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GABORONE - Batswana have been advised to borrow within their means to avoid bankruptcy.
Ms Linah Mohohlo, Bank of Botswana (BoB) governor, sounded the warning at the launch of the 2009 Monetary Policy this week.
Botswana should learn from the mistakes of over-borrowing, the dire consequences of which have hit household elsewhere in the world very hard, she advised. Meanwhile, the central bank will loosen the monetary policy as inflationary pressures are expected to ease due to the lower economic activity and subdued demand.
Ms Mohohlo said inflation is expected to be within the banks medium-term inflation objective of 3 6 per cent this year.
She said commodity prices, including the cost of fuel, are likely to be low, and the world inflation is forecast to decrease from 6.4 per cent last year to 3.1 per cent. In South Africa, Botswanas major trading partner, inflation is expected to drop to 5.5 per cent in 2009, and fall within the 3 6 per cent range, adding that foreign prices will dampen domestic inflation.
Since the Banks inflation objective is 3 6 per cent and trading partner countries inflation is forecast at 3 5 per cent, the downward crawl of the Pula should be marginal in 2009, and the real effective exchange rate should be stable, she said.
Ms Mohohlo said economic performance is expected to slacken significantly, due to the depressed mining activity, while it is anticipated that despite the decline in government revenue, public spending will increase in support of economic growth.
She said it was unlikely that increased government spending will be inflationary, particularly in the absence of a public sector wage increase.
However, any large increase in administered prices such as electricity tariffs and Botswana Housing Corporation BHC rentals would be inflationary, but Ms Mohohlo said the probability was that price increases would be subdued this year compared to last year.
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 per cent.
She said there was scope for easing the monetary policy as the government spending was unlikely to be expansionary, the exchange rate was expected to be stable and inflation would continue to trend downward.
Meanwhile, Ms Mohohlo said commercial banks in Botswana have not yet been affected by the credit crunch afflicting other countries.
The bank deposits exceed loans and banks have avoided accumulating unmanageable risk. She said the bank is monitoring possible situations of exposure to offshore parent financial institutions on an ongoing basis.