Sunday, February 16, 2025

Economic austerity or economic growth? That is the question

The Minister of Finance and Development Planning, Kenneth Matambo, is this week expected to deliver a budget speech ÔÇô an important occasion in the country’s annual economic calendar.

This year’s budget speech comes on the backdrop of increasing economic challenges for Botswana and a deteriorating and increasingly uncertain global economy.

While diamond sales had started to show a strong rebound towards the end of last year, it was a recovery that was fraught with all the pitfalls of uncertainties.

Leading economies in Europe have officially announced they have re-entered recession, and the euro economic zone is literally fighting its biggest battle for survival since it was established.
Possibilities of default loom large on countries that only a few years ago nobody could think that was a possibility.

In fact, behind the scenes there are whispers that certain countries could be about to abandon the euro as a preferred denomination.

While there may be signs of recovery in America, anxiety remains. Just a few days ago, Japan announced they have registered a first trade deficit in more than a generation.
These are the difficult economic realities that will linger on Minister Matambo’s mind as he addresses the nation this week.

No doubt he will continue preaching economic austerity.

No doubt he will preach budget cuts and the importance of utilizing our resources efficiently and wisely.

While we have no quarrel with the minister on those, we want to point out that it is high time we hear from him what plans he has of stimulating growth.

Austerity and budget cuts are all too good under the circumstances, but on their own they will neither go far nor see us through the tunnel.

While we take issue with a lack of imaginative ideas on the part of this government in seeking new ways to stimulate growth, more disturbing has been a preoccupation with achieving a balanced budget.

In fact, it has long been proven to be an economic fallacy that a balanced and or surplus budget is on its own a good thing for the economy.

In many instances, it is advisable to run a budget deficit if only the expenditure is on things that could in the medium to long term stimulate growth.

In other words, we call on this government not to blind itself to reason in its religious pursuit of balancing the budget.
We say so because in the last twelve months, especially during the public sector strike that almost brought the country on its knees, it had become a mantra for the president and his senior officials to emphasise how important it was for them to achieve a balanced budget by 2013.

The interesting thing is that they never said why it was of such uttermost importance for the country to balance its budget overnight other than to imply somewhat vaguely that a balanced budget was of and by itself a good thing for the economy.

Theories differ on the efficacy or lack thereof of a balanced budget.
But the zeal with which this government has been pursuing a balanced budget, without being explicit on the reasons, is evident.

Balancing the budget for its own sake without looking at the broader economic objectives can prove irreparably destructive. While the president and his officials no doubt derive pleasure from receiving kudus from the international organization for their determined efforts to balance the budget, it is the intention of this commentary to kick-start the debate on where or not balancing the budget is by itself a good thing.

Is such a balanced budget going to be a panacea to the numerous economic challenges that we face as a country? We do not think so.

In fact, if a balanced budget is pursued for political reasons, as seems to be the case under the circumstances, it is our humbler opinion that it will not be long before the economic objectives – which in our opinion should be long term ÔÇô become invisible as they get clouded and suffocated by a heavy blanket of self-serving, short-term politics that are known only to the president and a small clique of his unaccountable and unelected economic advisors.

We should not be mistaken for advocating for a long running budget deficit that could ultimately prove not only detrimental but also unsustainable.

Rather we are saying it is disingenuous for this government to make it pass like a balanced budget is on its own a good thing, that achieving it is an economic accomplishment worth going to town about and that a budget deficit is invariably an economic evil that should never happen.
What is important is to first take a holistic approach and avoid being saddled with a potentially distractive quest for a balanced budget.

We hope after this week’s budget speech there shall be public debate on whether as a country we need to continue on the exclusive path of economic austerity and budget cuts while doing absolutely nothing to stimulate growth as has happened since Ian Khama became President in 2008.

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