The economic environment post-Covid19 will not just be different but in many ways will be more difficult that it was previously the case, warned top government economic advisors this week.
On Monday, a document put together by the Economic Advisory Committee, warned of an economic crisis more serious than ever before experienced by most people in Botswana and elsewhere. The Economic Recovery and Transformation Plan (ERTP) document was prepared by Finance and Economic Development ministry, Bank of Botswana, Investment, Trade and Industry ministry, Botswana Institute for Development Policy Analysis (BIDPA) University of Botswana.
According to the document, the outbreak of Covid19 has not only caused uncertainties but has highlighted the well-known vulnerabilities of the economy, characterised by a narrow economic base anchored by diamond exports, and a worrying increase in budget deficits amid soaring unemployment rate and disfranchised citizens.
“The COVID-19 pandemic arrived at a time when the Botswana economy was already facing major economic challenges and hence the need for deep structural reforms,” the Economic Advisory Committee wrote in the document.
Chiefly among the challenges has been the stagnated economic growth, growing at a lower pace not sufficient to raise real incomes and create sufficient employment opportunities. From 2014 to 2019, Botswana’s economic growth as measured by gross domestic product (GDP) averaged less than 3 percent. Experts have advised that the economy has to grow at a rate higher than 6 percent to be able to create jobs.
Labour data from Statistics Botswana ‘s quarterly labour force figures for 2019 shows that unemployment jumped from 17 percent to 22 percent, hitting hard the young people desperately looking for jobs.
The document also took a swing at Botswana’s precarious fiscal position, marked by structural decline in government revenues, frequent budget deficits and depletion of financial buffers. The Finance ministry has since projected a 13 percent contraction in GDP, making it the largest growth decline in the country’s economic history.
In April, as the effects of the coronavirus became more nuanced, the finance minister Dr. Thapelo Matsheka revised the initial budget proposal he unveiled in February, cutting projected revenue for the 2020/21 financial year from P62.4 billion to P48.8 billion. Even more troubling for the government, as revenue drops, expenditure is tipped to rise as part of efforts by the government to jumpstart the economy.
The budget deficit for the 2020/21 financial year is now estimated at P10.8 billion, ballooning from the P7.9 billion shortage registered in 2019/20 financial year, which was a slight reduction from 2018/2019’s massive P8.8 billion budget deficit. The government has been running deficits since 2017/2018, with that year’s shortage recorded at P1.9 billion. Another shortage of more than P4.4 billion is expected in 2021/22 but will likely be revised too in the coming months.
In the Economic Recovery and Transformation Plan, the top government economic advisors reiterated the need to diversify exports, by reducing the current high-level dependence on diamonds, which account for over 90 percent of Botswana’s total exports, and remain the country’s major foreign exchange earner.
Prior to Covid-19 outbreak, the diamond industry was just starting to recover from a recession that started in 2017 when diamond sales were affected by a stockpile of low value diamonds that were choking the value chain. The recovery has been disrupted by coronavirus containment measures, which affected global movements, resulting in diamond mining giants like De Beers cancelling planned sales, a development that will further worsen the diamond industry’s value chain.
Besides the high earning diamond exports, the government economic advisors warned that Botswana’s money-spinning tourism sector will be dealt a heavy blow this year as the travel and tourism sectors are likely to experience fundamental challenges in their operations due to travel restrictions.
The promoters of the Economic Recovery and Transformation Plan say the top priority for government is to restore economic activity and income, facilitate economic growth, accelerate transformation and build a resilient economy. The two-year plan, running between 2020/21 – 2022/23 aims to push private sector led growth, while building the country’s economic competitiveness and accelerating citizen economic empowerment.
“In the medium to long-term, the ERTP aims to strengthen the basis for renewed, sustainable growth, and support implementation of the transformation agenda towards high-income status, encompassing diversified, inclusive export-led growth, as envisaged in Vision 2036,” read part of the document.
The plan that intends to stimulate most sectors of the economy is expected to cost the government no less than P20 billion. Already, the government has pumped more than P2 billion in buffering the economy against disruptions caused by the Covid19 interventions.