The process of formulating the national budget for the next financial year has began and if what officials at the Ministry of Finance and Development Planning say about the state of public finances is true, then Batswana are heading for hard times.
Kenneth Matambo and his team paint a picture of a changed Botswana where there is need to spend money wisely. The key words now are ‘prioritise’ and ‘fighting the deficit’.
The budget comes at a time when Botswana is running a fiscal deficit, which is expected to run for the next financial year before it is contained with a balanced budget in 2012/ 13 financial year.
To make it worse, the country borrowed heavily to finance its development ambitions.
“We accumulated debt in the process of borrowing,” said Matambo.
“The deficit should be substantially reduced during the year that is coming. So we have a big task while preparing the next year’s budget. It (deficit) should be less than the current year,” he said.
The deficit for 2008/09 was P4.696 billion and 2009/10 it stood at P9.321 billion. The projected deficit for 2010/11 is P12.12 billion.
During recession, foreign exchange reserves declined with total revenues and grants falling by 8.8 percent from P30.455 billion in 2008/09 to P27.782 billion during the 2009/10 financial year.
In a bid to fight the deficit, government wants to control its borrowing spree, which started in 2009 from the World Bank and domestic capital markets.
At the moment, Botswana is still safe from debt trap although it runs risk of falling into it going forward.
Botswana’s current debt level is 25 percent of the GDP, but comparably the figure is high. When the economy was doing well, the levels used to be 3 percent of the GDP.
This figure represents both the issuance of bonds in the capital markets and external sources like World Bank and African Development Bank (AfDB).
“We need to prioritise. Even the ongoing projects, we have to look at them. We need to be awake to the fact that our resources are not what they used to be,” added Solomon Sekwakwa, Permanent Secretary in the Ministry of Finance.
Botswana internal debt ratio to the GDP is still small at 5 percent, which includes capital markets bond programme while external borrowing stands at 20 percent of the GDP.
This takes into account the US$1.5 billion (about P9.9 billion) Botswana borrowed from the World Bank and AfDB.
Authorities want to limit borrowing at less than 40 percent of GDP (20 percent internal and 20 percent external), to avoid being caught in debt trap.
“We do not want to go to 40 percent; we need to be extremely careful so that when another event of this nature (recession) comes, we do not sink,” said Sekwakwa.
“There is no need to borrow unless there is a need to do so. We have to control expenditure.”
Botswana’s economic growth has not been growing at the high pace it used to be. From 1967-2006, it was growing at an average rate of 9 percent before contracting in 2009.
This led to analysts questioning the way government spent taxpayers money.
But the finance minister said this is going to change.
“We were operating in the atmosphere of plenty,” added Matambo.