Once diamond rich Botswana is edging towards her worst budget deficit, overspending more than it has been earning as major revenue earners remain suppressed, recent data shows.
Government budget was in deficit of P7.4 billion in the second quarter of the 2020/21 fiscal year. The deficit was largely attributable to the less-than-anticipated revenue and grants, resulting from lower domestic taxes and mineral revenue than was projected. Total revenues and grants were P10.3 billion in the second quarter of the 2020/21 fiscal year, compared to P13.1 billion anticipated in the revised budget for the year.
Total government expenditure and net lending was P17.6 billion, higher than the P16.5 billion originally anticipated. Government expenditure has been revised downwards to P66 billion for the 2020/21 fiscal year, which is P1.7 billion lower than the original budget presented in February. The budget deficit has also been revised upwards significantly to P13.6 billion from the original P5.2 billion, reflecting the downward revision of revenue and grants from P62.4 billion to P52.3 billion.
With major revenue earners such as diamonds, tourism and beef affected, the country’s finance ministry said the deficit might even rise to P15.2 billion, the largest deficit in the country’s history. Botswana has been overspending since 2017/2018, with that year’s deficit P1.9 billion and then swelled to P8.8 billion in 2018/2019 and another P9.5 billion shortfall in 2019/2020. The cumulative budget deficits in the last three years now stands at P20.2 billion.
Botswana’s economy in the second quarter of the year recorded its biggest contraction, officially entering recession. Real gross domestic product (GDP), which measures the total output of goods and services in the country at a specific period, plunged by 24 percent, reflecting the biggest fall on record since Botswana gained independence in 1966.
Projections by the Finance and Economic Development ministry and the International Monetary Fund (IMF) suggest a deterioration in economic growth for Botswana in 2020. The ministry estimates that the economy will decline by 8.9 percent in 2020, from an earlier forecast of a 13.1 percent contraction, before rebounding to growth of 7.7 percent in 2021. The IMF forecasts the domestic economy to contract by 9.6 percent in 2020 compared to 5.4 percent in the April 2020 World Economic Outlook, before recovering to a growth of 8.6 percent in 2021.
“Even with recovery in 2021, the contraction in 2020 equates, approximately, to a two-year loss of growth in output. The disparity in forecasts attest to the challenges of making forward projections when there is uncertainty about the duration of constrained economic activity, the resultant adverse impact on productive capacity, as well as the speed of resumption of production and pace of recovery in demand,” Moses Pelaelo, the Bank of Botswana governor said on Thursday when announcing the central bank’s decision to maintain the bank rate at 3.75 percent.
