Wednesday, October 28, 2020

Will Matambo’s ESP laden budget rescue the fledging economy?

Two weeks from today, Minister of Finance Ken Matambo will present the 2016/17 budget speech, a significant event by its very nature. The nation is already tingling with anticipation ahead of the budget speech as everyone is wondering whether this year’s budget will rescue the fledging national economy.

Apart from addressing the usual issues, the 2016/17 budget will be geared towards injecting new life and vitality into the economy, especially because it will feature the much awaited economic stimulus package (ESP). Without a doubt there is need to reinvigorate the economy following unrelenting tough times in 2015, characterised by weak commodity prices. The year 2015 started off with a weakening of global demand for primary commodities (copper, nickel) and a slump in diamond sales, which distressed Botswana’s highly mineral dependent economy.

A quarterly review by economics firm Econsult indicated that exports of Botswana rough diamonds in January and February 2015 were down 29 percent in US Dollar terms compared to the same period in 2014. China’s sluggish growth resulted in weakened demand which caused a slump in commodity prices. Botswana’s economy is largely dependent on mining, which makes it vulnerable to any international shocks that affect the price of minerals. At the beginning of 2016, there is little hope for any significant recovery as the global economic landscape remains fickle.

China, which is where the world is presently looking to, is undergoing fundamental changes in its economic make up. Experts opine that the recent share market tumble in China is indicative of the regressive direction the Asian Tiger’s economy is taking, stressing that China is simply postponing the inevitable. What is happening in China is a cause for concern to the economy of Botswana because of the significant trading relationship between the two countries. A 2014 BIDPA working paper on the impact of trading with China on Botswana’s economy explains the extent to which Botswana is dependent on China for basic commodities, which makes China one of Botswana’s largest import suppliers, especially of intermediary and capital goods that are used as inputs in infrastructure development projects. Botswana exports its primary products, which include nickel ores, copper and diamonds to China. This therefore means that the recovery of Botswana’s commodities market seems highly unlikely in the medium term due to the fundamental changes currently taking place in China’s economy.

The general trend has always been that the mining and non-mining sectors always display opposite growth directions, which usually translates to either one supporting the economy when the other registers disappointing growth. However, 2015 was a different and more challenging year as both sectors were moving in the same declining direction. Power and water outages continued to have a negative impact on production and business confidence, the impact of which business cannot compensate for. Government has injected a significant amount of money into power infrastructure, but the return on investment is yet to be realized.

Unemployment remains a huge concern, and it remains to be seen if government will continue to cluster the Ipelegeng public works program under development spending. Economists have repeatedly spoken out against this practice, saying public works should be clustered under current spending because they meets operating costs and cannot be considered as  investments. Government recently announced that registration of job seekers will be done on a continuous basis at all district labour offices, after which placement will be done as and when vacancies arise. Placement will in that regard be done on a first come first serve basis. As the economy of Botswana labours under the weight of tumbling commodity prices, unemployment and weakened demand for diamonds, the stimulus package is viewed by many as much needed reprieve. However, the economy requires a stimulus package that is result oriented and is able to unlock the impediments to growth in the economy. The question is, has Matambo prepared a budget that is up to the challenge?

RELATED STORIES

Read this week's paper

“Queen of Mayhem” tells story of societal ills

Although the title 'Queen of Mayhem' may suggest feminism, the events in the story itself are quite relatable and fascinating to any...