Recently released figures on the country’s proposed budget for the year 2016/17 have sparked fears that the Economic Stimulus Package (ESP) will have a lower than anticipated impact on the national economy. Pundits believe the potential of the ESP will be undone by government’s dismal revenue situation, which will leave very little room for high expenditure.
That the economy needs a boost is without question, and the ESP comes at a time when the prevailing economic conditions are a true reflection of the current beat down state of the global markets. A day after Minister of Finance Ken Matambo presented the 2016/17 budget speech, First National Bank Botswana (FNBB) gathered industry titans from various sectors to interrogate and interpret the budget.
When shedding light on the ESP, Secretary for Economic Affairs at the Ministry of Finance Dr. Taufila Nyamadzabo explained that the programme is expected to bolster economic activity in weaker sectors.
“ESP is for counter cyclical purposes,” he said.
Counter cyclical in this instance means that there will be deliberate additional spending at certain times. He further revealed that the budget for the three year programme was estimated at P1, 430 billion in 2015/16 and is proposed at P2, 206 billion for the 2016/17 financial year; while the budget for 2017/18 is yet to be finalized. Local economist Dr Keith Jefferies then asked how the ESP was expected to boost the economy when government’s expenditure estimates of P54.44 billion clearly indicate that there will be no room for additional spending.
In response, Dr. Nyamadzabo pointed out that the increased development budget shows that additional spending will take place and thereby boost the economy. Jefferies explained on the sidelines of the review session that government’s dismal revenue situation will result in a decline in spending. He further pointed out that the increase in the development budget was very minimal and will not result in any significant impact.
“The total development budget was boosted by the supplementary budget, which had not been included in determining the money actually available for spending,” said Jefferies.
He also explained that the development budget is offset by the substantial decline in recurrent spending, which means that the effect of the boost will be dragged down by the reduced recurrent spending.
According to John Cairns, a Currency Economist at Rand Merchant Bank, the cyclical budget approach adopted by government is the right policy to follow. He however warned that the cyclical approach assumes that the global economy is recovering; which could lead to a large deficit if such growth is not experienced. The Organization for Economic Co-operation and Development (OECD) has warned that small and open economies could face considerable difficulties in stabilising because they are likely to be more exposed to external shocks and considerable difficulties. Botswana must take heed of this warning, given that it is a small economy. It therefore follows that should the global economy experience a downturn, Botswana must be ready to respond resiliently.