Reply by the Minister of Finance and Development Planning to Question raised at Ntlo Ya Dikgosi

source: Republic of Botswana (6/2/10) TAUTONA TIMES no 1 of 2010
The Electronic Press Circular of the Office of the President
"Democracy, Development, Dignity, Discipline and Delivery"


B6) 2/2/10: REPLY BY THE MINISTER OF FINANCE AND DEVELOPMENT PLANNING TO QUESTION RAISED AT NTLO YA DIKGOSI:

QUESTION NO. 23 ASKED BY KGOSI BOIDITSWE (SEROWE REGION)

QUESTION: To ask the Minister of Finance and Development Planning to elaborate: a) the factors that lead to the devaluation of the Pula currency; and b) the measures that can be put in place to restore the Pula currency to its former strength.

ANSWER: Mr. Chairman, a devaluation is necessary if the Pula becomes overvalued against the currencies of our major trading partners. Major exporters, such as beef producers, textile producers, and mineral producers would face serious erosion of their profit margins, because their prices are fixed in foreign currencies but their costs are in terms of Pula. Overvaluation of the Pula would have a negative impact on the economy of Botswana by reducing our competitiveness in global markets. It would also significantly reduce government revenue from diamond exports which are denominated in the US Dollar.

It was because of the loss of competitiveness that in 2004 and 2005 Government used devaluation to restore our competitiveness in international markets. In 2005 Government also introduced the policy of gradual adjustment of the exchange rate to maintain a stable real exchange rate. The exchange rate is adjusted on a continuous basis to reflect the difference between the expected inflation in Botswana and in the rest of the world. By sustaining our export competitiveness, the continuous adjustment under the current policy makes devaluation unnecessary. The alternative of revaluing the Pula to "restore the Pula currency to its former strength" would seriously weaken the entire economy. The current approach is intended to keep the Pula at its long term competitive level in order to achieve sustained and diversified development. I thank you, Mr. Chairman.