Tuesday, October 19, 2021

Matambo’s briefcase likely to contain a sluggish National Budget

The 2017/18 National budget to be announced on tomorrow by Minister Kenneth Matambo is expected to make some serious strategic choices. While Matambo takes to the parliamentary podium, SUNDAY STANDARD reporter VICTOR BAATWENG observes the likelihood of only a few people asking the infamous question: “What is in the briefcase?”

The speech will be presented at a time when Botswana has been urged to look at ways to diversify its revenues streams.  Current arrangements have been declared risky and present future challenges for the domestic economy which has been driven largely by diamonds for many years.  

The 2017/18 budget comes not only at a time when Botswana faces a challenge of keeping the economy running, but remains alert on the possibility of a debt trap if it continues spending which is backed by continuous borrowing. 

Already the government Budget Strategy Paper (BSP) ÔÇô a fiscal update document prepared by the Ministry of Finance has – forecasted a prolonged budget deficit at the Government Enclave. The Budget Strategy Paper usually gives an insight on the colour of the upcoming budget. 

According to the technocrats who prepared the BSP in September 2016, the domestic economy recorded a significant budget deficit of 4.5 percent of the Gross Domestic Product (GDP) in 2015/2016, due to weak global demand for diamonds which reduced revenues, to lower than what government anticipated. 

At the same time, data contained in the same paper indicate that the domestic economy will run a deficit budget for at least the next three financial years ÔÇô 2017/18, 2018/19 and 2019/2020 respectively. 

Deputy Permanent Secretary in the Ministry of Finance Kelapile Ndobano confirmed in September 2016 that “due to continued weak global economic recovery, and the implementation of the Economic Stimulus Programme (ESP), budget deficits are projected in the next three financial years”. 

The ESP was adopted by government in September 2015 to promote growth, economic diversification and employment creation. 

Based on the Medium Term Fiscal Framework, the 2017/2018 financial year is projected to register a budget deficit of P6.8 billion or -4.1 percent of GDP, due to the continued sluggish growth in revenues, and increased expenditure from the implementation of ESP. At the same time, the paper further shows those financial years 2018/19, 2019/2020 will record -4.2 and -2.2 percent respectively. 

According to the same paper, the projected total revenues and grants for 2017/2018 is at around P52.8 billion: with Mineral Revenues accounting for P19.1 billion; Customs and Excise for P13.4 billion while the Non-income tax sit at P10.6 billion; and Other revenues at P9.6 billion. Mineral and Customs & Excise revenues remain Botswana’s major revenue source, constituting over 60 percent of total revenues. 

However, Ndobano admitted then that the two sources of revenue for government remain vulnerable to exchange rate fluctuations and international market swings. 

A sustained weakness of the diamond market in the past few years has seen diamond prices softening while output targets have also been trimmed. Sluggish sentiment in the market has seen global mining giant, De Beers and Botswana’s Okavango Diamond Company (ODC) sales falling by over 20 percent in the first half of 2015. De Beers owns a joint venture ÔÇô Debswana Mining Company with the government of Botswana. 

Available figures shows that the government budget averaged 0.76 percent of GDP from 2004 until 2015, reaching an all time high of 11.20 percent of GDP in 2007 and a record low of -10.70 percent of GDP in 2010. The domestic economy contracted by 0.3 percent in 2015, compared to the growth of 3.2 percent registered in 2014. 

“The domestic economy is largely influenced by developments in the global economy due to the country’s dependence on the mining sector”, Ndobano said.  

As critics continue to argue government to run a deficit funding in order to keep the economy at par with those developed world other economic experts maintains that fundamentals do not allow deficit funding for a long time. Botswana ran a fiscal deficit in 2010/11 financial year before it was contained with a balanced budget in 2012/ 13 financial year. National budget archives figures shows a deficit for a P4.696 billion for 2009/09 financial year while in 2009/10 it stood at P9.321 billion. 

NO MARKET ‘EXCITEMENT’ EXPECTED

There is high likelihood that the local capital markets will not be enthused by Matambo’s speech. It has been the same case atleast for the past five years that the market did not react to the budget outcome. Garry Juma, a senior financial analyst at a leading stock broker, Motswedi Securities said in a previous interview that the reaction by markets is usually brought upon by the announcement made by the minister.

“If the announcement directly affects the market that is when there could be some sort of reaction. For the past five budgets there have not been any huge changes at the markets which came about as a result of announcements made at the national budget”.

Matambo is likely to mention the transformation of Botswana Stock Exchange into a company which is on the card. It is yet to be seen how such an announcement, which is not new could affect trade at the local bourse.

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