Matambo decries misuse and reckless spending by Government
The Minister of Finance and Economic Development Kenneth Matambo has warned that the 2018/19 budget will carry a deficit of around 8 billion pula primarily due to continued slow growth in revenues and increased expenditure pressures.
Minister Matambo revealed the development to stakeholders at a Budget Pitso on Tuesday. Government had also expected the first three financial years of National Development Plan 11 to run on budget deficit.
According to the minister, growth in total revenue had been restrained by relatively weak commodity prices.
Reading from the Budget Strategy Paper, a blueprint for the budget produced annually at least three months before the Budget Speech, Matambo noted clearly the need to apply strict fiscal discipline throughout the public sector if government is to contain the expected budget deficits in the medium term, given the constrained resources envelope.
Minister Matambo further advised against misuse of resources and reckless spending by government arms and department encouraging the citizenry and civil service to efficiently and effectively deploy government limited resources to provide the necessary economic infrastructure needed for growth and basic social services.
The Finance Minister told attendants that government will closely monitor expenditure and exit funds during the 2018/2019 financial year to ensure that the limited resources and funds are put to good use.
“The projected global growth rates for 2017 and 2018 although higher than 2016 are below the pre-crisis averages, especially for most advanced economies and for commodity-exporting emerging and developing economies,” he said.
It also emerged at the meeting that to avoid being caught up in the vicious circle of deficits and debt, there was need for continued focus on prudent management of expenditure in order to achieve goals envisioned under national priority areas identified in the National Development Plan (NDP) 11.
Government emphasized its acting plan as stated in NDP 11 which clearly states the need to tackle the problem of reducing or eliminating abject poverty, creating sustainable employment opportunities and improving income inequality. Botswana’s income inequality is ranked amongst the worst in the world indicating a concerning difference between the rich and the poor.
Matambo also highlighted that the domestic economy had rebounded to register a positive growth rate of 4.3 per cent in 2016, after experiencing mild recession in 2015. He noted that the national economic growth momentum was anticipated to continue in 2017 and 2018 as the economy is expected to register a growth rate of 4.7 per cent and 5.3 per cent respectively.
“The growth rate will largely be supported by the services sector,” he said. The inflation rate was said to have been stable and projected to remain as such in the medium term, within the Bank of Botswana objective range of three to six per cent. Notwithstanding the inflation rate stability it was cautioned that the rebound in commodity prices and food prices posed upside risks to the inflation outlook.
Economic and Financial Policy Secretary in the Ministry of Finance Dr Taufila Nyamadzabo said that Botswana’s economy was stable and impressively recovering from the recent economic meltdown.
Dr Nyamadzabo reiterated Matambo’s sentiments that after recording a decline of -1.7 per cent in 2015, the domestic economy recovered strongly to register a positive growth of 4.3 per cent in 2016.
He observed that the positive rebound in the domestic economy was largely due to the improvement in the trade, Hotels and restaurants as well as transport and communications sectors, which recorded positive growth rates of 13.5 per cent and 5.6 per cent respectively.
The growth in the trade, hotels and restaurants sector was mainly driven by the downstream diamond industries, which contributed significantly to the wholesale sub-sector.
The Financial Policy think tank reiterated that the water and electricity sector, which supported other sectors, registered a higher growth of 123.0 per cent in 2016, but its contribution to the Gross Domestic Product was insignificant. Other sectors, which recorded positive growth rates in 2016, were construction with 4.2 per cent and finance and banking services with 3.8 per cent.
The agriculture and mining sectors, however recorded negative growth rates in 2016 with the latter mainly due to the decline in the copper production as well as the provisional liquidation of the BCL Mine in October last year.
The mining sector was expected to recover in line with the positive global economic prospects, while the other sectors would continue to benefit from the implementation of the Economic Stimulus Programme (ESP) adopted by government to boost economic growth and create employment opportunities.
In terms of domestic economic outlook, Dr Nyamadzabo noted that the GDP was projected to grow by 4.7 per cent, 5.3 per cent and 5.0 per cent in 2017, 2018 and 2019 receptively.
Stakeholders were told that the average economic growth during the National Development Plan 10 was 3.9% per annum, which was slightly above the 3.3 per cent target, but below the 7.5 per cent Vision 2016 target.
Experts have noted that some downside risks that come with positive global economic outlook, which among others include structural problems such as low productivity growth and high income inequality would negatively impact Botswana’s economic growth is not accommodated for by budgets and fiscal projections.
Marcian Concepts have been contracted by Selibe Phikwe Economic Unit (SPEDU) in a P230 million project to raise the town from its ghost status. The project is in the design and building phase of building an industrial hub for Phikwe; putting together an infrastructure in Bolelanoto and Senwelo industrial sites.
This project comes as a life-raft for Selibe Phikwe, a town which was turned into a ghost town when the area’s economic mainstay, BCL mine, closed four years ago. In that catastrophe, 5000 people lost their livelihoods as the town’s life sunk into a gloomy horizon. Businesses were closed and some migrated to better places as industrial places and malls became almost empty.
However, SPEDU has now started plans to breathe life into the town. Information reaching this publication is that Marcian Concepts is now on the ground at Bolelanoto and Senwelo and works have commenced. Marcian as a contractor already promises to hire Phikwe locals only, even subcontract only companies from the area as a way to empower the place’s economy.
The procurement method for the tender is Open Domestic bidding which means Joint Ventures with foreign companies is not allowed. According to Marcian Concepts General Manager, Andre Strydom, in an interview with this publication, the project will come with 150 to 200 jobs. The project is expected to take 15 months at a tune of P230 531 402. 76. Marcian will put together construction of roadworks, storm-water drains, water reticulation, street lighting and telecommunication infrastructure. This tender was flouted last year August, but was awarded in June this year. This project is seen as the beginning of Phikwe’s revival and investors will be targeted to the area after the town has worn the ghost city status for almost half a decade.
The International Monetary Fund (IMF) has slashed its outlook the world economy projecting a significantly deeper recession and slower recovery than it anticipated just two months ago.
On Wednesday when delivering its World Economic Outlook report titled “A long difficult Ascent” the Washington Based global lender said it now expects global gross domestic product to shrink 4.9% this year, more than the 3% predicted in April. For 2021, IMF experts have projected growth of 5.4%, down from 5.8%. “We are projecting a somewhat less severe though still deep recession in 2020, relative to our June forecast,” said Gita Gopinath Economic Counsellor and Director of Research.
The struggle of humanity is now how to dribble past the ‘Great Pandemic’ in order to salvage a lean economic score. Botswana is already working on dwindling fiscal accounts, budget deficit, threatened foreign reserves and the GDP data that is screaming recession.
Latest data by think tank and renowned rating agency, Moody’s Investor Service, is that Botswana’s fiscal status is on the red and it is mostly because of its mineral-dependency garment and tourism-related taxation. Botswana decided to close borders as one of the containment measures of Covid-19; trade and travellers have been locked out of the country. Moody’s also acknowledges that closing borders by countries like Botswana results in the collapse of tourism which will also indirectly weigh on revenue through lower import duties, VAT receipts and other taxes.
Latest economic data shows that Gross Domestic Product (GDP) for the second quarter of 2020 with a decrease of 27 percent. One of the factors that led to contraction of the local economy is the suspension of air travel occasioned by COVID-19 containment measures impacted on the number of tourists entering through the country’s borders and hence affecting the output of the hotels and restaurants industry. This will also be weighed down by, according to Moody’s, emerging markets which will see government losing average revenue worth 2.1 percentage points (pps) of GDP in 2020, exceeding the 1.0 pps loss in advanced economies (AEs).
“Fiscal revenue in emerging markets is particularly vulnerable to this current crisis because of concentrated revenue structures and less sophisticated tax administrations than those in AEs. Oil exporters will see the largest falls but revenue volatility is a common feature of their credit profiles historically,” says Moody’s. The domino effects of containment measures could be seen cracking all sectors of the local economy as taxes from outside were locked out by the closure of borders hence dwindling tax revenue.
Moody’s has placed Botswana among oil importers, small, tourism-reliant economies which will see the largest fall in revenue. Botswana is in the top 10 of that pecking order where Moody’s pointed out recently that other resource-rich countries like Botswana (A2 negative) will also face a large drop in fiscal revenue.
This situation of countries’ revenue on the red is going to stay stubborn for a long run. Moody’s predicts that the spending pressures faced by governments across the globe are unlikely to ease in the short term, particularly because this crisis has emphasized the social role governments perform in areas like healthcare and labour markets.
For countries like Botswana, these spending pressures are generally exacerbated by a range of other factors like a higher interest burden, infrastructure deficiencies, weaker broader public sector, higher subsidies, lower incomes and more precarious employment. As a result, most of the burden for any fiscal consolidation is likely to fall on the revenue side, says Moody’s.
Moody’s then moves to the revenue spin of taxation. The rating agency looked at the likelihood and probability of sovereigns to raise up revenue by increasing tax to offset what was lost in mineral revenue and tourism-related tax revenue. Moody’s said the capacity to raise tax revenue distinguishes governments from other debt issuers. “In theory, governments can change a given tax system as they wish, subject to the relevant legislative process and within the constraints of international law. In practice, however, there are material constraints,” says Moody’s.
‘‘The coronavirus crisis will lead to long-lasting revenue losses for emerging market sovereigns because their ability to implement and enforce effective revenue-raising measures in response will be an important credit driver over the next few years because of their sizeable spending pressures and the subdued recovery in the global economy we expect next year.’’
According to Moody’s, together with a rise in stimulus and healthcare spending related to the crisis, the think tank expects this drop in revenue will trigger a sizeable fiscal deterioration across emerging market sovereigns. Most countries, including Botswana, are under pressure of widening their tax bases, Moody’s says that this will be challenging. “Even if governments reversed or do not extend tax-easing measures implemented in 2020 to support the economy through the coronavirus shock, which would be politically challenging, this would only provide a modest boost to revenue, especially as these measures were relatively modest in most emerging markets,” says Moody’s.
Botswana has been seen internationally as a ‘tax ease’ country and its taxes are seen as lower when compared to its regional counterparts. This country’s name has also been mentioned in various international investigative journalism tax evasion reports. In recent years there was a division of opinions over whether this country can stretch its tax base. But like other sovereigns who have tried but struggled to increase or even maintain their tax intake before the crisis, Botswana will face additional challenges, according to Moody’s.
“Additional measures to reduce tax evasion and cutting tax expenditure should support the recovery in government revenue, albeit from low levels,” advised Moody’s. Botswana’s tax revenue to the percentage of the GDP was 27 percent in 2008, dropped to 23 percent in 2010 to 23 percent before rising to 27 percent again in 2012. In years 2013 and 2014 the percentage went to 25 percent before it took a slip to decline in respective years of 2015 up to now where it is at 19.8 percent.