Incomes Growth in Rural Botswana Lifts Thousands out of Poverty
WORLD BANK GROUP
Thousands of Batswana rose out of poverty thanks to increased growth in rural areas driven in part by rising agricultural incomes and welfare improvements, according to a World Bank Study released this week in Gaborone.
The Botswana Poverty Assessment report, found that the number of poor people in the country declined by nearly 180 000 between 2002/3 and 2009/10. This denotes a poverty rate decrease of 19.4% from 30.6% when using the national poverty line. In this period, 87 percent of the decrease in poverty occurred in rural areas, where 158,000 people rose out of poverty.
“Tackling poverty is at the heart of our National Development Plan. We are pleased to see that our welfare programs have improved the lives of many and made a dent in poverty levels, says Mr. Olebile Gaborone, the Permanent Secretary for Poverty Eradication, in the Office of the President of Botswana.
Based on two nationally representative household income and expenditure surveys conducted by Statistics Botswana in 2002/2003 and 2009/10, the report analyzes recent trends in the monetary and nonmonetary aspects of poverty in Botswana. It examines the drivers of poverty reduction by systematically looking at the demographic, labor, and human capital dimensions of poverty.
The report shows that increased agriculture incomes strongly supported by government subsidies and substantial changes in the demographic structure including the reductions in household sizes and dependency ratios were responsible for Botswana’s poverty reduction.
It found that the decrease in the incidence of poverty was accompanied by a significant decline in both the depth and severity of poverty. Furthermore, the poverty gap eased from 11.7 percent in 2002/03 to 6.2 percent in 2009/10, indicating that consumption has improved among the poor. Real consumption per capita rose 47.6 percent in rural areas compared to a nationwide real consumption per capita increase of 13.3 percent during the same period.
“Botswana has made much progress in its fight to end poverty. We will continue to support the Government efforts to make investments in a broad variety of areas to grow the economy, increase employment and eradicate extreme poverty”, says World Bank Country Director to Botswana, Guang Zhe Chen. “This is aligned with the World Bank’s mission to help end extreme poverty by 2030 and to boost prosperity among the poorest 40 percent in low- and middle-income countries”.
The study also revealed a decrease in inequality although with a Gini coefficient of 60.5 percent, Botswana remains one of the world’s most unequal countries. The level of inequality in Botswana is the world’s third highest, after South Africa and Seychelles. But between 2002/03 and 2009/10, inequality, the Gini fell from 64.7 percent to 60.5 percent. Most of the decline occurred due to welfare improvements in rural areas, while inequality in cities increased.
It also found that large numbers of people still live just marginally above the poverty line and at risk of falling back into poverty. Vulnerability was significantly reduced between 2002/03 and 2009/10. However, half of Botswana’s population remains either poor or vulnerable, with close to 31 percent classified as vulnerable.
“We see from our research that agricultural support programs were clearly a big part of the progress achieved during the period under review,” says World Bank Senior Economist Victor Sulla. “Going forwards, investments in human capital and efficient safety-net targeting will be critical to accelerating poverty reduction and reducing inequality further”.
The study also shows that the combined effect of labor, education and social protection improvements could help halve projected poverty by 2018 and eradicate it by 2030. It projects a fall in poverty levels of below 12% by 2018 and below 6% by 2030. However, inequality is not expected to fall significantly unless there is continued, broad-based employment growth.
The report recommends improving the quality of education and raising skills levels in order to close the skills gaps that dampen labor demand. It also recommends the development of a dynamic and productive private sector which is fundamental to creating more and better jobs and a greater focus on the most disadvantaged populations.
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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”