Poet Langston Hughes ask, “What happens to a dream deferred? Does it dry up like a raisin in the sun? Or fester like a sore— and then run? Does it stink like rotten meat? Or crust and sugar over— like a syrupy sweet? Maybe it just sags like a heavy load. Or does it explode? These are same questions that could be asked about Botswana’s dream of having a balanced budget during its National Development Plan 11. As it stands, the dream has been deferred.
The successive budget deficits as recorded by the country’s Treasury department do not only undermine one of the Government’s original fiscal objectives in NDP 11 of achieving modest budget surpluses or budget balances in the second half of the Plan period but also pose a systemic risk to the country’s macroeconomic stability.
This week, the Treasury openly admitted that the structural challenges facing the domestic economy have not been fundamentally changed by the Covid-19 pandemic, but in many respects have been intensified.
“These structural challenges include those driven by the critical macroeconomic objectives of raising GDP growth rates, while ensuring fiscal and balance of payments sustainability, which are pre-requisites for employment creation and reducing poverty and inequality”, reads part of the 2022 BPS which sets the tone for the government’s next financial year projections.
The 2022 BPS, which was released this week and shared at the Budget Pitso in the capital Gaborone, reveals the country’s deteriorating fiscal position with the national budget plagued by deficits – a constant feature in the last four years.
The Treasury’s breakdown of the stubborn deficit shows that in 2022/2023 it will go up, after an expected decline between 2020/2021 and 2021/2022.
During 2020, the national current account is estimated to have recorded a deficit of P18.3 billion, compared to a revised deficit of P12.6 billion in 2019, mainly driven by the deficit in the merchandise trade account. With respect to the overall balance of payments, a deficit of P20.1 billion (or 11.6 percent of GDP) was recorded in 2020, compared to a deficit of P12.0 billion (6.7 percent of GDP) in 2019.
A STRUCTURAL FISCAL IMBALANCE
With years of growing budget deficits even prior to Covid-19, Botswana’s fiscal space has become increasingly constrained. To defend and protect the country’s macroeconomic stability, it’s given that the Treasury will have to work hard to reverse a structural fiscal imbalance recorded during most part of NDP 11. Officials at the Finance and Economic Development Ministry admit that the national expenditure has not been contained to levels that are consistent with revenues. The depletion of the accumulated savings in the Government Investment Account (GIA) is also another thorn on the side of the Treasury.
Latest official figures as shared by the Bank of Botswana shows that the Government Investment Account (GIA) opening balance stood at P4.9 billion at the beginning of the 2021/2022 financial year. It is projected to decline slightly to P4.6 billion by the end of the 2021/2022 financial year and remain at a similar level through the 2022/2023 financial year.
Given the projections made, the ministry of Finance now has a longer-term objective: to rebuild the GIA through borrowing or returning the national budget to surpluses. Amongst the ways to do it, the Treasury is considering taxation of the digital economy, introducing electronic billing/invoicing platforms to improve VAT tax compliance as well as introducing a business intelligence and data analytics function.
[WHAT IT MEANS: Despite the positive growth outlook for Botswana’s economy, the situation on the fiscal front is less favourable posing a systemic risk to the country’s macroeconomic stability]