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Botswana ready to spring into budget surplus

The Minister of Finance and Economic Development, Kenneth Matambo explained that the fiscal budget deficit which has been incurred by Botswana for three financial years was a deliberate fiscal decision to stimulate growth. Currently Matambo announced that Botswana sits on a projected deficit of P7.43 billion.

However, when addressing the media after this week’s Budget Speech Matambo has announced if it goes according to plans, this financial year will be the last year of fiscal deficit. He said an intention is to have a budget surplus for the 2020/21 financial year. He said government is now generating surplus because, “we can’t go on deficit forever.”  Matambo admitted that generating deficit will be a tall order in a face of the global economy that has been growing at a snail pace affecting the mineral revenue which is the major boost to the country’s fiscal revenue.

The minister of finance told reporters that the P7.34 billion deficit will therefore be cushioned or funded by borrowing either externally or internally. As the deficit period collapses in this current budget year, Botswana will be looking to achieve a balanced or surplus budget. For Botswana to achieve a budget surplus, according to Matambo, government will have to rely on borrowing or increase of tax base. This suggests that government might increase taxes in order to achieve a surplus status.

The wished for surplus  for the next financial year surplus comes in the face of a government sailing against spending pressures which economists say comes with the elections year.  Towards the next financial year of 2020/21, which is expected to generate surplus, government would have spent almost P1.8 billion on public servants salaries which were increased for this current financial year.

The government workers salaries which were increased will cost government P900 million in two years meaning in 2020/21 this amount will be double. While many believe government increasing salaries is a sign of succumbing to pressure that comes with elections year, Matambo said government spending has never been moved by any kind of event or pressure because it is usually preplanned. He gave an example that whatever planned this year or previous years are in line with NDP 11.

“We are not under pressure because of any particular year because we are always under pressure to spend as per our fiscal policy, which is why the budget is always unbalanced. We have not felt any different type of pressure in any particular time,” said Matambo.
Observers believe that government is currently in a spending spree despite the need to be on a budget surplus next year.  

Some believe government need to increase its revenue in the mist if economic diversification fails. Government has on the other hand put a bet of P45 billion before the private sector, for economic diversification and job creation. While the mineral revenue has always been the mainstay for government revenue economist still believe such source of funding is unpredictable especially in a time of the sometimes volatile global economy.

The global economy is currently at a slow pace and risky when looking at trade tension between the two super powers of US and China-Botswana market stronghold. While tax base is the second biggest revenue source for government, it has been proved in previous years that government has not been on the winning side as money laundering, failure to collect enough tax revenue and tax evasion has always been perpetual impediments. The latest Global Financial Integrity report suggests that tax evasion culprits are reported to have used deceit to under-invoice imports in order to hide around P9.2 billion(US$885 million) from the tax man’s eye in 2015.

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Botswana on high red alert as AML joins Covid-19 to plague mankind

21st September 2020

This century is always looking at improving new super high speed technology to make life easier. On the other hand, beckoning as an emerging fierce reversal force to equally match or dominate this life enhancing super new tech, comes swift human adversaries which seem to have come to make living on earth even more difficult.

The recent discovery of a pandemic, Covid-19, which moves at a pace of unimaginable and unpredictable proportions; locking people inside homes and barring human interactions with its dreaded death threat, is currently being felt.

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Finance Committee cautions Gov’t against imprudent raising of debt levels

21st September 2020
Finance Committe Chairman: Thapelo Letsholo

Member of Parliament for Kanye North, Thapelo Letsholo has cautioned Government against excessive borrowing and poorly managed debt levels.

He was speaking in  Parliament on Tuesday delivering  Parliament’s Finance Committee report after assessing a  motion that sought to raise Government Bond program ceiling to P30 billion, a big jump from the initial P15 Billion.

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Gov’t Investment Account drying up fast!  

21st September 2020
Dr Matsheka

Government Investment Account (GIA) which forms part of the Pula fund has been significantly drawn down to finance Botswana’s budget deficits since 2008/09 Global financial crises.

The 2009 global economic recession triggered the collapse of financial markets in the United States, sending waves of shock across world economies, eroding business sentiment, and causing financiers of trade to excise heightened caution and hold onto their cash.

The ripple effects of this economic catastrophe were mostly felt by low to middle income resource based economies, amplifying their vulnerability to external shocks. The diamond industry which forms the gist of Botswana’s economic make up collapsed to zero trade levels across the entire value chain.

The Upstream, where Botswana gathers much of its diamond revenue was adversely impacted by muted demand in the Midstream. The situation was exacerbated by zero appetite of polished goods by jewelry manufacturers and retail outlets due to lowered tail end consumer demand.

This resulted in sharp decline of Government revenue, ballooned budget deficits and suspension of some developmental projects. To finance the deficit and some prioritized national development projects, government had to dip into cash balances, foreign reserves and borrow both externally and locally.

Much of drawing was from Government Investment Account as opposed to drawing from foreign reserve component of the Pula Fund; the latter was spared as a fiscal buffer for the worst rainy days.

Consequently this resulted in significant decline in funds held in the Government Investment Account (GIA). The account serves as Government’s main savings depository and fund for national policy objectives.

However as the world emerged from the 2009 recession government revenue graph picked up to pre recession levels before going down again around 2016/17 owing to challenges in the diamond industry.

Due to a number of budget surpluses from 2012/13 financial year the Government Investment Account started expanding back to P30 billion levels before a series of budget deficits in the National Development Plan 11 pushed it back to decline a decline wave.

When the National Development Plan 11 commenced three (3) financial years ago, government announced that the first half of the NDP would run at budget deficits.

This  as explained by Minister of Finance in 2017 would be occasioned by decline in diamond revenue mainly due to government forfeiting some of its dividend from Debswana to fund mine expansion projects.

Cumulatively since 2017/18 to 2019/20 financial year the budget deficit totaled to over P16 billion, of which was financed by both external and domestic borrowing and drawing down from government cash balances. Drawing down from government cash balances meant significant withdrawals from the Government Investment Account.

The Government Investment Account (GIA) was established in accordance with Section 35 of the Bank of Botswana Act Cap. 55:01. The Account represents Government’s share of the Botswana‘s foreign exchange reserves, its investment and management strategies are aligned to the Bank of Botswana’s foreign exchange reserves management and investment guidelines.

Government Investment Account, comprises of Pula denominated deposits at the Bank of Botswana and held in the Pula Fund, which is the long-term investment tranche of the foreign exchange reserves.

In June 2017 while answering a question from Bogolo Kenewendo, the then Minister of Finance & Economic Development Kenneth Mathambo told parliament that as of June 30, 2017, the total assets in the Pula Fund was P56.818 billion, of which the balance in the GIA was P30.832 billion.

Kenewendo was still a back bench specially elected Member of Parliament before ascending to cabinet post in 2018. Last week Minister of Finance & Economic Development, Dr Thapelo Matsheka, when presenting a motion to raise government local borrowing ceiling from P15 billion to P30 Billion told parliament that as of December 2019 Government Investment Account amounted to P18.3 billion.

Dr Matsheka further told parliament that prior to financial crisis of 2008/9 the account amounted to P30.5 billion (41 % of GDP) in December of 2008 while as at December 2019 it stood at P18.3 billion (only 9 % of GDP) mirroring a total decline by P11 billion in the entire 11 years.

Back in 2017 Parliament was also told that the Government Investment Account may be drawn-down or added to, in line with actuations in the Government’s expenditure and revenue outturns. “This is intended to provide the Government with appropriate funds to execute its functions and responsibilities effectively and efficiently” said Mathambo, then Minister of Finance.

Acknowledging the need to draw down from GIA no more, current Minister of Finance   Dr Matsheka said “It is under this background that it would be advisable to avoid excessive draw down from this account to preserve it as a financial buffer”

He further cautioned “The danger with substantially reduced financial buffers is that when an economic shock occurs or a disaster descends upon us and adversely affects our economy it becomes very difficult for the country to manage such a shock”

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