In a not so surprising move, local businesses were less optimistic of domestic activity in the first quarter of the year and expect the economic downturn to continue in the coming months, suggests fresh data from the Botswana Expectation Survey (BES).
The quarterly report released on Monday by Bank of Botswana surveys 100 businesses across the eight sectors of the economy, getting their views on economic conditions. Though the survey was done in the early days of the year before the coronavirus countermeasures were put in place, the respondents were already less optimistic of the economic performance in the first quarter of the year.
According to the survey, the businesses anticipate quarterly economic growth at 1.4 percent, lower than 2019’s first quarter growth of 1.6 percent. Firms expect overall output of the domestic economy to grow by 3 percent in 2020, the same as growth rate reported by Statistics Botswana for 2019.
The companies attributed the sluggish growth to anticipated decline in exports and imports of goods and services, production, sales, stock inventories, profitability, and investment in buildings, vehicles and equipment, and other investments. These are some of the factors that slowed the economy last year, resulting in output lower than 2018’s 4.5 percent growth.
The slowed growth is expected to continue into the second quarter of the year, and business conditions are projected to improve from the second half of the year, the respondents said. The findings from the survey also point to an increase in unemployment in the two quarters of the year.
“The expected deterioration in business confidence during the first half of 2020, is consistent with the perceptions of weaker overall economic growth in the first quarter of 2020, and the overall contraction expected in the second quarter,” read part of the survey.
The perceived generally weaker economic performance in the current survey compared to the previous one could be associated with the disruption of business operations following the outbreak of the Covid-19 pandemic, the authors of the report added.
Though the survey forecasts anaemic growth for the year, the estimation pales in comparison to estimations from the Finance ministry’s projections, partly because a lot has happened since the survey was done. The businesses did not factor in measures taken by the government to enforce a nationwide lockdown which began in early April. The lockdown has hampered business activities as most businesses remain shuttered and consumer movements are restricted.
The lockdown is expected to be lifted at the end of May, which means the two months of the second quarter have been severely battered by the restrained economic activities. Even when the lockdown is eventually lifted, it will take some time before business activity booms.
Dr Thapelo Matsheka, the Finance minister, has now disclosed that the economy will sharply contract by 13.1 percent, down from the projected growth of 4.4 percent. This will be the worst annual contraction since 2008, when the economy shrunk by 7.65 percent, according to data compiled by Bank of Botswana.
The impact of Covid-19 on business activities, both locally and globally, have also forced the minister to revise the budget proposals presented to parliament in February. Matsheka says the initial projected revenue for the 2020/21 financial year is forecasted to fall by 22 percent from P62.4 billion to P48.8 billion as a result of weakened diamond market and lower tax revenues.
The planned government expenditure was also cut from P67.6 billion expenditure to P59.6 billion, a nearly 12 percent adjustment. The minister explained that government spending had to be changed because the original expenditure against the revised revenue projections would have caused an P18.8 billion budget deficit, almost four times the initially projected budget deficit of P5.2 billion he mentioned in February.
The budget shortfall for the 2020/21 is now estimated to be P10.8 billion, making it the country’s largest budget deficit in history, surpassing the record P9.5 billion shortfall recorded in 2009/2010 as the country revenues recoiled due to waning demand from global markets that were hardest hit by the 2008 financial crisis, leading to a depressed diamonds market.
The looming large deficit is on the heels of another P7.9 billion over expenditure from 2019/20 financial year, which was a slight reduction from 2018/2019’s massive P8.8 billion budget shortage. The government has been running budget deficits since 2017/2018, with that year’s deficit recorded at P1.9 billion. Another shortfall of P4.4 billion is expected in 2021/22 but will likely be revised too in the coming months.