Thursday, April 9, 2020

Pay the deficit, Gov’t tells citizens

The Botswana government will in two months raise certain administered prices, in a move that will result in citizens and corporates paying more to boost the country’s strained cashflow.

The newly minted minister of Finance and Economic Development, Dr. Thapelo Matsheka, on Monday announced that various fees, charges and levies will be hiked to bring in an excess of P500 million, expected to bolster the country’s tight revenues which have failed to keep up with increased expenditure.

The budget deficits have widened in size since 2017, which marked the beginning of the National Development Plan (NDP) 11 which is set to conclude in 2023. The plan which is three-years in its lifespan has been characterised by successive shortfalls.

From a surplus of P1.1 billion garnered in 2016/2017 financial year, expenditure has been accelerating faster than income, delivering a P1.9 billion deficit in 2017/2018 before widening to P8.8 billion the following fiscal year. As the 2019/2020 comes to an end in two months, the finance minister has projected a budget deficit of P7.9 billion. The finance ministry officials have anticipated further deficits for the next two years.

On the face of severe budget deficits, Matsheka’s latest budget for 2020/2021 cuts back slightly on expenditure and will in the same period seek to raise income to minimise expected deficits. The budget deficit from April to March is expected to narrow down to P5.22 billion, a drastic 24 percent fall from earlier estimates of P6.9 billion shortage projected by same ministry officials last year.

The slowed deficit is on the back of reduced spending by government, limiting spending to P67.62 billion in 2020/2021 compared to the current year’s expenditure of P68.64 million. The budget deficit will also be softened by expected higher revenue and grants, estimated at P62.39 billion, roughly three percent higher than in 2019/2020 financial year.

Part of the increased revenue will be from changes in administered prices, with the finance ministry raising user and service fess across government in April. Government had initially planned to broaden the tax base to mitigate against widening deficits but faced a backlash from the citizens who have become weary of the economic climate.

The planned tax changes were interpreted as an extra burden to in an economy battered by unemployment, stagnant wages and household debts which have reached historic levels. Still, the latest approach will still result in Batswana paying more for certain services, yet to be revealed, as key ministries are still undertaking fee charges review.

Furthermore, a change in administered prices will most surely push consumer prices up, resulting in a soaring inflation rate. The government appears ready to stomach any rise in in inflation since the country has been stuck in a low inflation environment as far as 2014, averaging around 3 percent, and with the central bank’s 3 – 6 percent medium objective range. The Bank of Botswana officials has revealed that inflation rate will increase slightly in the second quarter of 2020 on the back of increase in prices of electricity and water tariffs expected in the same quarter.

In pressing ahead with price reviews that will hurt consumers, Matsheka said the government is determined to restore the fiscal sustainability in the medium term by building budgets surpluses in the last two years on the NDP 11.

“On the revenue side, there are various fees, charges and levies, which have not been adjusted for some time. Some of these fees, charges and levies were last adjusted a decade ago. As part of the efforts to address the budget deficit, all fees, charges and levies will be adjusted with effect from 1st April 2020, thereafter on an annual basis. Measures will also be put in place to implement the cost recover policy, including collection of tertiary students’ loan repayments,” Matsheka said.

The minister who has been in the office for the past two months had in the past alluded to raising taxes, but for now he said the focus will be strengthening revenue collection.

“While there is scope to adjust the tax rates, considering their levels relative to the region, priority would, in the interim, be on improving efficiency in the collection of existing taxes, rather than adjust tax rates,” he said again on Monday.

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