Thursday, May 23, 2024

‘Under-executed’ development budget eased Botswana’s fiscal balance

At face value, Botswana appears to have done a terrific job of balancing its post-Covid budget. However, the African Development Bank (AfDB) has pointed out one niggling fact that the Minister of Finance, Peggy Serame, wouldn’t want to be reminded of.

The Bank first notes that lower Southern Africa Customs Union (SACU) receipts challenged the fiscal position of its member countries and that many are still struggling to compensate for the fall in revenue amid increasing pressure to protect the most vulnerable from the overall cost-of-living squeeze. It then pays Botswana a left-handed compliment for having done a much better job than its SACU peers.

“In Botswana, the fiscal balance was eased by an under-executed development budget and elevated diamond sales which compensated for falling SACU receipts,” the Bank’s Southern Africa Economic Outlook report of 2023 says.

While the latter means is that had Botswana implemented its budget in its entirety, then the fiscal balance would have eluded Serame. In another respect, the situation described raises the question of the extent to which Botswana’s fiscal balance rides on the long-standing problem of under-executed budgets. Going back to the administration of President Sir Ketumile Masire when Botswana was only just becoming awash with diamond cash, there has always been dissonance between actual budget execution and the enacted budget. Both the World Bank and the International Monetary Fund have also raised concern about Botswana’s budget execution rates – being the share of the original budget implemented.

The irony of under-executed budgets is that even as money is basically returned unspent, there is still a long list of un-executed projects. The other layer of irony is that when MPs enquire through parliamentary questions why such projects have not been executed, all too often shortage of funds is given as the reason. 

As often happens in not just Botswana but many more countries across the world, there is almost always a spending spree that is solely motivated by the approach of the end of the financial year. Botswana’s financial year begins on April 1 and ends of March 31 of the following year and with it comes time-limited budget authority. The lethargy that defines public procurement early in the budget cycle typically ends around November when ministries, departments and agencies burn through their budgets to beat the March 1 deadline. In one too many cases, wasteful spending is the result.

AfDB expects SADC’s fiscal balance to “deteriorate” between 2022 and 2024. The Bank’s projections are that in the latter year, the fiscal deficit in region (at 4.8 percent) will be one point above the 3.8 percent Sub-Saharan Africa average. However, Botswana and Zimbabwe will be the only countries to register a surplus on average over the 2023-2024 period. The largest improvement in the fiscal balance should occur in Botswana and Madagascar (3.5 percentage points) followed by São Tomé and Príncipe (2.7 percentage points).

“Botswana fiscal balance should turn back in surplus in 2024 as the authorities are implementing a sizable fiscal consolidation. On the expenditure side, fiscal consolidation is underpinned by a lower wage bill, less transfers and subventions and [state-owned enterprise] reforms while on the revenue side, higher revenues should be collected thanks to tax measures introduced in Financial Year 2021-2022 and higher SACU transfers.”

The World Bank has made a quite interesting observation: that while the wage and salary budget tend to be implemented in full, that this is less so for goods and services or the capital budget.

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