The government Budget Strategy Paper ÔÇô a fiscal update document prepared by the Ministry of Finance and Development Planning has – forecasted a prolonged budget deficit at the Government Enclave.
According to the technocrats who prepared the Budget Strategy Paper (BPS), Botswana recorded a significant budget deficit of 4.5 percent of the Gross Domestic Product (GDP) in 2015/2016, due to weak global demand for diamonds which reduced revenues, to lower than what government anticipated.
At the same time, data contained in the same paper indicate that the domestic economy will run a deficit budget for at least the next three financial years ÔÇô 2017/18, 2018/19 and 2019/2020 respectively.
Deputy Permanent Secretary in the Ministry of Finance Kelapile Ndobano confirmed on Thursday that: “Due to continued weak global economic recovery, and the implementation of the Economic Stimulus Programme (ESP), budget deficits are projected in the next three financial years.”
The ESP was adopted by government in September 2015 to promote growth, economic diversification and employment creation.
Based on the Medium Term Fiscal Framework, the 2017/2018 financial year is projected to register a budget deficit of P6.8 billion or -4.1 percent of GDP, due to the continued sluggish growth in revenues, and increased expenditure from the implementation of ESP. At the same time, the paper further shows those financial years 2018/19, 2019/2020 will record -4.2 and -2.2 percent respectively.
According to the same paper, the projected total revenues and grants for 2017/2018 is at around P52.8 billion: with Mineral Revenues accounting for P19.1 billion; Customs and Excise for P13.4 billion while the Non-income tax sit at P10.6 billion; and Other revenues at P9.6 billion. Mineral and Customs & Excise revenues remain Botswana’s major revenue source, constituting over 60 percent of total revenues.
However, Ndobano admitted that the two sources of revenue for government remain vulnerable to exchange rate fluctuations and international market swings.
A sustained weakness of the diamond market in the past few years has seen diamond prices softening while output targets have also been trimmed. Sluggish sentiment in the market has seen global mining giant, De Beers and Botswana’s Okavango Diamond Company (ODC) sales falling by over 20 percent in the first half of 2015. De Beers owns a joint venture ÔÇô Debswana Mining Company with the government of Botswana.
Available figures shows that the government budget averaged 0.76 percent of GDP from 2004 until 2015, reaching an all time high of 11.20 percent of GDP in 2007 and a record low of -10.70 percent of GDP in 2010. The domestic economy contracted by 0.3 percent in 2015, compared to the growth of 3.2 percent registered in 2014.
“The domestic economy is largely influenced by developments in the global economy due to the country’s dependence on the mining sector”, Ndobano said.
Meanwhile, the government has since cut its 2016 economic growth estimate to 3.5 percent from an earlier projection of 4.2 percent.