‘Households spending will be critical to avert a recession’

A portfolio manager at Kgori Capital says the fact that the poorest – and therefore the most deserving – are difficult to assess calls for more determined efforts to embrace them because how society functions in the future will be affected by the abominable event that is COVID-19.

Different categories of people and different sectors of the economy will not benefit to the same extent from relief measures to combat the recessionary impact of the extreme social distancing that is in force countrywide for prevention and control of COVID-19. Similarly, certain sectors, telecommunications included, will not be harmed and will infact operate at unprecedented levels.                  

Portfolio Manager at Kgori Capital, Tshegofatso Tlhong, has pointed out that the onset of the coronavirus has set off an exponential demand for the Internet and fixed and mobile telephony because more people are working from home than ever before, thanks to the lockdown that accompanies the coronavirus. However, Tlhong considers this a rough assessment because the country it is still early days and therefore unclear how the infection curve will go. Nevertheless, she anticipates better climes for household sector spending in the second phase of public sector wage raises after the State of Emergency. But how far this will negate a widely expected spike in unemployment remains to be seen. Be that as it may, says Tlhong, due to pressure on fiscal revenues, the scope of fiscal policy intervention will be limited.

Meanwhile, “Kgori Capital Market Insights 2020” notes that on the monetary policy front, the Bank of Botswana (BoB) has taken a liquidity easing position with interventions. Therefore, the banking sector should remain adequately liquid during this period and a spike in the cost of funding should be averted. Tlhong says this should encourage banks to keep extending facilities at current market rates because margins will be maintained. Significantly, there is room for restructuring of loans to allow for repayment holidays of up to six months in order to ease the burden on households without negatively impacting banking sector impairment ratios and Non- Performing Loans (NPLs). Tlhong points out that these measures will provide some temporary reprieve for households while safeguarding the profitability of the banking sector.

However, to avoid a recession, Tlhong advises households to boost spending post the lifting of the State of Emergency but notes that this can only be achieved with an interest rate cut so as to increase disposable incomes in the economy. “On the fiscal policy front, the focus is on the preservation of jobs,” she says “To this end, the Wage Subsidy is the main tool.”

Kgori Capital issues the warning that although these efforts are commendable, the proposed wage subsidy is 50 percent of the basic salaries of citizen employees up to a maximum of P2500. Tlhong says it is evident that the aim is to provide for essentials such as food, which she sees as a good measure because companies will not be allowed to retrench any employees for the duration of the State of Emergency. Unfortunately, she notes, the informal sector is excluded from this intervention because eligibility is easier to determine for companies for which being registered for tax is a condition.

In addressing the challenge of the informal sector, Tlhong says social support services will have to step in to cater for this segment of the population. Looking ahead, she says, the self-imposed economic shutdown will have a lasting impact on the economy as the shape and pace of recovery will wholly depend on the length of the shutdowns in both Botswana and around the world. She notes that while the situation is fluid, there are expectations of some level of permanent destruction in economic activity going forward. Tlhong says how society does business and functions will forever be impacted by this unprecedented black swan event.