inclusion is, however, not in a vacuum. To be meaningful and effective, there should be some key enabling factors. While not exhaustive, I will highlight four of these. Infrastructure and government services The first of this is the provision of infrastructure and key services to enable uninterrupted functioning of financial services to meet service level assurances by banks/vendors and expectations of customers. In the modern day, this involves 24/7 availability of, and access to, internet, WiFi and mobile connectivity. In addition, there is need for adaptability in the provision of government services; for example, the introduction of biometric identification (Electronic/Digital Omang) could potentially generate a leap in the provision of financial services and management of important safeguards and risks, as well as adherence to the Know Your Customer (KYC) requirements. Similarly, digital records and access with respect to ownership of assets, such as land, property and livestock, would complement access to financial services. Financial sector policies, regulation, macroeconomic and financial stability The second relates to the cluster of financial sector policies, maintenance of macroeconomic and financial stability and effective regulation and oversight. A conducive environment in this regard catalyses the growth and patronage of financial services. For example, the policy posture in Botswana is to promote financial development and inclusion, involving financial technology and digitalisation in order to accelerate economic development. For such a policy posture to be effective, macroeconomic and financial stability are essential to safeguard deposits, integrity of the financial system, minimise value erosion and to promote productive investments. In addition, effective regulation fosters sound governance, as well as prudent and beneficial operations of financial institutions and, therefore, maintenance of trust; hence greater use of financial services. Role of banks beyond products A third aspect is the value added by banks or specifically bankers beyond “cold” availing of savings, loan and insurance products and payments platforms. Ideally, bankers are partners in ensuring optimum benefits from the products they offer (including maximising benefits and minimising costs). This is through the advice they give customers, monitoring of performance of accounts and funded projects, as well as customer counselling and taking corrective action to address emerging account maintenance challenges. In so doing bankers help sustain value addition and productivity of financial resources and services towards welfare enhancement and positive impact on overall economic growth. I implore bankers to (and indeed trust they will) prioritise and elevate these roles in their operations, which to date appear to be peripheral, in order to amplify the impact of their products and services on welfare, livelihoods and economic performance, broadly. Financial literacy and discipline A fourth factor in ensuring meaningful financial inclusion is financial literacy and discipline at the individual or customer level. This entails knowledge of banking products, their value in terms of impact on welfare, related costs and risks. It also involves understanding and execution of responsibilities such as repayment of loans in accordance with the agreed terms, good conduct and honesty in handling financial matters. Ultimately the backbone of financial discipline is reasonable spending that is aligned to one’s income. Notably, it is also financial discipline and good conduct of accounts that contribute to soundness of a bank, financial stability and prospects for monetary policy undertaken by the Bank of Botswana and government programmes to have a meaningful impact on welfare and economic activity. Inversely, financial indiscipline, such as borrowing from multiple sources and overindebtedness has the potential to undermine macroeconomic stability and, more broadly, the safety and soundness of banks. Distinguished Guests, against this background, it is appropriate that Botswana Savings Bank has responded positively to the need to extend the reach of financial services to an otherwise underserved part of the country. This is within its mandate. Botswana Savings Bank, a wholly owned Botswana Government entity, was established by an Act of Parliament in 1992, with the mandate to mobilise affordable financial services, mostly savings, and grant loans on commercial terms and provide efficient banking and financial services to meet the needs of the rural and urban dwellers in Botswana. In fulfilment of this mandate, the bank has three standalone branches in Gaborone, Francistown and Palapye. It has four co-branded branches (with BotswanaPost) in RailPark Mall (Gaborone), Mahalapye, Serowe and here in Hukuntsi. BSB also delivers banking services and products through the BotswanaPost network of one hundred and twenty-four offices country wide. It also has thirteen automated teller machines (ATMs) across the country. In the fifteen years between 2005 and 2020 (September), the value of BSB’s assets has increased almost ten times; from P255 million in 2005 to P2.4 billion, with a staff complement of one hundred and ninety-six (196). I also note that, fittingly, Botswana Savings Bank annually commemorates a World Savings Day in order to sensitise the nation about the importance of savings. In addition, the bank plays a part in corporate social responsibility initiatives including donating computers to various schools, installation of geysers at Lehututu Junior Secondary School and donating an assembly shelter at Lecha Assembly Area at Mphinyane Primary School at Hubona village. These corporate social responsibility programmes make the bank visible and help project the value of its services to the community. For this, I commend the Board and Management of BSB; and encourage them to continue investing in the communities where they operate or reside; and please do whatever you can to look after the environment. Distinguished Guests, as I conclude, I take the opportunity to express sincere gratitude to the Board and Management of BSB for having responded positively to the Government’s desire and objective to expand financial service to previously unbanked communities. We thank you Rre Marumuloa and your team for this foresight, innovation and dynamism as you continue to expand the footprint of the bank, making access to financial services possible; not only physically, but digitally as well. I, therefore, encourage the local communities to take advantage of proximity of the bank and availability of its digital platforms to make use of the financial services the bank is offering, now and in the future. Distinguished ladies and gentlemen, it is now my pleasure and privilege to declare the BSB Hukuntsi branch officially open. I thank you all for your kind attention and for being part of this important occasion.	bank of botswana	2,021	12