Tuesday, October 19, 2021

Why is gov’t unable to control spending?

A closer look at the ratio of government spending to the gross domestic product (GDP) reveals that government’s tendency of exceeding the spending limit was not only restricted to the 2008/09 economic recession, but is rather entrenched.

Government is considered the custodian of national wealth and is as such entrusted with the responsibility of ensuring a healthy balance between deriving revenue and its use. However, the country’s fiscal rules, particularly the expenditure rule, suggests a general lack of adherence by government to keep its spending within the accepted limits of the country’s total output. The World Bank describes government spending as general consumption expenditure which includes all current expenditures for purchases of goods and services, including compensation of employees. Botswana’s spending limit is set at 30 percent of the GDP. However government has continuously failed to restrict its spending to the set out limit, despite the expectation for government to maximize the use of its limited cash resources.

Dr. Ernest Makhwaje, Director in Macroeconomic Policy at the Ministry of Finance and Development Planning recently revealed that between 2008/9 and 2009/10 government spending was recorded at 47.2 percent and 51.4 percent respectively. He explained that this was a result of the need for government to inject capital into the economy as a way of keeping it going. Government spending for 2015/16 was registered at 34.8 percent.

It would be wrong to conclude that the global economic meltdown was solely responsible for government’s failure to contain spending because the trend has persisted even beyond the recession. The ratio of government spending to GDP over the period 1982-1998 reflects a similar trend as observed post the 2008/9 recession. A university of Botswana (UB) research paper suggests that government was actually doing the opposite of its promises of scaling down its role in the economy. Even during the economic slowdown of 1994, the level of government expenditure remained above 30 percent of GDP, and was also financed by government surpluses.

What can be deduced from the historic ratio of government spending to GDP and the post recession years is that government spending has generally treaded over the accepted limit. Furthermore, a European Commission report on Public Financial Management Performance Assessment in Botswana observed among other things that government’s development and recurrent budgets were developed and reconciled separately.

“Specific attention is not paid to reconciling the budgets in an integrated fashion to ensure that corresponding recurrent cost implications are considered for all development projects and programmes in the budget,” highlighted the Commission. Perhaps it is such discrepancies that result in government failing to keep its spending within the 30 percent limit.

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