A team from the International Monetary Fund (IMF) led by Enrique Gelbard visited Gaborone from May 1-16 for discussions on the 2017 Article IV Consultation with Botswana.
The discussions covered recent developments and prospects and focused on policies to support continued economic stability and promote inclusive growth. At the end of the visit, Mr. Gelbard issued the following statement:
“Following a downturn in 2015, Botswana’s pace of economic activity recovered in 2016, supported by improvements in diamond sales, fiscal stimulus, and an accommodative monetary policy. The rate of inflation remained low, close to the lower band of the Bank of Botswana’s inflation objective range of 3–6 percent, and the trade weighted exchange rate has been broadly stable. Botswana’s exchange rate regime of a managed rate of crawl against a basket of currencies continues to serve the country well and, at the moment, no changes are deemed necessary.
“In the past year, government spending rose in line with the government’s Economic Stimulus Program, but the fiscal deficit fell to about 1 percent of GDP owing to higher revenues from diamonds. The financial sector has remained well capitalized, profitable, and stable, despite a small increase in non-performing loans associated with the liquidation of the state-owned BCL copper and nickel mine.
“Looking ahead, positive prospects for the diamond sector could lead to somewhat higher rates of GDP growth in 2017-19. Fiscal projections envisage moderate deficits this year and the next, with surpluses thereafter. The fiscal profile is predicated on the authorities’ intention to increase tax revenues and slowdown the pace of spending on wages and salaries and on transfers to state-owned enterprises. In this connection, tax revenue reforms need to be accelerated to protect public finances against any adverse developments and maintain the country’s track record of sound fiscal management.
“As the economy finishes its cyclical recovery, and considering the challenges to foster private sector growth and employment creation, the authorities plan to tilt the composition of public spending to favor investment in physical and human capital, a move to be accompanied with steps to improve the quality and effectiveness of such spending. Furthermore, a focus on activities with economy-wide benefits (e.g. cost-effective investment projects, internet connectivity) will be critical in the period ahead.
To complement these efforts, the authorities need to proceed with the privatization process and reforms to improve the efficiency and financial viability of government enterprises, reduce bureaucratic procedures for private businesses, and improve education outcomes and the skills of the labor force.
“As envisaged in the latest National Development Plan, the authorities plan to promote economic diversification into selected sectors. In this regard, it would be preferable to focus on a few sectors with growth and employment potential (e.g. tourism in the north of the country) by designing and implementing development strategies with concrete goals, time-bound steps, and monitorable outcomes.
“Delivering on the above policies and reforms will ensure economic stability and pave the way for private sector-led growth and employment creation in Botswana. “The IMF staff team met with the Minister of Finance and Economic Development, Honorable O. Kenneth Matambo, the Governor of the Bank of Botswana, Moses Pelaelo, the Permanent Secretary of the Ministry of Finance and Economic Development, Solomon Sekwakwa, other senior government officials, and representatives of the private sector and development partners. “The IMF team thanks the authorities for their hospitality and constructive discussions.”
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.
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”