Friday, August 12, 2022

IMF warns Botswana about under-spending

As Botswana moves towards a Medium-Term Expenditure Framework (MTEF) by 2016, the International Monetary Fund (IMF) has cautioned the country to solve its persistent under-spending problem which is not compatible with this sort of framework.

“This under spending is symptomatic of a number of problems including a mis-sequenced costing process, which sees investment projects included in the budget before they are accurately costed, resulting in over budgeting in the early years, and cost over-runs and delays in the later years,” says the IMF, adding that “if not urgently addressed, under spending will constrain the credibility of the MTEF.”

MTEF refers to a top-down estimate of aggregate resources available for public expenditure consistent with macro-economic stability; bottom-up estimates of the cost of carrying out policies, both existing and new; and a framework that reconciles these costs with aggregate resources. It brings together policy-making, planning, and budgeting early in the budgeting cycle, with adjustments taking place through policy changes. The banks said the introduction of an MTEF has the potential to facilitate aggregate fiscal discipline; foster better expenditure prioritisation by lengthening the time horizon for budget decision-making and increasing the scope for shifting expenditures towards high priority areas; and, increase certainty in public spending.

Last year, at the request of the Ministry of Finance and Development Planning, a five-person team from the bank’s Fiscal Affairs Department visited Botswana to assist authorities in building consensus on the key principles and technical processes required to foster the implementation of an MTEF reform strategy. In the report that it has just released, the bank says that forecasts of revenue and expenditure have traditionally varied significantly from the budget, with the government usually returning surpluses larger than originally forecast in the budget.

“Revenues are persistently under forecasted, with an average error of 3.6 percent of GDP, whilst expenditures usually underperform, with an average error of 2.8 percent of GDP. These variances necessitate significant within-year adjustments to the budget whilst excess revenues can create pressure for new spending requests to be financed,” the bank’s report said.

It added that other than 2008/9 and 2009/10, when stimulus spending saw large upward revisions in development spending, the development budget has been under spending by an average 15 percent (1.5 percent of GDP) since 2005/6.

In order to address these challenges issues, IMF proposed that a number of changes to the development budgeting process should be implemented. These include re-sequencing the processes for formulating the development budget; strengthening the existing unit, systems, and procedures to oversee and quality assure the processes; and, taking administrative actions towards unifying the recurrent and development budgets, while preparing legislative change to allow the full unification of the two budgets. It further proposed that an annual budget planning process (including new budgeting techniques and templates) should be introduced for all ministries at the strategic phase of the annual budget process to identify priorities for the coming years and produce forward estimates and that the budget calendar should be adjusted to bring forward the involvement of Cabinet in approving the medium-term budget strategy.

RELATED STORIES

Read this week's paper