Standard Chartered Bank says the real GDP growth in Botswana is expected to improve over the coming year.
The bank’s Chief Economist, Africa Global Research, Razia Khan, said this followed a contraction of 1.7 percent in 2015, after a difficult time in 2016.
Khan stated that despite the improvement in growth, the fiscal deficit in FY 17/18 is still projected to widen further, to 1.43 percent of GDP, from 0.7 percent of GDP previously.
She added that the widening budget deficit appears to be at odds with the expectation of a more buoyant economic picture, and highlighted the vulnerabilities in Botswana’s narrow revenue base.
“Despite concerns around sluggish trade trends, customs and excise revenue is still projected to be the largest source of revenue in FY18 (at 29.83 percent of revenue), narrowly outpacing mining revenue (28.6 percent),” she said.
Khan also noted that despite the non-mining economy making up a significant share of GDP, non-mining income tax is still c. 22 percent of receipts, and VAT only c. 14 percent (combined, just a little over one-third of fiscal receipts).
She added that the narrowness of Botswana’s revenue base, as stated by the Finance Minister, is an ongoing concern, with the SACU revenue sharing formula set to change, and mining itself a more volatile source of revenue.
“A natural question to follow on from is what will boost Botswana’s growth rate in the future? Despite the emphasis on fiscal sustainability, the best evidence of a truly sustainable fiscal policy would be one that restored more rapid economic and employment growth to the economy,” she said.
Khan is of the view that it is not immediately clear from the budget that more heady growth rates, associated much more with Botswana’s past, will necessarily return.
Khan believes that while Botswana’s economy has been well managed, with low debt levels, the country is still up caught in a “middle income trap”.
She said higher investment, whether private or public, is needed to drive accelerated growth in the future.
However, on current projections, the economy is more likely to stabilise, she believes. She is of the view that more needs to be done to attract greater investment. Khan stated that it would be unfortunate for Botswana to give up on accelerated growth at its current per capita income level, adding that by international standards, per capita income is still low.
She said a higher per capita income level is not necessarily synonymous with improved well-being, but it might be an important step in that direction.
“One of Botswana’s traditional strengths was its high savings rate, which enabled a high rate of investment, which in turn drove faster growth,” she said.
Khan further said that a feature that rapidly growing economies all tend to share is a high rate of investment, adding that in the FY 18 budget (for 2017/18) development spending is set at P16.52 billion, with recurrent spending almost three and a half times this amount.
She said the share of recurrent spending in total spending is too high for there to be much expectation that this is a budget focused on driving an accelerated pace of real economic growth.
Khan observed that some of the elements categorised as “development expenditure” (such as the inclusion of an allocation to BPC to cover existing operational costs), do not strictly speaking – meet the conventional definition of public investment.
“Meeting current operational costs does not automatically boost the country’s growth potential in the future. Actual investment spending is required to deliver this,” said Khan.