Wednesday, October 28, 2020

Botswana will have to defy the economic odds

“Compared to a realised average growth rate of 5.3% y/y (year on year) under the 2010-2016 growth plan (NDP10), when the economy was still relatively buoyant, we are not that optimistic on the growth outlook for the next 6-y (year), and see GDP (Gross Domestic Product) growth averaging no more than 4% y/y, with downside risks,” posits a Stanbic Bank publication titled “African Markets Revealed Update.”

It seems however that government anticipates its revenue stream to cover its expenditures over the next 6 year period based on its projections of an average GDP growth of 4.4 percent over the period, as noted in the bank’s update. The bank on the other hand expresses skepticism with government’s presumption that growth will tread the roughly mid single digit. “Over the next six years, the government hopes to lift GDP growth to an average of 4.4% y/y. We see downside risks to that forecast unless ongoing efforts at diversifying the economy are stepped up meaningfully. A strong recovery in commodity prices would also help,” opines the bank. 

The update offers the view that the revenue assumptions could fall short, the result of which will force government to either increase its borrowing from the local or international market or dip steeply into its savings to fund its anticipated projects. This uncertainty extends the belief that the current challenging times could introduce Botswana to new realities that may become the new normal. The bank’s update depicts Botswana’s economy as one braving challenging times. 

Earlier this year at the 2016/17 budget analysis John Cairns, a Currency Economist at Rand Merchant Bank, opined that the cyclical budget approach that the budget has taken is the appropriate approach to adopt. He on the other hand cautioned that the approach assumes that the global economy is recovering, which could lead to a large deficit if such growth doesn’t happen. This view lends credence to the danger of assuming that growth will maintain an average growth of 4.4 percent over the next six years. “Due largely to declining mineral revenues and a shrinking economy that brought in less revenues than initially budgeted in a year where expenditures overshot by 3.3%, Botswana’s budget position unsurprisingly came in at a deficit of 2.7% of GDP in FY (financial year) 2015/16 ÔÇô much worse than initial projections of a surplus of 0.8%. We look for a deficit of 3% in 2016/17,” cites the bank’s update. 

Regarding the country’s revenue position, local economics expert Keith Jefferies earlier warned that government’s constrained revenue will restrict its spending, the result of which will not produce desired impact in terms of government injecting a boost to the economy. Government currently has in place a stimulus program which is anticipated to bolster economic activity. A meaningful impact of the program however has been depicted as doubtful given the uncertainty around the revenue stream. This is particularly so as the three year program does not have a predetermined total budget but is rather dependent on a year on year budget approved by Cabinet. In the 2015/16 financial year it was budgeted at 1.4 billion, in the current 2016/17 financial year it is budgeted at 2.4 billion and the amount for the next financial year is yet to be determined. 

At the recent economic briefing by Bank of Botswana, it was projected that the economy will recover modestly in the current financial year. The Central Bank expects the economy to register a low positive growth rate in 2016. The low positive growth rate does not support the assumed roughly mid single digit growth that the government anticipates in thrusting the recovery of the economy.   

“Key, growth-propelling, projects under the FY2016/17 budget, such as the construction and rehabilitation of energy, water and transport infrastructure, are welcome,” cites the report. Should the country efficiently and timely deliver on these projects, it could go a long way in allaying the current fears that stem from uncertain recovery.

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