President Mokgweetsi Masisi’s first year to lead the country into general elections comes with heavy burdens on his shoulders.
A respected think tank, Moody’s Investors Service sees a challenge of higher wages and protruding capital expenditures against an economy chiefly dependent on mineral revenue while it shows no further attempt of implementing drastic revenue-raising measures. In a bar graph representation, Moody’s demonstrates that Botswana has a higher wage bill as a percentage of the GDP. The think tank also shows that the capital expenditure and this could be due to investment on mineral projects like the recently launched P21.4 billion Cut 9 project.
Moody’s new presentation shows Botswana wage bill to be around 12 percent as almost equating with that of South Africa but lower than that of eSwatini and Namibia. The latest Moody’s report was focused on sovereigns in sub-Saharan Africa (SSA) which the think tanks said they plan further fiscal consolidation to stabilize their elevated debt burdens and reduces pressures on their credit profiles.
It further stated that these plans are generally set under assumptions of broadly stable economic and financing conditions. In the event of shocks, scope to cut government spending rapidly and significantly, or spending flexibility, allows sovereigns to broadly adhere to their plans and lends resiliency to fiscal strength. In the latest report, Moody’s proposed a measure of spending flexibility in SSA consistent with its earlier work for other regions, to inform our assessment of the resilience of fiscal strength to potential shocks.
“Expenditure flexibility, the result of structural features and recent measures, partly determines the resilience of fiscal strength. While SSA sovereigns are generally planning to consolidate their budgets in a way that should stabilize debt, they now face potential negative economic and financing shocks with a weaker starting fiscal position than five years ago.
Expenditure cuts are often easier to implement quickly than revenue-raising measures. Fiscal strength will likely be more resilient for those with capacity to cut expenditure quickly and significantly in the face of a shock,” says Moody’s report. For this country when looking at expenditure on borrowings, Moody’s says Botswana saw only a marginal increase in their interest expenditures.
The agency also said in some cases, higher interest expenditure offset a significant amount of the reduction to spending on wages and transfers, the other components of mandatory spending. Therefore, with Botswana having less interest expenditure pundits may argue that expenditure on wages may be raised as many believe this country’s salaries are below what is expected. Other pundits may cite Botswana’s high capital expenditure as the reason why Masisi’s regime may remain cautious when spending. In this year of elections, calls on spending remain deafening.
Moody’s shows Botswana currently lingers deep in between flexible and severely constrained SSA countries when it comes to mandatory spending. Moody’s measure expenditure flexibility as the share of discretionary spending (capital expenditures and spending on goods and services) in total expenditure. The remainder consists of spending on parts of the budget that governments generally cannot cut rapidly or which can be adjusted more easily over a longer period of time (interest payments, salaries & wages, and transfers).
The rating agency further states that higher borrowing costs and increased debt burdens saw interest expenditures increase over the four year, like it’s a case for Botswana. The time for the polls has become almost ripe with only a matter of weeks Batswana will be lined up to vote for what they expect and what they were promised. Botswana’s elections are held after every five years and Moody’s has noted that this country together with most SSA sovereigns plan to consolidate their budgets to stabilize debt as they are now more vulnerable to potential negative economic and financing because they are in a weaker fiscal position than five years ago.
In January this year Moody’s said Botswana was going at a snail’s pace in fiscal consolidation efforts and this could increase policy uncertainty ahead of the 2019 general elections. This was before Masisi increase salaries in April. According to the rating agency, ahead of elections in Botswana, the authorities have been envisaging a more gradual pace of fiscal consolidation.
The mandatory spending factor and political pressure
While Masisi may have increase salaries in April this year and adjusted wages of disciplined or armed forces later, something which some of his critics call political gimmick, he has a bigger headache of managing high wages and walking along the boundaries of mandatory spending. The International Monetary Fund (IMF) has always advised Botswana to reduce its wage bill which has been seen to be higher than expected.
April this year, the season of the national polls, Masisi led a government initiative to increase public servants salaries for financial year 2019/20 with an increment of 10 percent for scales A and B and 6 percent for scales C and D. Last year IMF suggested that Botswana cut the size of its civil service, something which Masisi appeared to have almost heeded to when he faced the international media on the issue when he said, “we are more efficient, we are leaner, meaner, and we can do business and we are more attractive to the private sector for them to invest”.
However this was quickly tackled by critics including legislator-cum-economist Ndaba Gaolathe, who said there is no compelling evidence that can suggest that Botswana is in a desperate anomaly that requires it to cut off the size of its civil service. Masisi may have toyed with the idea of trimming jobs despite him being a self-proclaimed “Jobs President” just as he assumed office. He is yet to implement National Employment Policy and has been promising jobs in the time when Botswana faces worst record of income inequality and high unemployment rate.
Meanwhile it has been reported that the April salary increment adds additional cost of a little more than P1 billion per annum to government. It is also said the government wage bill is high by international standards, as it currently stands at 11.3 percent of GDP, against the international threshold of 5.0 percent of GDP. Moody’s places the wage bill at around 12 percent of the GDP and recognizes its loftiness when compared to its Sub-Sahara Africa counterparts. Observers believe Masisi is going to be careful with his spending despite a further call for wage hike.
On the dark-point the budget proposals for the 2018/2018 overall balance is estimated at a deficit of P6.35 billion (or 3.3 percent of GDP), which is expected to worsen to P7.79 billion (or 3.8 percent of GDP) in 2019/2020. A major factor when government considers further spending, an add to Masisi’s headache. Also, government acknowledges positive growth of 4.5 percent in the domestic propelled by non-mining sectors but points to a declining global economy which grew by 3.6 percent in 2018 and is anticipated to only grow at 3.3 percent in 2019.
Bank of Botswana however has said the new salary hike will not in anytime have any inflationary effect or cause a collapse. The central bank also said the wage increase will not shake the domestic economy. Already trade unions are seeking for a further increase of salaries.
A Malaysian private firm Performance Management and Delivery Unit(PEMANDU) who conducted a salary adjustment on behalf of the Directorate of the Public Service Management (DPSM) “remunerations system project report for grades A to D” was unfazed by government’s lack of funds to spend on increase of wages. Government hired PEMANDU as a consultant at a tune of P 17, 6 million.
On the issue of high wage bill, PEMANDU sees that as an excuse by government to avoid motivating its workforce. “The increase in wage bill represents approximately 10.3 percent of the country’s Gross Domestic Products (GDP), the current wage bill being 9.4 percent of GDP. This is still below the regional Sub-Saharan bench mark of 11 percent,” states the report.
The PEMANDU proposal if implemented will add an additional P1.23 billion per annum. PEMANDU has made a proposal of a salary hike of 20 percent for grades A and B; 10 percent for grades C and D and 15 percent for grade E and F. According to the Malaysian firm the new implementation was to bridge the widening gap between lower and higher paid civil servants, while higher grades of E and F should receive no increment in the proposals and keeps their range.
Government before increasing salaries for the public sector in April has always promised that the PEMANDU report will be implemented. However recently something seems to have changed, Vice President Slumber Tsogwane made an announcement suggesting that government is constrained to put more funds for increment of civil servant wages as per the PEMANDU report.
China’s Gross Domestic Product (GDP) expanded by 3% year-on-year to 121.02 trillion yuan ($17.93 trillion) in 2022 despite being mired in various growth pressures, according to data from the National Bureau Statistics.
The annual growth rate beat a median economist forecast of 2.8% as polled by Reuters. The country’s fourth-quarter GDP growth of 2.9% also surpassed expectations for a 1.8% increase.
In 2022, the Chinese economy encountered more difficulties and challenges than was expected amid a complex domestic and international situation. However, NBS said economic growth stabilized after various measures were taken to shore up growth.
Industrial output rose 3.6% in 2022 over the previous year, while retail sales slightly shrank by 0.2% data show that fixed-asset investment increased 5.1% over 2021, with a 9.1% hike in manufacturing investment but a 10% fall in property investment.
China created 12.06 million new jobs in urban regions throughout the year, surpassing its annual target of 11 million, and officials have stressed the importance of continuing an employment-first policy in 2023.
Meanwhile, China tourism market is a step closer to robust recovery. Tourism operators are in high spirits because the market saw a good chance of a robust recovery during the Spring Festival holiday amid relaxed COVID-19 travel policies.
On January 27, the last day of the seven-day break, the Ministry of Culture and Tourism published an encouraging performance report of the tourism market. It said that domestic destinations and attractions received 308 million visits, up 23.1% year-on-year. The number is roughly 88.6% of that in 2019, they year before the pandemic hit.
According to the report, tourism-related revenue generated during the seven-day period was about 375.8 billion yuan ($55.41 billion), a year-on-year rise of 30%. The revenue was about 73% of that in 2019, the Ministry said.
The state of the art jewellery manufacturing plant that has been set up by international diamond and cutting company, KGK Diamonds Botswana will create over 100 jobs, of which 89 percent will be localized.
Local diamond and metal exploration company Tsodilo Resources Limited has negotiated a non-brokered private placement of 2,200, 914 units of the company at a price per unit of 0.20 US Dollars, which will provide gross proceeds to the company in the amount of C$440, 188. 20.
According to a statement from the group, proceeds from the private placement will be used for the betterment of the Xaudum iron formation project in Botswana and general corporate purposes.
The statement says every unit of the company will consist of a common share in the capital of the company and one Common Share purchase warrant of the company.
Each warrant will enable a holder to make a single purchase for the period of 24 months at an amount of $0.20. As per regularity requirements, the group indicates that the common shares and warrants will be subject to a four month plus a day hold period from date of closure.
Tsodilo is exempt from the formal valuation and minority shareholder approval requirements. This is for the reason that the fair market value of the private placement, insofar as it involves the director, is not more than 25% of the company’s market capitalization.
Tsodilo Resources Limited is an international diamond and metals exploration company engaged in the search for economic diamond and metal deposits at its Bosoto Limited and Gcwihaba Resources projects in Botswana. The company has a 100% stake in Bosoto which holds the BK16 kimberlite project in the Orapa Kimberlite Field (OKF) in Botswana.