The ministry of Finance and Economic Development was this week back in parliament seeking another alteration to the national budget through a supplementary request as government ministries and departments continue to require more funds at the time the country’s fiscal position has seriously deteriorated.
On Tuesday, Finance minister Peggy Serame successfully sought permission from members of parliament to further alter the national budget that was passed by parliament in February following downwards revision in revenue forecasts as economic recovery continues to slow against widening budget deficits.
Serame told parliament that the Finance ministry has received supplementary budget requests from eight ministries but can only fund half of those ministries, with her supplementary request limited to P2.49 billion to be split between ministry of Finance and Economic Development, ministry of Defence, Justice and Security, ministry of Tertiary Education, Research, Science and Technology and ministry of Health and Wellness. The remaining ministries have been advised to re-allocate fund within their current provisions.
The finance minister, who is four months into her job, said P413.9 million of the requested expenditure will come from some of the Special Funds managed by the government while P2.1 billion will be reallocated from the approved development budget.
“The resultant decline in economic activity has negatively impacted government revenues which, in turn, compels Government to reprioritize its spending plans by redirecting financial resources to critical and urgent areas of need,” Serame said.
“This situation comes at a time when the country has accumulated budget deficits since the start of NDP 11, which was triggered by the global financial crisis of 2008/2009. These deficits have significantly eroded the country’s financial buffers over the years,” she added.
Serame’s latest request follows similar moves by her predecessor Dr. Thapelo Matsheka who was moved from the Finance ministry’s portfolio in April, who also experienced challenges of trying to balance the budget amid a pandemic.
Last year September, Matsheka also found himself in parliament requesting nearly P4 billion in supplementary budget to the one he brought before parliament twice. In April, Matsheka revised his initial February budget, cutting projected revenue for the 2020/21 financial year from P62.4 billion to P48.8 billion while he planned P67.6 billion government expenditure was reduced to P59.6 billion. But this was also changed down the line.
According to the Finance ministry’s Budget Strategy paper for the financial year 2021/2022 released last year October, the country is set to experience worsening budget outruns. From a budget shortfall of P1.9 billion in the financial year 2017/2018, this swelled to P8.8 billion in 2018/2019 and P9.5 billion in 2019/2020, bringing the cumulative budget deficits to P20.2 billion in the first half of the eleventh national development plan (NDP 11) which began in 2017.
The last half of the NDP 11 will also be plagued by deficits. The current financial year 2020/2021 budget was revised in April following the impact of Covid-19 containment measures. Revenues and grants were revised to P52.31 billion, down from P62.3 billion which was budgeted for at the beginning of the year.
Government spending for 2020/2021 is now estimated at P67.52 billion after increased spending to combat COVID-19 and mitigate its impact are being financed by reduced spending in other areas of the budget. 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.
Despite the falling revenues, the government intends to ramp up on spending to stimulate the economy through the ambitious economic recovery and transformation plan (ERTP), which will require P7.5 billion in spending.
Revenues and grants are projected to reach P64.5 billion in the coming 2021/2022 financial year, helped in part by the expected increase in value added tax (VAT) and improvements in the mining industry, suggests data released this week.
Though the officials have projected a 33 percent increase in revenues and grants for the 2021/2022 financial year, the P64.5 billion will be dwarfed by government spending which is tipped to grow from P69.3 billion to P70 billion, resulting in a P6 billion budget deficit in the 2021/2022 financial year.
Still, Serame on Tuesday updated the budget deficit to a now higher P7.75 billion, a sign of weakening economic fundamentals.