Botswana buys many goods from other countries: fuel, raw materials, and food. But before the country can pay for those goods, buyers must first change pula into foreign money like US dollars, euros, or South African rand.
If the pula becomes weak and you get less foreign currency when you exchange, then everything Botswana imports becomes more expensive. This is because it takes more pula to buy the same thing.
It now costs 7% more pulas to exchange it for foreign currency. Companies exchange pulas for foreign currency at a local bank, which buys foreign currency at the Bank of Botswana (BoB). Banks add their markup of varying degrees to profit. The Bank of Botswana urged customers to shop around to get the best rates for their Pula.
Finance Minister Ndaba Gaolathe said in parliament that “there is clear evidence that commercial banks are maintaining uncompetitive trading margins and engaging in unreasonable pricing practices”.
“We concurrently urge all customers to exercise their power by actively shopping around and negotiating for more competitive foreign exchange rates.”
To address this problem of pricing, he said the government is considering;
- Putting a limit on how much extra banks can charge when they sell foreign money,
Nonetheless, the changes in the Pula exchange rate mean that companies that import these goods must pay more, and later, they charge higher prices to customers. So, in the end, it’s the people who pay more.
Invariably, there will be nationwide inflation, said Mohamed Osman, Sefalana Holdings’ Finance Director, during a presentation last week.
Economist Sennye Obuseng explained the situation on local radio:
“You have got manufacturers importing inputs at a higher cost. You’ve got a situation in which for sure you can expect consumer prices to go up. It will happen even for many of the goods produced locally.”
Even locally made products are not spared. Many factories rely on imported raw materials, fuel, or spare parts. So if those costs rise, so do the final prices on supermarket shelves.
The Bank of Botswana (BoB) has acknowledged that these changes may affect its forecast for inflation, the rate at which prices rise over time. But Gaolathe believes inflation will remain under control, staying within the 3 to 6% range. June inflation recorded 2.9%.
Economist and former deputy governor of the Bank of Botswana, Dr. Keith Jefferis, sees inflation climbing as high as 8% in the coming months.
By design, Gaolathe said, “some policy changes may bring long-term benefits but can also cause short-term challenges for certain sectors of the economy. Therefore, price increases for imported goods are possible, but not at the levels that are being notified by some businesses”.
“The measures undertaken are calibrated not to undermine maintenance of inflation within the 3 – 6%objective range.”
