Monday, January 25, 2021

Undiversified Botswana economy prone to deficits, debt

The combination of lack of diversity in revenue sources, and the onset of the financial and economic crisis, resulted in a very tight fiscal space on expenditure allocations against the backdrop of low government revenue.

BIDPA’s latest Budget Briefing has stated that the situation was made even worse by the fall of import duties.

The mineral revenues, which are said to constitute about 60 percent, have reportedly declined during the crisis to about 37 percent in the financial year 2008\ 2009.

“Botswana, though with a history of good economic performance, has not escaped unscathed since its major export commodities, are largely dependent on the demand patterns in the international market,” read part of the briefing from government economic think tank.

In this context, the BIDPA cited diamonds, beef and other manufactured products such as textiles.
So, besides the minerals, it has been pointed out that other revenue sources, except for the customs and excise only contribute on average less than 20 percent in total government revenues.

The other aspect that the briefing discussed was the effect of a high public debt and deficit, on future economic growth.

BIDPA also indicated why they thought it was important for Botswana to continue to emphasize on a low debt and low deficit stance, as well as maintain fiscal prudence in its budgeting process.

It was argued that while Botswana’s fiscal policy aimed to ameliorate the broader adverse economic effects on the economy through the stimulus package with no drastic cut in both the development and recurrent budget, the sustainability of such an approach was found questionable.

The fact that renegotiation of the SACU revenue sharing- formula amongst the member states, does not seem likely to concluded on a favourable note for Botswana, tended to represent another critical challenge.

BIDPA also highlighted the implementation of the NDP10 as one of the serious challenges as it requires substantial resources to ensure the smooth implementation and development projects and aspirations in the plan.

Moreover, it is projected that in the initial years of the NDP10 period, the budget will be tight, and characterised by deficits.

Besides, it was also stated that the fact that the NDP10 runs through 2016, which is a critical period for the realisation of vision 2016 goals, objectives and targets is on its own considered to present a serious challenge in financial terms.

Some of the concerns about possible impacts of high deficit and public debt raised by the briefing were that they were potentially detrimental to investment.

The reason given for the concern was that they (high deficit and public debt) affected the financial position and creditworthiness of the country.

“The high public debt also has the potential to crowd out resource allocation in resources that would otherwise be used to finance development initiatives, to servicing the debt over following accumulation,” the brief cautioned.

While mention was made of the fact that, Botswana experienced relative political and macro-economic stability, reference has been made to Standard& Poor’s credit rating which downgraded Botswana from A to ÔÇôA, on the back of government’s decision to run budget deficit to sustain fiscal support to the economy.

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