ANk Of BOTswANA

1 1 ANNUAL REPORT BANk Of BOTswANA20143 BANK OF BOTswANA ANNUAL REPORT 20144 BANK OF BOTswANA ANNUAL REPORT 2014 BOARd MEMBERs(as at year-end 2014)Sir Paul Collier Gordon K CunliffeLinah K MohohloGovernor (Chairman)Caroline S Botlhole-Mmopi Dr Joel Sentsho Dr Malebogo Bakwena Solomon M Sekwakwa*Robert N Matthews * Permanent Secretary, Ministry of Finance and Development Planning 5 BANK OF BOTswANA ANNUAL REPORT 2014 BOARd MEMBERs(as at year-end 2014)Linah K MohohloGovernor (Chairman)Gordon K Cunliffe Solomon M Sekwakwa*Caroline S Botlhole-MmopiDr Joel SentshoSir Paul CollierRobert N Matthews Dr Malebogo Bakwena * Permanent Secretary, Ministry of Finance and Development Planning 6 BANK OF BOTswANA ANNUAL REPORT 2014 CONTENTs PART AForeword 15 Statutory Report on the Operations of the Bank in 2014 17 The Bank s Mission and Objectives 17 Governance and Organisational Structure 17 Review of the Bank s Main Activities in 2014 21 Annual Financial Statements 27 Statutory Report on the Operations and Financial Statements of the Bank 20147 BANK OF BOTswANA ANNUAL REPORT 2014 CONTENTs PART B1.

2 The BOTswANA Economy in 2014 67 Output, Employment and Prices 67 Public Finance and the 2015/16 Budget 72 Exchange Rates, Balance of Payments and International Investment Positions 76 Money and Capital Markets 832. Preserving Macroeconomic Stability and Fostering Economic Growth 89 Introduction 89 BOTswANA s Experience in Achieving Macroeconomic Stability 90 Threats to BOTswANA s Macroeconomic Stability and Growth Prospects 99 Enhancing Macroeconomic Linkages in Support of Inclusive Growth 104 Future Relevance of BOTswANA s Macroeconomic Policies 117 Conclusion 123 8 BANK OF BOTswANA ANNUAL REPORT 2014 BOxEs, ChARTs , TABLEs ANd APPENdiCEsBoxesBox : Trends Towards Inclusion Poverty, Unemployment and Inequality in BOTswANA 107 ChartsChart.

3 Real GDP Growth 2010 2014 67 Chart : Real GDP Growth by Sector 68 Chart : Electricity Supply 2010 2014 69 Chart : Contribution to Real GDP Growth by Sector 70 Chart : BOTswANA and Trading Partner Countries Inflation 2010 2014 71 Chart : BOTswANA Headline and Core Inflation 2010 2014 71 Chart : Quarterly Balance of Payments 2013 2014 77 Chart : Balance of Trade in Services 2009 2014 80 Chart : Level of Foreign Exchange Reserves Quarterly 2013 2014 81 Chart : Yield to Maturity on Bank of BOTswANA Certificates and Government Bonds 84 Chart : Outstanding Bank of BOTswANA Certificates 84 Chart : Real Interest Rates International Comparisons 85 Chart : Year-on-Year Commercial Bank Credit Growth 85 Chart : BOTswANA Pension Fund Assets 2002 2014 87 Chart : Real GDP Growth for Upper Middle-Income Countries 95 Chart : Inflation Rates for Upper Middle-Income Countries 95 Chart : Non-Performing Loans to Total Loans 96 Chart : Return on Assets 96 Chart : Liquid Assets to Total Assets 96 Chart : Budget Surplus/Deficit for Upper-Middle-Income Countries 97 Chart : Current Account Balance for Upper-Middle-Income Countries 98 Chart.

4 External Debt for Upper-Middle-Income Countries 98 Chart : Months of Import Cover for Upper-Middle-Income Countries 98 Chart : REER Indices for Upper-Middle-Income Countries 98 Chart : Sectoral Shares of Value Added, 1975 2013 99 Chart : Contribution to Real Growth in Value Added over Period 99 Chart : Real Growth in Mining and Non-Mining GDP 1976 2013 100 Chart : Mineral and SACU Revenues and Hirschman-Herfindahl Index for Total Government Revenue, 1973/74 2014/15 101 Chart : Government Savings, Debt and Net Financial Position (NFP) 2004/05 2012/13 101 Chart : Average Annual GDP, Factor and Total Factor Produtivity Growth 1975/76 2011/12 1029 BANK OF BOTswANA ANNUAL REPORT 2014 TablesTable : Global Growth Estimates and Forecasts 2014 2016 69 Table : Government Budget 2013/14 2015/16 73 Table : Government Budget 2010/11 2015/16 74 Table : Government Debt and Guarantees for 2013/14 2014/15 75 Table : Pula Exchange Rates against Selected Currencies 76 Table : Balance of Payments: 2010 2014 77 Table : Diamond Trade 2014 78 Table : Major Export Destinations in 2014 78 Table : Exports, 2013 2014 79 Table : Imports, 2013 2014 79 Table : Level of Foreign Investment in BOTswANA by Industry 2013 82 Table : Level of Foreign Investment in BOTswANA by Country 2013 82 Table : Global Competitiveness Index (GCI) BOTswANA 103 Table : Countries Graduating from Middle-Income Status Since 1960 108 Table.

5 Mobile Money in BOTswANA 2010 2013 109 Table : Logistics Performance Index 2010 and 2014 115 AppendicesAppendix : Evolution of the Monetary Policy Framework 127 Appendix : Chronology of Exchange Rate Events 128 Appendix : Evolution of the Fiscal Policy Framework 129 Appendix : Main Macroeconomic Stability Indicators in BOTswANA and Comparison with Selected Upper-Middle-Income Countries (Period Averages) 13010 BANK OF BOTswANA ANNUAL REPORT 2014 ABBREviATiONs UsEd iN ThE REPORTAACB Association of African Central BanksAC Audit CommitteeBAB Bankers Association of BotswanaBATC BOTswANA Automated Clearing HouseBIS Bank for International SettlementsBISS BOTswANA Interbank Settlement SystemBITRI BOTswANA Institute for Technology Research and InnovationBoBCs Bank of BOTswANA CertificatesBPC BOTswANA Power CorporationCCBG Committee of Central Bank GovernorsCOMESA Common Market for Eastern and Southern AfricaDTI Debt-To-IncomeECH Electronic Clearing HouseEFTA European Free Trade AreaEPA Economic Partnership AgreementEU European UnionFCA Foreign Currency AccountFDI Foreign Direct InvestmentFSI Financial Soundness IndicatorsFY Fiscal YearGCI Global Competitiveness

6 IndexGDP Gross Domestic ProductGNI Gross National IncomeHDI Human Development IndexHHI Hirschman-Herfindahl IndexICT Information and Communications TechnologyIIP International Investment PositionIMF International Monetary FundIT Inflation TargetingITU International Telecommunication UnionLHS Left Hand ScaleLIC Low-Income CountryLTV Loan-To-ValueMDG Millennium Development GoalMIC Middle-Income CountryMoU Memorandum of Understanding11 BANK OF BOTswANA ANNUAL REPORT 2014 MPC Monetary Policy CommitteeMPS Monetary Policy StatementMTEF MediumTerm Expenditure FrameworkNBFI Non-Bank Financial InstitutionNBFIRA Non-Bank Financial Institutions Regulatory Authority NDP National Development PlanNEER Nominal Effective Exchange RateNFP Net Financial PositionNIE Newly Industrialising EconomyOMAC Open Market Auction CommitteeOMCC Open Market Coordination CommitteeOMO Open Market OperationsPPP Public Private PartnershipREER Real Effective Exchange RateREMCO Remuneration CommitteeRHS Right Hand ScaleSACU Southern African Customs UnionSADC Southern African Development CommunitySDR Special Drawing RightSWIFT Society for Worldwide Interbank Financial TelecommunicationTFP Total Factor ProductivityUK United KingdomUMIC Upper-Middle-Income CountryUNDP United Nations Development ProgrammeUSA United States of AmericaUSD United States DollarVAT Value Added TaxWEF World Economic ForumWTO World Trade OrganisationPART A sTATUTORy REPORT ON ThE OPERATiONs ANd fiNANCiAL sTATEMENTs Of ThE BANk fOR 2014 BANk Of BOTswANA14 BANK OF BOTswANA ANNUAL REPORT

7 2014 Heads of Department Moses D PelaeloOduetse A MotshidisiDeputy GovernorsGeneral ManagerRichard H NlebesisENiOR MANAgEMENT Sheila M SealetsaFinancial Markets (Acting)Andrew M MotsomiBanking SupervisionSholo A MataleBanking & CurrencyJulius GhanieInformation TechnologyRalesedi E SomolekaeHuman ResourcesDaniel N LoetoFinanceEwetse T RakhuduPayments & SettlementDr Kealeboga S MasalilaMonetary & Financial StabilityPelani D Siwawa-NdaiSecretariat(as at year-end 2014)15 PART A: STATUTORy REPORT ON ThE OPERATiONS ANd FiNANciAL STATEmENTS OF ThE BANK, 2014gOvERNOR s fOREwORd The Annual Report for 2014 is published in accordance with Section 68(1) of the Bank of BOTswANA Act (CAP 55:01). In fulfilling the statutory re-quirements, the Report highlights the Bank s operational and financial per-formance for the Report also outlines the global and domestic economic and finan-cial developments for 2014 as background to the Bank s formulation and implementation of monetary policy as well as implementation of the ex-change rate policy.

8 The Bank s other responsibilities, as indicated in the Report, relate to maintaining monetary and financial stability, a sound banking system and efficient payment systems, reserves management as well as economic and financial advisory role to the Government. Hence, the 2014 Annual Report theme topic, Preserving Macroeconomic Stabil-ity and Fostering Economic Growth, highlights the challenges and policy choices for maintaining macroeconomic stability. With respect to the Bank s financial performance, total assets grew by billion to billion between 2013 and 2014. This was mainly attributable to an increase in the foreign exchange reserves to billion in December 2014, and equivalent to months of imports of goods and services. The Bank s net income for the year was billion compared to P7 billion in 2013.

9 After transferring non-distributable currency gains of P1 billion to the Currency Revaluation Reserve, the net distributable income was billion; this compares to billion of 2013. The Government Investment Account increased by percent in 2014 to the course of 2014, monetary and other policies were conducted in the context of sluggish economic per-formance and uncertain prospects for the world economy. Economic growth strengthened in the United States of America and, to a lesser extent, in the United Kingdom, while the Eurozone and Japan continued to face the threat of deflation. Although output growth for emerging market economies was robust overall, it varied between countries. Inflationary pressures remained generally benign as reinforced by a decline in international oil and food prices.

10 The domestic economy recorded moderate growth of the non-mining sector, while expan-sion of mining boosted overall global inflation, particularly in BOTswANA s trading partner countries, benefitted domestic prices. This was in the absence of major upward adjustments to administered prices and given the impact of monetary policy on demand. Inflation fell from percent in December 2013 to percent at year-end, thus remaining within the Bank s 3 - 6 percent medium-term objective range throughout the year. As a result, the Bank Rate was maintained at percent during the year in light of the positive medium-term outlook. In order to encourage productive deployment of funds and market efficiency, the Bank conducted monetary operations with a view to limiting the amount of outstanding Bank of BOTswANA Certificates to P5 billion.