Monday, May 17, 2021

Government enlists austerity measures to lower deficit

Puso ga ena madi, the usual rhetoric bellowed by government officials has now turned into a reality as the government takes unprecedented actions to preserve the little that is left after rummaging the foreign reserves.

While the Covid-19 pandemic his largely spared Botswana with fewer than 15,000 infections and 48 deaths, the outbreak and containment measures have upended the country’s financial position, leaving it more vulnerable than ever and likely to accentuate the nation’s long running problems. 

Presidential directives and other internal official memos that are now public, paint a picture of a government frantically looking at ways to cut costs and meet obligations as the 2020/2021 financial year comes to an end in March. 

According to the presidential directive issued in December, government ministries and state-owned enterprises have been instructed to defer purchase of new vehicles, freeze hiring and permanently abolish half of the vacant positions. 

Other cost cutting measures to be implemented immediately by government includes ban on external travel by ministries and SOEs, cancellation of workshops, conferences, seminars, retreats and any other events that involves the government paying for venues, conference facilities, meals and refreshments. 

On Monday, the ministry of Transport and Communications said it had run out of funds to assist the central transport organisation, which is the custodian of government owned vehicles. The CTO’s expenditure on fuel is estimated at P27 million per month. With the ministry out of funds to assist CTO and to prevent disruptions in provision of government services, the ministry instructed other government departments to transfer the remaining funds relating to petrol to CTO as a matter of urgency.

Meanwhile, the presidential directive disclosed that the value added tax (VAT) will be hiked from 12 percent to 14 percent when the financial year 2021/2022 begins in April. Furthermore, the capital gains tax will increase to 10 percent from 7.5 percent while the fuel levy gets a 12 percent bump to P1.12. The government will also introduce for the first time in Botswana tax on sugar sweetened beverages at a rate of two thebe per gram of sugar. 

The Botswana Power Corporation is set to hike the electricity tariff by 5 percent, while the Botswana Housing Corporation has started issuing letters to tenants regarding new rentals which are being increased to bring them to market rate. 

The fissures in the country’s fiscus have been long in the making, marked by a three-year run of budget deficits which have since grown in size following the pandemic. Since 2017, Botswana has overspent its budget by P20.2 billion and to pay for the deficits, the finance ministry has made huge withdrawals from the foreign reserves held through the Governemnt Investment Account, which is reported to have fallen to record lows of P3 billion in Decemebr. However, official data from Bank of Botswana reflected the GIA at P6 billion in October, down from P18.3 billion recorded in October 2019. 

Government spending for 2020/2021 is now estimated at P67.52 billion, very close to the original forecast of P67.62 billion, after increased spending to combat COVID-19 and mitigate its impact are being financed by reduced spending. Overall, the 2020/2021 budget reflects a deficit of P15.2 billion or 7.98 percent of GDP, compared to initial forecast budget deficit of P5.22 billion or 2.4 percent of GDP.

Already, government budget was in deficit of P7.4 billion in the second quarter of the 2020/21 fiscal year. Total revenues and grants were P10.3 billion while total government expenditure and net lending was P17.6 billion.

Still, President Mokgweetsi Masisi’s administration is betting on the nearly P20 billion Economic Recovery and Transformation Plan (ERTP), designed to wean the country off its dependence on diamond exports, and also at the same time stimulate the economy to grow by at least 6 percent, a rate considered sufficient to create the much needed jobs. Botswana’s real gross domestic product (GDP) output contracted by 24 percent in the first quarter of the year, and slightly improved in the second quarter of 2020/2021 with  a 6 percent contraction.

The budget estimates for 2021/22 have  also been revised following the outbreak. Revenues and grants are down from earlier estimates of P67.9 billion to P58.7 billion. The downward revisions reflect an anticipated deterioration in tax receipts from both mineral and non-mineral sources. Total expenditure and net lending for the financial year 2021/22 is now estimated at P71.35 billion.

Based on the projections, the budget deficit for   2021/22 is estimated at P12.58 billion, or 5.9 percent of GDP. At this rate, the deficit exceeds the country’s indicative threshold that a budget deficit in any year should not exceed 4 percent of GDP.

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