Botswana is likely to crawl back to a deficit budget in the next financial year due to a rise in government’s total expenditure and net lending. A budget strategy paper drafted by the Ministry of Finance and Development Planning estimates Botswana’s total expenditure and net lending to be at P55.72 billion against the original budget of P54.15 billion. As a result, Botswana is seen posting a deficit budget of P1.7 billion or minus 1.1 percent of GDP during the 2015/16 financial year.
“The increase in total expenditure emanates from the additional amounts required to cover public salary adjustments and drought relief measures,” the paper reads in part.
Government’s total revenues and grants for the revised 2015/16 budget is estimated at P51.69 billion, a downward revision of 6.7 percent from P55.38 billion in the original budget.
According to the 2016/17 budget paper, Mineral revenue accounts for 39.4 percent followed by Customs and Excise at 26.6 percent while Non Mineral income Tax accounts for 18.0 percent.
At the same time, the paper states that the government now expects the domestic economy to grow by 2.6 percent this year, which is a downward revision. In February, Finance Minister Kenneth Matambo had announced a growth target of 4.9 percent for 2015. The cut in growth forecast is said to be due to expected weakness in the diamond market.
“However, the downside risk to these projections continues to be the country’s high dependence on diamonds, whose demand and prices are subject to global fluctuations,” the paper notes.
A sustained weakness of the diamond market throughout the year has seen diamond prices softening while annual output targets have also been trimmed. Sluggish sentiment in the market has seen both De Beers and Botswana’s Okavango Diamond Company (ODC) sales falling by over 20 percent in the first half of 2015.
De Beers, whose sales fell 21 percent in the first six months of the year, says its diamond production in the first half of 2015 decreased by six percent to 8.0 million carats, mainly due to lower grades and reduced plant availability at the Orapa mine.
The global miner owned by Botswana government and Anglo American last month trimmed production targets for 2015 due to globally weaker diamond demand.
Meanwhile the paper also states that in 2014, the mining sector recorded a modest growth rate of 4.5 percent compared to a significant growth of 23.9 percent in 2013. Notwithstanding the sluggish growth in 2014, the mining sector continued to be a major contributor to total GDP, accounting for 22.9 percent in 2014, and 21.9 percent in 2013. The mining sector on the other hand has shown resilience over time and less volatile compared to the mining sector.