Saturday, September 19, 2020

Low state expenditure harms domestic economy

A registered in decline on consumption of some of the products and services offered by local companies from various sectors have been attributed to reduced government spending over the past year.

In February 2018, Minister responsible for Finance and Economic Development, Kenneth Matambo indicated that despite the positive outlook in the domestic economy, the fiscal situation remains tight, with a budget deficit projected for the 2018/2019 financial year.

“Hence the need to continue to exercise judicious management of the financial resources”.

But as the country draws near to the election year 2019, there is hope that the consumption patterns will pick, even though the government is walking on a tight budget and has to be prudent with spending.

Barclays Botswana Economist, Naledi Madala says the government’s development spending has lagged target which is indeed a concern.

However the financial year 2018/19 budget pencils in higher development and recurrent expenditure, to the extent that government expenditure is expected to breach the 30 percent of Gross Domestic Product (GDP) expenditure spending at 34 percent of GDP, most of which is higher recurrent expenditure.

If government manages to achieve its expenditure targets, she said “we could see a reversal in the declining trend. That said it is imperative that development spending be prioritized rather than recurrent expenditure. Additionally with 2019 being an election year, we will most likely see higher government expenditure as well.”

The government less consumption also affected the telecom listed giants Botswana Telecommunications Limited impacting on the company’s financial results. Also the listed Cresta group recorded an overall decline in profitability in full year 2017 compared to the prior year, largely attributable to increased competition in the markets the group operates in, coupled with a reduction in government spending. The commercial banks have also been hit hard following the BCL closure in 2016.

The slowdown has not only impacted on the businesses but also on the household consumption patterns as they now have to priorities their income on basic necessities.

Not so long ago, the Stockbrokers Botswana research report also indicated that, the improvement of the macroeconomics environment is expected to boost the recovery of the information communications technology sector expenditure both from the government and the businesses.

President Masisi has also been clear on the need to diversify away from mining and therefore “we could see more spending towards diversification if this call is heeded. The downside risk to our optimism is that fiscal consolidation remains a top government priority, and therefore government could lower development expenditure to meet targets as seen last year which would curb government spending,” adds Madala.

Meanwhile, Matambo has also assured that his Ministry will be working on; improving the efficiency of revenue collection, and exploring additional sources of revenues, while implementing measures to contain and promote efficiency in the management of the government expenditure.  He has since implored all those responsible for collecting government revenues as well as those accountable for spending them, to assist his Ministry in its pursuit of the objective of fiscal sustainability.

According to Madala, Botswana’s economy appears to be on track for a rebound, powered by a recovery in the mining sector and an expansionary fiscal budget adds some impetus. Looking forward, the local diamond production is expected to continue being supported by Cut 3 and Cut 9 projects which will improve the life span of the mines beyond 2030.

It is therefore expected that the recovery in the mining sector and improved non-mining sector performance will drive GDP growth this year to 4.6 percent, up from 2.4 percent in 2017; however, the outlook is vulnerable to mining sector and global economic shocks.

Kgori Capital’s Investment Analyst, Kwabena Antwi echoed the same optimism in the country’s economic growth, in which 2018 is expected to be another year of stable growth. He said, “We forecast growth of 4.0 percent. This is below the Ministry of Finance’s forecast of 5.3 percent. The lower growth expectation is on account of more moderate expectations of Trade, Hotels & Restaurants.”

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