A quarterly economic review conducted by local economic think tank, Econsult Botswana has deepened the murkiness of Matambo’s financial plan. The analysis, which is for the first quarter of 2016 carried out by experts at Econsult Botswana shows inconsistencies in the 2016/17 national budget and is of the view that it remains a bit of a shell game, and at the very least leaves the impression that the government may be holding back some uncomfortable fiscal realities.
The review identified the strained economic conditions with which the budget was presented under, particularly the poor diamond sales recorded in the second half of 2015, which resulted in a sharp decline of exports and fiscal revenues. With such a tight pocket to draw from, Econsult points out the consequent overall decline in government spending, which it anticipates will result in cuts across a number of areas within the budget.
Despite such pressure on spending, Econsult however notes that spending on defense and health sectors does not reflect government’s position of limited cash resources. It cites that defense spending surged by 50 percent while health spending increased by 7 percent. Criticism regarding the significant spending on defense came to the public fore on the basis that the decision does not represent the commitment by government to maximise use of its thinned cash resources. Contention also came from the view that budget allocation to the defense sector did not warrant priority against more urgent and pressing development needs such as the provision of sufficient water and electricity. The following is a list of examples that demonstrate the irregularities of government spending which fall outside of the national budget’s provision.
WATER
The budget allocation to water projects is an anomaly that Econsult makes reference to. “There are other surprises in the budget allocations. One is the relatively small allocation to investment in water projects, given the needs for new pipelines and other water treatment and distribution infrastructure,” cites the review. According to the review a significant portion of the P3.1 billion allocated for investment in water and electricity projects is consumed by electricity, specifically through subsidies granted to the loss making parastatal Botswana Power Corporation. It argues in that regard that government demonstrates a reluctance to raise electricity tariffs to cost-covering levels. What seems rather unexpected from this assessment is that the amount of funds committed to core water infrastructure and development is said to have been cut by more than half, fromP1.1 billion in 2015/16 to P484 million in 2016/17. This could be considered peculiar given the perennial water shortages that we have had to endure in 2015 of which demand acute attention.
PASSENGER TRAIN
Earlier in March government induced excitement when it re-introduced the passenger train resulting in huge funds being used to procure the coaches. This significant purchase was however not provided for in the national budget. The think tank also anticipates further spending will take place due to ongoing subsidies to keep the passenger train service going. Given the infamous breakdown of the train shortly after it was launched, it could be concluded that government failed to provide value out of the funds used for the passenger train, and worse, further spending which is not accommodated for in the budget will highly likely continue.
BCL
The considerable cash injection by government into the financially embattled BCL presents another oddity as it was not provided for in the budget. Government’s desperate attempt to save the teetering parastatal which is in dire need of recapitalisation and restructuring is said to have put it in a compromised position. According to Econsult government has agreed to guarantee a very large bond issue (US dollar facility) by BCL, which however will not appear in the budget but will stretch government’s borrowing closer to the statutory limit. Domestic and foreign debt (including guarantees) is each subject to a statutory limit of 20 percent of Gross Domestic Product (GDP). The review argues that in that regard, debt is not a suitable method of recapitalisation, citing that “sooner or later government will need to make an equity contribution, through the budget, in order to put BCL on a firmer financial footing.”
Econsult warns that the failure by government to accommodate spending in various sectors of government is likely to put it in a very difficult fiscal position which is likely to continue through to 2018/19. The think tank posits that this could however be resolved by combining domestic debt issuance with drawdowns the cash balances from the Government Investment Account (GIA).
