Botswana’s Finance minister Dr Thapelo Matsheka will on Monday deliver the national budget projections for the 2021/2022 financial year that begins in two months and could set the tone of what to expect for the country that is quickly running out of money.
Almost a year after he delivered his first national budget speech that quickly unravelled on the wake of the Covid-19 pandemic, Matsheka will be walking an even tighter rope after the economy had its worst contraction amid falling revenues and increased expenditure.
The former University of Botswana economics lecturer has had a challenging first year in office, and as events unfold, Matsheka will have to make hard choices on how to keep the economic engines humming while maintaining fiscal stability.
Matsheka’s initial budget in 2020 was revised few months down the line as the effects of Covid-19 containment measures constrained economic activities. The 2020/2021 financial year budget had projected revenues at P62.39 billion before it was reduced to P52.31 billion following the decline in diamond exports, the country’s economic mainstay. Government expenditure was estimated at P67.52 billion but has since been slightly adjusted upwards to P67.62 billion, as government battles to contain the coronavirus spread.
During the 49 days nationwide lockdown that was implemented from April, the government spent nearly P2 billion in Covid-19 relief measures, with P831 million spent on wage subsidies given to distressed companies, about P350 million on food packages to households, P396 million on health supplies, and the remainder spent on recruitment of safety health officers, psychological services as well as the evacuation and financial assistance to Batswana outside the country.
The 2020/21 financial year budget was later padded through an additional P3.7 billion after Finance and Economic Development ministry convinced lawmakers to increase the budget through a supplementary request. Following the adjustments and revisions, Matsheka estimates that the country will overspend by P15.2 billion in the current financial year, almost three times the initial budget deficit of P5.22 billion and making it even harder to restore fiscal sustainability which has deteriorated in the past four years.
The government has been running budget deficits since 2017/2018, with that year’s deficit recorded at P1.9 billion, followed by another P8.8 billion budget outrun in 2018/2019. The budget deficit ballooned to P9.5 billion in 2019/2020 financial year, and if Matsheka’s prediction of a P15.2 billion deficit for 2020/2021comes to pass, Botswana would have racked P35.4 billion in budget deficits since 2017.
The country is expected to continue spending more than it is getting in the next two financial years unless something drastic happens. According to the preliminary figures contained in the Budget Strategy Paper, which is a precursor to the national budget, Matsheka’s budget for 2021/2022 projects revenues at P58.77 billion against a P71.35 billion expenditure, resulting in a P12.58 billion deficit.
Besides budget constraints, Botswana’s economy has been weaking over the years, worsened by the downturn in the diamond industry, a weak private sector and soaring unemployment levels. From 2010 to 2018, the real gross domestic product (GDP) – which measures the total output of goods and services in the country at a specific period – grew at an average rate of 3.7 percent, reflecting a gradual decline in economic growth over the ten-year period. GDP growth further slowed to 3 percent in 2019, down from 4.5 percent recorded in 2018. At these rates, Botswana’s economy is said to be operating below potential output, which experts have suggested should be above 6 percent for the economy to create the much-needed jobs.
As the pandemic heightened last year, the economy had its sharpest contraction in the second quarter of 2020, plunging by 24.8 percent between June and August. On a yearly comparison, the GDP was down by 24 percent. Both contractions reflect biggest fall on record since Botswana gained independence in 1966. With two successive quarterly falls, Botswana went into a technical recession, which happens when a country’s GDP falls in two consecutive quarters. The first quarter GDP had contracted by 0.8 percent from 2019’s last quarter, and while there was a rebound in the third quarter, the economy still contracted by 6 percent.
The government has unveiled an Economic Recovery and Transformation Plan (ERTP), which is expected to provide direction on how to stimulate economic activities post Covid-19. To implement the ERTP together with the remainder of the eleventh national development plan (NDP 11), the government says it will need no less than P40 billion, with more than half of the funds used for plugging the budget deficits.
To raise the billions of pula needed for the economic recovery plan, the government economic advisors have warned against drawing money from the dwindling government’s portion of the foreign reserves, and suggested that government takes more on debts, increasing domestic borrowing, while also disposing some government properties, including privatisation of some institutions. The government also plans to raise revenue generation through increased taxes and other levy charges.
Botswana’s bond issuance program was last year raised from P15 billion to P30 billion, enabling the country to borrow more money locally. The country’s current total debts amount to P39 billion, where P30 .6 billion in government debt split between P15 billion in domestic loans and P15.5 billion in external loans. The remainder is the P8.6 billion government guaranteed loans, mostly taken for the state struggling enterprises.
Matsheka has also disclosed that they are hoping to borrow at least $1.9 billion (P13.6 billion) from the World Bank.