Ministry of Finance and Economic Development this week launched its new frameworks contained in the six and five-year strategic plan and communications strategy respectively.
The ministry’ strategic plan, envisioned to drive the country‘s close monitoring and management of its fiscal and finance matters as well as maintaining economic stability has been running since 2017, and will be implemented until 2023, while the new communication strategy will be implemented from this year until 2023. Ministry of Finance has the vital mandate of coordination of national development planning; monitoring implementation, mobilising and managing financial and economic resources.
Minister Matambo noted that his ministry has been able to vehemently deliver on this mandate for years, guiding Botswana’s Macroeconomic frameworks and fiscal policies and protecting the country against domestic and global economic challenges. The cardinal deliverables in the new strategic plans intends to come up with economic stimulus initiatives that are designed to boost economic activity, while at the same time avoiding the risk of burdening the economy with unsustainable public spending.
“The whole point is to predominately help the country mitigate any looming threat from both internal and external threats such as domestic fiscal collapse and global economic recession,” he said. Matambo underscored that as the ministry in charge of public coffers, one of its key functions was to guard against misuse of public funds and reckless government spending.
“Inability to save for tough economic times is a window for various problems such as reduced availability of fiscal buffers needed to stimulate the economy in rough times; this also reduces the average portion of public finances available for long term investments in infrastructure, health or education in turn disrupting countries’ long-term development outlook,” he said.
To ensure the ministry harness maximum benefit from the plan, the ministry partially outsourced the formulation of the strategic plan to take advantage of available expertise and technical skills in the private sector while the communication strategy was developed in-house by a steering committee comprising of representatives from respective divisions within the ministry, under the leadership and guidance of senior management.
“The launch of these two documents sets out the ministry’s goals and objectives, gearing the ministry ‘s readiness and in full swing to the achievement of the priorities of the country’s eleventh National Development Plan (NDP 11) and ultimately the pillars of Vision 2036 and by extension, the sustainable development goals,” explained Matambo
Matambo said the ministry’s strategic plan contained eight key priority areas being accelerated implementation of the public finance management reforms; strengthening of monitoring and evaluation; re-engineering and automation of systems and processes; improving production of timely and accurate statistical information; implementing the initiative to increase and widen revenue base; improving project management processes; enhancing critical skills and transitioning to the new fiscal rules.
In order to enable successful implementation of these priorities, the ministry divided the strategic goals into three strategic themes, namely operational excellence, macroeconomic and financial management excellence and strategic partnerships. “These are expected to steer the focus towards our vision of becoming leaders and a model of excellence in financial and economic management for the prosperity of this country,” said Matambo
Giving an update on the ministry’s recent undertakings Matambo noted that inflation declined from 8.2 per cent in 2009 to between 3 per cent and 6 per cent since June 2013 to date. He highlighted that the Ministry improved regulatory framework of the country’s financial sector by setting up a Financial Stability Council in a bid to close-up and tighten oversight coordination.
The council consists of high ranking officials from Bank of Botswana together with Non-Bank Financial Institutions Regulatory Authority (NBFIRA) working with the Financial Intelligence Agency. The Council primarily focuses on coordinated macro-prudential monitoring, analysis and response with respect to any financial system imbalances or distress.
Matambo explained that the council will reinforce collaboration, cooperation and communication amongst the relevant authorities to achieve comprehensive monitoring and enforcement of legislation and regulations in order to maintain integrity and stability of the financial system. The ministry also recently introduced and rolled out automated systems like the Integrated Procurement Management System (IPMS) under the Public Procurement and Asset Disposal Board (PPADB), e-filling and e-payment of tax returns under Botswana Unified Revenue Services (BURS), electronic funds transfer system under Office of the Accountant General and decentralisation of some services to ministries and departments in their regional offices.
The Special Elected Member of Parliament, who has been Finance Minister since 2009 added that lack of preparedness for sluggish economic times, causes fiscal challenges. “This requires us to restrain and control as well as prioritize public spending in a period of modest growth, and be keen to negative external shocks, such as oil price increases ,mineral commodities that may arise anytime unexpected,” emphasised Matambo.
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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.
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”