What will pick Botswana’s “not quite right” economy?

05 Nov 2019

BY VICTOR BAATWENG

Botswana’s economic performance has been mixed over the recent past years, contracting by 1.7 percent in 2015, recovering to reach 4.3 percent in 2016 before declining to 2.4 percent in 2017. In 2018 the domestic economy rose again and this time around sharply to 4.5 percent.

The 2020 Budget Strategy Paper - an annual fiscal update document that precedes the national budget states that despite the positive global and domestic outlook, Botswana’s 2020/2021 budget faces a constricted fiscal space.

In economic circles, fiscal space is commonly defined as the budgetary room that allows a government to provide resources for public purposes without undermining fiscal sustainability.

The International Monetary Fund (IMF) – one of Botswana’s international funders says fiscal space exists if a government can raise spending or lower taxes without endangering market access and putting debt sustainability at risk.

As it stands, technocrats at Finance Ministry in Gaborone have made it clear that Botswana has opted to step up measures to manage and control government expenditures as opposed to spending more. This also means that the Masisi led government has no option but to intensify efforts to increase collections of revenues from existing sources as well as identifying new sources during the 2020/2021 financial year which kick-start in April 2020.

Overall, the medium-term outlook for the domestic economy remains positive with growth projected to reach 4.3 percent, 4.6 percent and 4.0 percent in 2019, 2020 and 2021 respectively.

At the same time, revised official data for the current fiscal year 2019/2020 which ends in about five months show a downward revision of both revenues and expenditures as compared to what Finance Minister – Kenneth Matambo said in February 2019 during the national budget speech. The revised figures reflect an increased deficit of P7.8 billion (3.8% of GDP). Here are other key economic indicators as of October 2019 when Masisi renewed his contract with Batswana.

DOMESTIC INFLATION

Data compiled by the national statistics agency – Statistics Botswana shows that Botswana’s annual inflation rate in September 2019 stood at 3.0 percent, recording a rise of 0.1 of a percentage point on the August 2019 rate of 2.9 percent, latest data compiled by Statistics Botswana.

The data further shows that during the month of September 2019, the national Consumer Price Index was 101.8 registering an increase of 0.1 percent from 101.7 recorded in August 2019 Index. 

Botswana's latest inflation rate places it in the fifth position of Southern African Development Community (SADC) countries with low inflation rates, falling behind Mauritius, Seychelles, Swaziland and Mozambique. Out of the 54 African countries, Botswana is on the 28th position.

It has been a period of low inflation environment in Botswana, which extends as far as 2014, with the last three-year data revealing that inflation has been hovering around the 3 percent mark, which is the lower rung of Bank of Botswana’s objective range to contain inflation within 3 to 6 percent range.

POLICY RATE

With Botswana’s inflation projected to remain around the lower end of Bank of Botswana’s inflation objective range for the foreseeable future, the central bank’s Monetary Policy Committee maintained its benchmark rate at 4.75 percent at its last meeting held on October 31st.

The main policy rate was first cut by 25 basis points to reach its lowest ever level in early August 2019. Economic think tank – Econsult Botswana noted in its recent economic brief that the new rate may encourage borrowing and investment.

PUBLIC DEBT & FISCAL BALANCE

Botswana’s public debt – both domestic and external remains modest, and within the statutory limit of 40 percent of GDP. On the other hand, the first half of the implementation of the National Development Plan - NDP 11, which started in 2017/18 has been characterised by episodes of budget deficits, cumulatively amounting to P16.11 billion. The 2020/2021 budget estimates further point to another deficit, which undermines the NDP 11 objective of achieving modest surpluses or budget balances in the remaining years of the Plan period.

WHAT WILL PICK THE ECONOMY?

Keith Jefferies, economist at Econsult Botswana opines that economic transformation is complex and difficult, and has to result in Botswana becoming more competitive and productive than it is at present.

“This may involve making the most of “4th Industrial Revolution” technologies such as artificial intelligence, but first of all it has to focus on getting the basics right and delivering public services efficiently – filling in potholes, getting streetlights to work, making sure there are medicines in clinics and textbooks in schools, and ensuring that the government data network is functional”, says Jefferies.

The 2020 BSP also mention the 41R amongst measures available to maintain a sustainable macroeconomic environment and a balanced budget. The finance ministry says in developing budgetary plans for 2020/2021, the main focus remained on economic growth and job creation.

On the other hand, Jefferies says his forecast for Botswana’s GDP growth for the year as a whole remains at 3.5 – 4 percent.

With all these predictions and projections, architectures of the economy at government enclave admitted that, “the emerging scenario of net financial position call for renewed efforts to fiscal consolidation in the medium term”.  These sentiments and many others from the economic circles could push Masisi and his new administration to strive to live within its means by producing a budget that is affordable and sustainable – yet responsive to people’s needs.