Bank of Botswana Flags El Niño and Trade Tensions as Inflation Risks

Botswana's central bank has formally identified El Niño-driven weather damage — droughts, heatwaves, crop failures and livestock deaths — as an upside risk to the country's inflation outlook, alongside rising international commodity prices and escalating global trade tensions. Bank of Botswana Governor Lesego Moseki delivered the warning while presenting the Monetary Policy Committee (MPC) report in Gaborone. The projection carries unusual breadth of risk: domestic climate threats stacking on top of imported cost pressures from abroad.

What does the central bank actually fear?

The core concern is agricultural supply. El Niño, a climate phenomenon linked to warming surface waters in the central and eastern equatorial Pacific, typically brings reduced rainfall and higher temperatures to Southern Africa. For Botswana's farmers, who depend heavily on seasonal rainfall, insufficient water during critical growth stages means harvests can decline sharply or fail outright. Lower output cuts the availability of locally produced food and deepens reliance on supplies from other markets. If demand holds steady while supply shrinks, food prices rise — a direct channel into headline inflation. Livestock faces a parallel threat: when pastures dry up and water sources thin out, animal deaths reduce meat supply and squeeze the incomes of farmers and livestock businesses.

The arithmetic is unforgiving for households. Lower-income families spend a larger share of their budgets on basic necessities, so food and transport inflation hits them hardest. Farmers and small businesses face the squeeze from both ends: rising operating costs against customers with limited purchasing power.

Which international pressures compound the problem?

Moseki flagged elevated prices for oil, gas, fertilisers and industrial inputs, driven by the ongoing conflict in the Middle East, as continued sources of upward price pressure. Oil matters disproportionately. Fuel costs feed into the transport of agricultural produce, manufactured goods and imports — and Botswana imports many goods, so international energy prices shape domestic inflation even when local demand stays flat.

Fertiliser presents a particularly nasty interaction with the weather risk. Higher prices may push some farmers to cut fertiliser use, denting yields precisely when drought is already threatening harvests. Others will keep buying at higher cost, absorbing financial pressure that eventually reaches consumers. Trade tensions add a third layer. Tariffs and retaliatory restrictions raise import costs and disrupt established supply chains, forcing companies to find alternative suppliers and absorb higher transportation, procurement and production expenses — costs they may pass on, depending on market conditions. The bank's forecast must also reckon with changes to administered prices — charges directly regulated or approved by government bodies — which sit outside the current projection and could shift the inflation path in either direction.

Could inflation come in lower than projected?

The bank itself says yes. Moseki acknowledged that subdued domestic and global economic activity could reduce inflationary pressure: when households and businesses cut spending, weaker demand limits how much businesses can raise prices. Limited fiscal space — constrained government room to stimulate the economy — could similarly dampen demand-driven inflation, though it also restricts the resources available to respond to economic difficulties. A decline in international commodity prices would offer further relief to transport companies, manufacturers and farmers. The catch: the size of that benefit depends on exchange rate movements, domestic supply conditions and how quickly international price changes reach local markets. In plain words, the same forecast contains forces pushing inflation up and forces pulling it down.

What comes next?

The bank says it will keep assessing commodity prices, exchange rate developments, domestic demand and administered prices as inputs to monetary policy, and will watch whether weather-related disruptions prove temporary or persistent. Mitigation exists but has limits: better water management, climate-resilient farming practices, improved access to agricultural inputs, and livestock protection through reliable water, appropriate feeding and animal health management can all reduce losses — though the source is clear that such measures cannot eliminate El Niño's effects. The direction of Botswana's inflation, as Moseki framed it, now depends on how these competing domestic and international risks interact over the coming months.