The Botswana government is in talks with the World bank, drumming up support and assistance to pad the country’s budget which has been teared by larger expenditure over dwindling revenues. The country has unveiled an ambitious plan that it says will jumpstart the economy to levels that will create jobs.
The finance minister, Dr Thapelo Matsheka, this week revealed that they have initiated negotiations with the world bank to assist the country to patch the burgeoning budget deficits, which have increased in size following the country’s prompt response to the virus that was declared a pandemic in January.
In an interview with Reuters, Matsheka disclosed they are hoping to borrow at least $1.9 billion (P13.6 billion) from the World Bank, which represents nearly half of Botswana’s eleventh national development plan (NDP 11) budget which concludes in 2023. In March, The World Bank announced it has constructed a $12 billion package to assist countries to cope with health and economic impacts of the global pandemic.
The outbreak has worsened what was already a strenuous fiscal position for the landlocked country whose economy is still dependent on diamond exports. Though the country has recorded fewer than 5,000 confirmed cases and 21 Covid-19 related deaths, it bore the brunt of the pandemic through disruptions to the diamond mining industry and tourism, the two sectors that account for most of the country’s foreign exchange and output.
Real gross domestic product (GDP), which measures the total output of goods and services in the country at a specific period, plunged from P25 billion in the second quarter of 2020 to P18.8 billion, reflecting a 24.8 percent fall in economic activity between June and August. On a yearly comparison, the GDP is down by 24 percent. Both contractions reflect biggest fall on record since Botswana gained independence in 1966.
With two successive quarterly falls, Botswana has gone into a technical recession, which happens when a country’s GDP falls in two consecutive quarters. First quarter GDP contracted by 0.8 percent from last year’s last quarter, and on a yearly basis, the GDP grew by 2.6 percent between March to May 2020, lower than the 4.2 percent growth in the same period last year.
The economy’s historic drop sets the stage in what will be a bruising year for Botswana, confirming several forecasts that the economy will be in recession for the rest of 2020. Since the Covid-19 outbreak, the finance ministry and its agencies have made several revisions to the GDP, lowering their expectations as forecasts become gloomy. Late in April after the country implemented the first nationwide lockdown that ran for 48 days, Dr. Matsheka projected the GDP to decline by 13.1 percent, down from the projected growth of 4.4 percent.
This has since been revised to a contraction of 8.9 percent, steeper than the contraction during 2008 financial crisis, when the economy shrunk by 7.6 percent. Though the retreat in economic activity is largely attributed to Covid-19 containment measures, Botswana’s economic cogs have been grinding slowly, adding extra pressure to the nation’s ballooning budget deficits and structural problems such as a poorly diversified economy and a rising unemployment rate.
From 2010 to 2018, the GDP had an average growth rate of 3.7 percent, reflecting a gradual decline in economic growth over the ten-year period. GDP growth further slowed to 3 percent in 2019, down from 4.5 percent recorded in 2018. At these rates, Botswana’s economy is said to be operating below potential output, which experts have suggested should be above 6 percent for the economy to create the much-needed jobs.
The government has unveiled an Economic Recovery and Transformation Plan (ERTP), which is expected to provide direction on how to stimulate economic activities post Covid-19. To implement the ERTP together with the remainder of the eleventh national development plan (NDP 11), the government says it will need no less than P40 billion, with more than half of the funds used for plugging budget deficits. Since NDP 11 came in force in 2017, it has raked in P22 billion in budget shortfalls in its three years of existence.
Besides borrowing from World Bank and other global institutions, the finance ministry has revealed that they intend to raise P500 million from domestic mobilisation such as increase in service and levy fees from government departments charged to residents. In addition, Matsheka in August successfully sought authorisation from parliament to increase the government bond issuance program from P15 billion to P30 billion, enabling the country to borrow more money locally.