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ESP value addition remains foggy

The value addition of the Economic Stimulus Programme (ESP) remains hazy with the recent budget failing to breakdown the estimated injection of P3billion over the two year period.

The rationale behind the ESP is to support domestic economic activities in the short-term while providing a foundation for sustainable growth for the economy in the long-term through investment in infrastructural development.

Presenting the 2016/17 budget speech, the minister of Finance and development planning Kenneth Matambo noted that the implementation of the ESP is scheduled to start in earnest in the 2016/2017 financial year.

However the expectation was for Matambo to explicitly reveal how much is going to be spent under the stimulus package, how many jobs will be created and then give estimates on its contribution to the deteriorating economic growth.

The minister proposed about P37 billion for the recurrent budget .From the P14 billion proposed under the development budget for the coming financial year, Matambo only mentioned a handful of projects under the stimulus programme amounting to a total of a mere P1.3 billion.

Sharing his views on the ESP, Research Manger at First National Bank (FNB) Moathlodi Sebabole said “the estimated value of over P3billion towards ESP over a 2-year period is not broken down into new money and existing money within the budgetary process and thus it is difficult to estimate the value add of ESP over and above the projects which will have been budgeted for in anyway.”

Sebabole highlighted that that the likelihood of job creation exists, however, more temporal as opposed to sustainable in nature. The targeted sectors include tourism development, agricultural production, construction and manufacturing.

“This is primarily due to the nature of most of the established ESP jobs which will involve construction and maintenance contracts both of which are finite in nature,” he said.

Further, Sebabole said even though the economy remains healthy, it is under pressure just like a lot of emerging markets economies. “It is worth noting that there are levers to pool for combination of savings drawdown and debt utilization in order to finance the envisaged deficits,” he said.

The economy is now expected to have grown around 1% in 2015, as supply side shocks of water and electricity continue to negate growth, whereas mining downturns also affect the overall health of the economy.

“At FNBB, we expect growth to remain below trend even in 2016 at sub-3% levels as mining recovery is expected to remain mild, while non-mining private sector will remain under pressure due to supply side shocks of water and electricity,” he said.

After three years of fiscal budget surpluses since 2011/12, the fiscal budget is now expected to undergo deficits in the current fiscal year and fiscal year 2016/17. This is on the back-drop of declining mineral revenue as commodity prices remain low and diamond sales are not as robust as prior years.

Additionally, the downturn in South African economy, as well as a weak rand has affected the SACU revenue which consists over 26% of the revenue. On the other hand, expenditure is expected to gradually grow for supplementary financing of backlog of projects and quasi-government organizations which are loss making such as BPC, WUC – coupled with some relief measures for drought and welfare.

The deficits are expected to total over P10billion in the two years, with FY15/16 deficit estimated at -2.8% of GDP, while the FY16/17 deficit is estimated at -3.2% of GDP – against threshold of budget deficit of -4% of GDP.

As stated in the budget speech, the deficits are expected to be financed from a combination of drawdown on government savings which total P35bio and debt participation as the total debt-to-GDP levels remain below threshold of 40%.

Sebabole said the deficits show a counter-cyclical cycle that the economy is currently running. “The risks in the medium term will arise if global recoveries do not come sooner, and thus government revenue remains under pressure for a while. Extended global volatilities might result in extended deficits, which might force government to enforce some fiscal austerities,” he stated.

He emphasized the need for government to effectively implement the projects as there is still underutilization of allocated funds, despite projects needs and backlogs. Sebabole said the untimely delivery of projects and quality of infrastructure projects raises need to accelerate active public-private-partnership in delivery of projects.

In his view the low debt-to-GDP ratios provide an opportunity for government to issue more bonds to finance the deficit, as well as engage private sector institutions to finance and act as advisory for some of the mega projects.

Total revenues and grants for 2016/17 are estimated at P48.40 billion, a decrease of P3.36 billion compared to the revised budget of P51.76 billion for 2015/16 due to a projected fall of 6.9 per cent in mineral revenues and 23.8 per cent in customs and excise receipts.

Mineral revenue contributes 35.2 per cent of the total revenues, followed by Customs and Excise at 24.3 per cent. Non-Mineral Income Tax and Value Added Tax come third and fourth at 21.2 per cent and 12.4 per cent respectively.

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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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