Botswana faces additional inflation risks as the potential effects of El Niño, including below-normal rainfall, droughts, heatwaves, crop failures and livestock deaths, threaten agricultural production and food supplies. These weather-related challenges could increase the cost of food and other essential goods, adding pressure to household budgets and the wider economy. The Bank of Botswana has identified the potential impact of El Niño as an upside risk to the country’s inflation outlook, alongside rising international commodity prices and growing global trade tensions. Presenting the Monetary Policy Committee (MPC) report in Gaborone, Bank of Botswana Governor Mr Lesego Moseki highlighted several domestic and international factors that could influence future inflation. His remarks underline the uncertainty surrounding price developments and the challenges policymakers face in maintaining price stability amid changing economic and environmental conditions.
El Niño is a climate phenomenon associated with the warming of surface waters in the central and eastern equatorial Pacific Ocean. It can influence weather patterns across different parts of the world, including Southern Africa, where it is often associated with reduced rainfall and higher temperatures. In Botswana, prolonged dry conditions can place considerable pressure on agriculture, water availability and livestock production. When rainfall falls below normal levels, farmers may struggle to produce enough crops to meet household needs and market demand. These conditions can also increase the cost of agricultural production, particularly where farmers depend on irrigation, animal feed and other essential inputs.
One of the main concerns highlighted in the inflation outlook is the possibility of crop failure resulting from drought and inadequate rainfall. Agriculture depends heavily on suitable weather conditions, especially for farmers who rely on seasonal rainfall. When crops receive insufficient water during critical growth stages, harvests can decline significantly or fail altogether. Lower agricultural output can reduce the availability of locally produced food and increase reliance on supplies from other markets. If demand remains stable while food supplies become limited, prices may rise, contributing to higher inflation.
Livestock production could also face serious challenges if El Niño brings prolonged drought and extreme heat to Botswana. Cattle and other livestock depend on sufficient grazing land and reliable water supplies to remain healthy and productive. When pastures dry up and water sources become limited, farmers may struggle to maintain their animals. Livestock deaths can reduce the number of animals available for meat production and affect the incomes of farmers and livestock businesses. The resulting decline in production could place additional pressure on meat prices and other agricultural products, particularly if supply disruptions continue over an extended period.
Heatwaves present another potential challenge because high temperatures can affect both agricultural productivity and the cost of living. Extreme heat increases water demand and can place additional stress on livestock, crops and agricultural workers. Farmers may need to spend more on water, animal feed and other resources to protect their production activities. Higher operating costs can eventually be reflected in the prices consumers pay for agricultural goods. Heatwaves can also increase electricity and water consumption, potentially adding pressure to household and business expenses.
The effects of El Niño could extend beyond the agricultural sector and influence several parts of Botswana’s economy. Agriculture supports rural livelihoods, contributes to food supplies and provides economic opportunities for households and businesses. When drought affects production, farmers may experience lower incomes while consumers face higher food costs. Businesses that depend on agricultural products may also encounter supply shortages or increased input expenses. These pressures can spread through the economy and contribute to broader inflationary challenges.
Mr Moseki also identified international developments as important factors that could increase inflationary pressure in Botswana. He indicated that elevated prices for oil, gas, fertilisers and industrial inputs, resulting from the ongoing conflict in the Middle East, were expected to continue exerting upward pressure on inflation. These commodities are important to global production, transportation and distribution networks. When their prices increase, businesses may face higher costs for manufacturing, importing and delivering goods. Such increases can eventually reach consumers through higher prices for fuel, food and other essential products.
Oil prices are particularly important because fuel costs influence transportation and production across many sectors. Higher fuel prices can increase the cost of moving agricultural produce, manufactured goods and imported products into Botswana. Businesses that rely on road transport may need to spend more on distribution, while manufacturers can face higher operating expenses. These additional costs may be passed on to consumers through increased retail prices. Since Botswana imports many goods, changes in international energy prices can influence domestic inflation even when local demand remains relatively stable.
Rising fertiliser prices could create further difficulties for farmers, especially during periods of unfavourable weather. Fertilisers help improve soil nutrients and support crop production, but higher prices can make agricultural inputs more expensive. Some farmers may respond by reducing fertiliser use, which could affect crop yields and overall production. Others may continue purchasing the necessary inputs at higher costs, increasing their financial pressure. When combined with below-normal rainfall and drought conditions, expensive fertilisers could make food production more costly and contribute to higher food prices.
The Governor also pointed to growing global trade tensions and tariff measures as additional sources of inflationary pressure. Tariffs are taxes imposed on imported goods and can increase the cost of products moving between countries. When major trading partners introduce new tariffs or respond with additional trade restrictions, businesses may face higher import costs and disruptions to established supply chains. These developments can affect the prices of raw materials, industrial equipment and finished products. For an import-dependent economy such as Botswana, changes in international trade conditions can influence the cost of goods available in the domestic market.
Global trade tensions can also create uncertainty for businesses that depend on international suppliers. Companies may need to find alternative sources of materials or adjust their purchasing arrangements when trade restrictions affect existing supply routes. Such changes can increase transportation, procurement and production costs. Businesses may eventually pass some of these expenses on to consumers, depending on market conditions and their ability to absorb higher costs. These developments create additional uncertainty for inflation forecasts because international trade policies and commodity prices can change rapidly.
Despite the identified upside risks, the Bank of Botswana also acknowledged that inflation could turn out lower than currently projected. Mr Moseki explained that subdued domestic and global economic activity could reduce inflationary pressure. When economic activity slows, households and businesses may reduce spending, leading to weaker demand for goods and services. Lower demand can limit the ability of businesses to increase prices, particularly in markets where consumers have limited purchasing power. This could help moderate inflation even when certain production and import costs remain elevated.
Limited fiscal space was another factor identified by the Governor as potentially contributing to lower inflation than projected. Fiscal space refers to the government’s ability to increase spending or introduce additional financial support without placing excessive pressure on public finances. When fiscal resources are constrained, the government may have limited room to introduce spending measures that stimulate demand across the economy. This can reduce some sources of inflationary pressure, although it may also limit the resources available for responding to economic difficulties. The relationship between government spending, economic growth and inflation therefore remains an important consideration for monetary and fiscal policymakers.
A decline in international commodity prices could also help ease inflationary pressure in Botswana. Lower oil, gas and other input prices would reduce some of the costs associated with importing goods and operating businesses. This could provide relief to transport companies, manufacturers, farmers and other businesses that depend on internationally traded commodities. If lower costs are sustained, some businesses may pass the savings on to consumers through more stable or reduced prices. However, the extent of this benefit would depend on exchange rate movements, domestic supply conditions and the speed at which international price changes affect local markets.
Mr Moseki further noted that inflation could be influenced by changes in administered prices that were not included in the current projection. Administered prices refer to prices or charges that are directly regulated, approved or influenced by government authorities or other designated bodies. Changes in these prices can affect the cost of essential goods and services and influence the overall inflation rate. Depending on the nature and size of the adjustments, increases could add pressure to household budgets and business operating costs. This means that future inflation developments may differ from current expectations if important administered prices change.
The Bank of Botswana’s assessment highlights the difficulty of forecasting inflation when several risks are developing at the same time. Domestic weather conditions can affect food production, while international conflicts and trade restrictions can influence the cost of imported commodities and industrial inputs. These pressures may occur alongside changes in consumer demand, government spending and regulated prices. Some factors could push inflation higher while others could help reduce it. The overall inflation outcome will therefore depend on how these developments interact over time.
For households in Botswana, higher inflation can affect the cost of everyday necessities, including food, transport and other essential services. Families may need to adjust their spending when prices increase faster than their incomes. Low-income households can be particularly exposed because a larger share of their budgets often goes towards basic necessities. Farmers and small businesses may also face difficulties when operating expenses rise while their customers have limited purchasing power. Maintaining price stability is therefore important for protecting household purchasing power and supporting economic confidence.
The agricultural sector will remain an important part of Botswana’s response to weather-related inflation risks. Improving water management, supporting climate-resilient farming practices and strengthening agricultural production can help reduce the effects of drought. Farmers may also benefit from better access to agricultural information, suitable inputs and practical support during difficult growing seasons. Protecting livestock through reliable water supplies, appropriate feeding strategies and effective animal health management can also help limit production losses. These measures cannot eliminate the effects of El Niño, but they can improve the ability of agricultural producers to withstand unfavourable conditions.
The Bank of Botswana will continue to assess developments affecting domestic inflation as part of its monetary policy responsibilities. Its assessment must consider both current price movements and potential risks that could influence inflation in the months ahead. International commodity prices, exchange rate developments, domestic demand and changes in administered prices all provide important information for monetary policy decisions. Weather-related disruptions also require attention because their effects can extend beyond food production and influence the wider economy. Careful monitoring allows policymakers to assess whether inflationary pressures are temporary or likely to persist.
Botswana’s inflation outlook remains exposed to a combination of domestic climate risks and international economic pressures. The potential effects of El Niño, including droughts, heatwaves, crop failures and livestock deaths, could reduce agricultural supplies and increase food prices. At the same time, elevated oil, gas, fertiliser and industrial input costs, together with global trade tensions and tariff measures, could raise the cost of imports and production. However, subdued economic activity and falling international commodity prices could help moderate inflation, while changes in administered prices may create additional uncertainty. As highlighted by Bank of Botswana Governor Lesego Moseki, the direction of inflation will depend on how these competing risks develop, making continued monitoring and effective economic planning essential for protecting price stability and the purchasing power of Batswana.
