The International Monetary Fund (IMF) issued a stern warning to government, urging the halt of the current spending drive or risk depleting the reserves in the next four years.
The move follows a visit by the IMF team that was in Botswana in June this year, which, among other things, called for an increase in both personal and corporate taxes, deliberate increase in fuel prices, suspension of hiring new staff by government, in an attempt to put back the country’s financial position on good stand.
The team that normally pays surprise visits to member countries was composed of Robert Burgess (head), Gonzalo Pastor, Dalmacio Benicio and Irene Yackovlev who were also accompanied by Zeinab Partow from the World Bank.
“Substantial fiscal consolidation will be needed as recovery proceeds, to put public finances back on sustainable footing and to safeguard external stability,” the IMF team said in their report.
The report said some of the measures that need to be taken include an improvement in public financial management adding that any move short of that will bring Botswana among the group of failed African states.
“Delivering the spending restraint necessary to achieve this will be challenging and will require further improvement to public financial management. Major slippages from this path, however, would risk depleting the accumulated government savings in the Pula Fund and undermine the exchange rate regime.
“For example, (IMF) staff estimate that government would become a net debtor by 2015/16 if development spending returns to its pre-crisis (2007/8) level and recurrent spending remain at current 2009/10) level relative to the nominal GDP,” the report said.
Botswana has got P 55 billion held in some investments outside the countryÔÇömostly in some bonds that are yielding some low returns.
The global financial body said Botswana’s public debt is conservatively estimated at 17.7 percent of the GDP ÔÇô including direct and government guaranteed debtÔÇöbut said the actual figure is likely to be more than that given that the debt recording in the country is so “weak” and lacks some long term direction.
“The bulk of the adjustment will need to come from lower public spending,” the report said.
It further stated that government is likely to be faced with a challenging situation where the private sector’s contribution in the general economy is negligible, shrinking revenue from diamonds and the Southern African Customs Union revenue pool.
“Options for boosting non SACU tax revenue increasing specific duties on fuel, which have lagged far behind increases in prices, broadening the tax base for VAT by reducing exemptions and the number of zero rated items and taxing property,” the report said, adding that there is a need to do away with tax incentives that are given to businesses since they have failed to attract foreign direct investment.
The observation by the IMF amounts to a motion of no confidence in the current administration and is likely to influence the rating agencies and make it hard for government to borrow in an open market. The report also comes at a time when the country is just emerging from the worst recession in living memory.
It further added that the situation is not helped by high prevalence of HIV in the country, which, on its own, is a burden to the nation.
The IMF staff met with government officials at the Ministry of Finance and Bank of Botswana among others.