BY BONNIE MODIAKGOTLA
Botswana is expected to run budget deficits in the next two financial years as the government ramps up on job creation and improving civil service salaries. While this has not been explicitly stated, an analysis of the 2019 budget strategy paper shows that that the deficits will be down to increased government expenditure.
The 2019 draft budget strategy paper was once again presented at another Budget Pitso ÔÇô where the country’s ministry of Finance and economic Development consults with other stakeholders.
According to the ministry, the document takes into account the elements of the new president’s roadmap, thus “government intends to use its spending power during the coming financial year to intensify efforts towards accelerating economic diversification, create employment opportunities for Batswana, especially the youth and eliminate poverty.”
The budget strategy paper projects total revenue and grants for 2019/2020 financial year at P60.2 billion, with the most contribution coming from mineral revenue (35 percent), followed by Customs and Exercise (23.3 percent), Non-Mineral income tax (19.2 percent), value added tax (VAT) contributing 15.2 percent while bank of Botswana will only add 3.1 percent to the state purse. Forecasts for 2020/2021 and 2021/22 follow the same script, with the revenue contributors showing modest growth in those years.
On the other hand, Kenneth Matambo, minister of Finance, expects total expenditure to clock P67.4 billion, with the largest share of spending due to proposed recurrent expenditure of P50 billion, which will be used for remuneration and pensions, other charges and grants, and also for subventions to state-owned enterprises (SEOs) and local authorities. The draft budget paper estimates P68.1 billion expenditures for 2020/21 before easing to P64.8 billion in 2021/22.
In the end, given the projected revenues and expenditures, the budget deficit for 2019/20 is estimated at P7.2 billion or 3.5 percent of GDP, while the expected deficit for 2020/21 will slow down to P2.7 billion or 1.1 percent of GDP. The country expects to turn the corner with a budget surplus of P4 billion in 2021/22.
The projected budget deficits for the coming financial years will be in addition to this year (2018/19) expected deficit of P7 billion. Moreover, the successive deficits follow the P2 billion deficit that was realized in 2017/18 which was actually lower than the expected P4 billion gap, thanks in part to improved performance of some main revenue contributors.
“To finance this budget deficit, government will borrow both domestically and externally. Domestic borrowing will entail issuance of government debt securities such as Treasury Bills and long-term Government Bonds, while external borrowing will be restricted to concessional borrowing from both bilateral and multilateral development partners to finance productive investment in order to avoid an excessive debt burden,” reads part of the draft budget strategy paper.
While the true position of Botswana’s borrowings is not yet publicly available, working with available figures from Bank of Botswana, and some back of the envelope calculations, the country’s debt exposure is estimated at P40.6 billion, which is within the statutory limit of 40 percent of GDP.
It was always going to be a delicate balancing act between job creation and fiscal prudence for president Masisi’s administration, and with general elections due next year, the odds have never been this high. The president has repeatedly said his top priority is arresting the ever increasing unemployment roll which has become the main talking point for opposition parties which have accused the ruling party of failing to create jobs, and also blasted the administration for low salaries given to the public service.
While the economy has been painstakingly adding jobs, it has also been bleeding jobs at a higher pace. Massive job losses occurred in 2016 when the BCL mining group axed over 5,000 workers. Other SEOs and private companies continue to retrench; Botswana Corporation has trimmed its staff, while Water Utilities Corporation and National Development Bank have told their employees to prepare for the big chop.
Earlier this month, President Mokgweetsi Masisi – during the state of the nation Address (SONA) – told the nation that his administration has recognised the need to develop an overarching National Employment Policy (NEP) for Botswana with implementable solutions to address the unemployment problem facing the country”. Masisi said the goal of the NEP is to assist the country to achieve “productive, gainful and decent employment for all, to contribute to the reduction of income inequality and as well as to support government’s poverty eradication efforts.”
To develop the NEP, Government obtained financial and technical support from the World Bank. The Draft National Employment Policy for Botswana is expected to be delivered by March 2019. Moreover, he revealed that the government has appointed a consultant (PEMANDU Associates SDN.BHD of Malaysia) to, among others, review the current Public Service remuneration system in terms of salaries, allowances and benefits.