Batswana are not happy with what the new government is doing here

Botswana’s 2025 Crawling Peg Exchange Framework: What It Means

I was supposed to release this article on Friday but it was too interesting for me to just wait for the set date so:

The new Exchange Rate Framework introduced by the Bank of Botswana is a key policy meant to manage the value of the pula (BWP) while supporting the country’s economic goals. Many have criticized this policy, claiming it disproportionately benefits South Africa and could harm Batswana by increasing the cost of living. Let’s unpack what this really means.

Is This a Devaluation?

The framework does not explicitly call for an immediate devaluation, but the controlled crawling peg system allows the pula to gradually lose value (depreciate) or strengthen (appreciate) based on economic conditions.

Why Allow Depreciation?

• Boost Exports: A weaker pula makes Botswana’s goods—like beef and diamonds—cheaper for international buyers.

• Control Inflation: Adjustments are made to ensure prices in Botswana align with trade partners like South Africa and global trends.

So, while it’s not a direct devaluation, the policy allows for calculated depreciation to maintain competitiveness in global markets.

Does This Benefit South Africa More than Botswana?

Botswana’s economy is closely tied to South Africa’s, and the rand dominates the currency basket. Critics argue that this makes Botswana’s economy overly dependent on South Africa. However, this relationship also helps:

• Trade Flow: Most of Botswana’s imports and exports go through South Africa. A currency policy linked to the rand ensures stable trade relations.

• Price Alignment: Tying the pula to the rand helps manage inflation by keeping imported goods somewhat predictable.

While South Africa might benefit from stronger trade ties, Botswana stands to gain if export-driven sectors like agriculture and mining expand due to the weaker pula.

How Does It Affect Consumers and Producers in Botswana?

For Consumers:

1. Higher Import Costs:

• Imported goods like electronics, cars, fuel, and some food items will likely become more expensive if the pula weakens.

• Impact: Families (single parents probably) may face tighter budgets as daily essentials rise in cost.

2. Pressure on Disposable Income:

• With rising prices for imports, less income is left for savings or discretionary spending, affecting lower-income households disproportionately.

For Producers:

1. Export Advantages:

• Local producers—especially in agriculture (beef farmers) and mining—benefit because their goods become cheaper and more attractive to international buyers.

• Impact: Young people who are aspiring young entrepreneurs, may see opportunities in export-driven industries.

2. Increased Input Costs:

• However, producers relying on imported materials (like fuel or machinery) will face higher costs, which could hurt profit margins.

The Pros and Cons of the Crawling Peg for Batswana

Pros:

• Job Creation: A weaker pula could boost exports, creating jobs in industries like farming, mining, and manufacturing.

• Economic Stability: Gradual adjustments reduce the risk of sudden shocks, providing businesses time to adapt.

• Increased Competitiveness: Helps Botswana maintain its edge in global markets, especially for key exports like beef and diamonds.

Cons:

• Higher Living Costs: Imported goods will cost more, directly affecting consumers.

• Dependence on South Africa: Critics fear this framework locks Botswana into an unequal economic relationship.

• Limited Relief for Local Markets: While exporters benefit, businesses reliant on imports may pass increased costs onto local consumers.

Bottom Line for Batswana

The 2025 Exchange Rate Framework is not a blanket devaluation but a tool to adjust the pula’s value strategically. Its benefits hinge on whether Botswana can leverage export growth to offset the rising costs of imports.

• Who Benefits? Exporters, farmers, and miners.

• Who Faces Challenges? Consumers reliant on imported goods and businesses using imported inputs.

Final words: This article about change in monetary policy is similar to my first article I wrote about the devaluation of the Pula. Seeing projects like Citrus project and the recent partnership with DeBeers to sell more diamonds, this all makes sense. Of course many Batswana are not happy with this because it seems like becoming economically dependent on South Africa and shifting away from self sufficiency but it’s not all bad.

Source:( BankofBotswana )