Sunday, November 29, 2020

‘ESP may have been designed to avert a recession’ – Gaolathe

With its double entendre-laden name, the economic stimulus package (ESP) was, at least officially, supposed to do what its unstained meaning explicitly states. 
“The ESP is a programme that is meant to boost economic growth through increased government spending in identified sectors, diversify the economy and accelerate employment creation,” said President Ian Khama when launching the programme in February last year in the village of Machaneng.

Almost two years later, expert in Economics and Finance, Ndaba Gaolathe, not only disputes Khama’s description of ESP but also offers his own theory about why it was introduced in the first place. “There is no sign of stimulation in the economy,” he says. “Economic growth rates remain low and unemployment remains high. If there is any improvement, it is marginal, even on the basis of official figures. There are no major national infrastructure projects nor is there any significant breakthrough worth mentioning in any sector of the economy. On the contrary, some sectors are being strained by recent economic shocks occasioned by closures of BCL and other mines in recent times.” BCL Limited, a copper/nickel mine which was the lifeblood of not just Selebi Phikwe but an entire region, has had to shut down on account of severe depression in the commodities market. The government has not shown any real interest in the Selebi Phikwe Economic Bailout and Diversification Support Fund Bill, a private members bill that Gaolathe proposed as part of a plan to bring the town back to life.

Gaolathe says that contrary to what the nation has been told, “the so-called ESP” may, in itself, not have been designed to stimulate the economy. “The government’s intent may have been to avert a possible recession. So, it is possible for the government to make the argument that things could have been worse and their plan insulated the economy from potentially dire circumstances. They have not made this argument yet though,” he adds.

Despite its very simple name, Gaolathe contends that “no one knows what ESP is” and that attempts to close that information gap have not been successful.
“No one knows its quantum.  A question was put in Parliament about the quantum of ESP and there is still no answer around the quantum, duration or desired outcomes of the so-called ESP. This makes it all the more difficult to assess its impact, positive or negative.”

One real danger with extending the money supply without stimulating productivity in an economy is the possibility of setting off inflation. This is basis for fear that failed government initiatives not only sucked money into a black hole but may also cause inflation. However, Gaolathe says that Botswana’s inflation has been as relatively low enough as to remain within the Bank of Botswana’s target range. “Inflation has not been a problem or an impediment to any economic growth and development.  In this vein, it would be redundant or moot to discuss an ESP-inspired inflation.” He adds that while it is theoretically possible to estimate a potentially ESP-inspired inflation, such task is made impossible by the fact that ESP has not been appropriately defined. 

Speaking generally about the theoretical underpinnings of the relationship between growth, inflation, monetary aggregates and productivity, the AP leader says that much of the government’s expenditure patterns are not adequately geared towards productivity-enhancing investments. “In fact, the government of Botswana has, in this light, regressed in more than one aspect,” he adds. He identifies three sources of such regression as misguided project prioritization and project management as well as corruption.

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Sunday Standard November 29 – 5 December

Digital copy of Sunday Standard issue of November 29 - 5 December, 2020.