Saturday, May 8, 2021

Botswana’s budgeting process was highly refined

In the analysis of the 2015 Index of Economic Freedom, an annual guide published by The Wall Street Journal and The Heritage Foundation, a Washington-based think tank, a significant increase in the trade-weighted tariff rate has resulted in a decline in Botswana’s trade freedom score. This increase, along with “deterioration in the management of public spending”, has moved Botswana out of the “mostly free” category.

Appreciated against what an African Development Bank (AfDB) report says about traditional financial husbandry in Botswana, “deterioration in the management of public spending” would be a new thing.

“One of the major contributors to Botswana’s success in translating diamond revenues into rapid economic growth ÔÇô and ultimately human development ÔÇô was a firm insistence on the good-quality appraisal of each public spending project,” says a report titled “Delivering on the Promise: Leveraging Natural Resources to Accelerate Human Development in Africa.”

The report, which uses the past tense in a telling way, notes that in the particular case of Botswana, a certain level of technical competence was required of officials at the Ministry of Finance and Development Planning who made critical make-or-break decisions.

“The writing of sound appraisals, and the recognition and rejection of weak or inadequate appraisals, was a required capability for officials to advance their careers in the Ministry of Finance. In addition, the public spending programme in Botswana was careful to provide for the recurrent costs of maintenance of new public assets. There was a rule of thumb that an amount equal to 18 per cent of the capital cost needed to be budgeted in order to operate any assetÔÇöwhether a school, medical facility, road, or bridge. When they went and checked later, planners found that the actual ratio required was a bit higher and so they cut back the spending programme,” says the report says ending with the conclusion that “the high quality of mechanisms for making spending decisions is a key reason why Botswana’s use of natural resource revenues is regarded as relatively successful.”

The latter point has been made before. Mineral wealth alone doesn’t make a country economically successful and examples from Equatorial Guinea to the Democratic Republic of Congo to Nigeria. There is consensus among development economists that Botswana’s transition from third poorest country at independence in 1966 to the economic success it is today has more to with the management of revenues from its natural resources than with endowment with such resources per se. In an academic paper titled “Explaining Botswana’s Success: The Critical Role of Post-Colonial Policy”, Dr. Scott Beaulier suggests that “By studying the history of Botswana’s development, we can begin to understand what choices other nations must make to truly reform.”

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