The government has been urged to stop the funding of politically motivated projects in favour of more efficient funding exercises in the coming National Development Plan 10 (NDP 10) in a bid to save for hard times ahead.
Writing in the current edition of Bifm Economic Review, Keith Jefferies said that the position of Botswana’s economy in the medium to the long term is not positive and called for a number of drastic actions to be made to save for the long term. Top among those measures serious are cuts on government spending, diversification of the economy, introduction of project management skills, improving productivity and doing away with politically driven development projects. NDP 10 will run from 2009/10 to 2015/16.
“While the immediate budget position is reasonably favourable, the position is much less positive in the medium to the long term,” he said, referring to the period between 2021 and beyond.
By 2021, Debswana mines, which are the backbone of the economy, are expected to go underground thereby increasing the cost of mining and by 2029 they are expected to close-down.
“However, the long term prospects are much lower levels of government revenues as a proportion of GDP. Current and recent revenues are high due to the exceptionally high profitability of the diamond industry and the high rate at which those profits are taxed. In the medium term, production and profits at these mines will decline as production moves underground and costs rise,” he said.
Jefferies said prospects are that the rising costs at the four diamond mines of Jwaneng, Damtshaa, Orapa and Lethakane will have a big negative impact on the economy adding that the newly discovered mines are of smaller size and have a shorter life-span compared to Debswana.
“Furthermore, as the economy diversifiesÔÇöwhether into other mining activities or into non-mining activitiesÔÇö tax revenues will decline in relation to the size of the economy as enterprises taxed at more normal rates become important.
“In the long term, the government tax and other revenues will most likely decline to around the average in sub-Saharan Africa of 25 -30 percent of GDP. This will require a major (downward) adjustment in the level of government spending, which will have to grow more slowly than the economy as a whole,” he added.
He said given the implication of the Debswana mines on the economy, efforts aimed at the diversification of the economy must be intensified and that government budget must be placed in a sustainable path to ensure that the long term impact is cushioned.
“The earlier this adjustment begins the less traumatic and drastic it will be. But, even a smooth adjustment requires considerable cuts, with budgeted expenditure falling by up to one percent of GDP every year for the next 15 years,” he added.