Bank of Botswana, has concurred with Brettonwoods institution, International Monetary Fund (IMF), that Botswana has to make reforms, albeit moderate adjustments, if the country is to see itself graduate from middle income status to high income status.
Matthew Wright, Deputy Director, Monetary and Financial Stability at Bank of Botswana, said at an engagement between the Bank and the local media that the success rate for middle-income countries to graduate to the high-income category is low, with only 20 percent overcoming the trap.
For the current 2015 fiscal year, low-income economies are defined as those with a GNI per capita, calculated using the World Bank Atlas method, of $1,045 or less in 2013; middle-income economies are those with a GNI per capita of more than $1,045 but less than $12,746; high-income economies are those with a GNI per capita of $12,746 or more.
Lower-middle-income and upper-middle-income economies are separated at a GNI per capita of $4,125.Wright said that since 1960, about 51 percent of low-income countries have graduated to middle-income status but have since stagnated in that category.
He noted that in order to avoid staying in middle-income trap, the economic agenda must be inclusive but remain tightly focused. This includes financial inclusion which he said is a key element of inclusive growth. Wright said there must be focus on binding constraints, saying “making modest adjustments can be effective.”
He also noted inefficient bureaucracy is an obstacle to economic progress. Wright said there is a need to strike a balance of social safety net programmes , that are sustainable, and well targeted to reach the right people, while ensuring that a dependency situation is created.
The IMF also noted in a seminar held in Mauritius, in November 2014, that Botswana and other countries in the sub Saharan African region such as Cabo Verde, Lesotho, Mauritius, Namibia, Seychelles, and Swaziland run the risk of being remaining in the income bracket of middle income countries.
Among the aspects touched on by IMF are: building sufficient policy buffers to absorb external shocks—especially since official financing flows for these countries will fall over time but At the same time, being aware of significant opportunity costs of buffers such as holding large reserves, especially in view of important infrastructure gaps that restrain long-term growth in such countries; promote diversification with policies to reduce the skills mismatch, If done right, these policies could help “crowd in” private sector employment, and also to implement public employment and wage policies that will improve labour market outcomes, and to avoid the government becoming the “employer of last resort”; boosting productivity with the quality of public spending.
The IMF noted the need to create “reform champions” that are insulated from short-term political cycles.
On the issues of financial inclusion, the IMF said “financial inclusion is crucial for structural transformation and inclusive growth—while noting that small middle-income countries have some of the most uneven distributions of income in the world.”
“Building on past success, small middle-income countries in sub-Saharan Africa have now set themselves the challenge of reaching high-income status and avoiding the middle income trap. While still positive, growth has slowed, as previous growth drivers weaken and the rise in per capita income wanes,” wrote the IMF, after the Mauritius seminar.
NDB, PRIVATISATION While the standard response to the slow pace of the envisaged privatisation drive is that it has to be done in a pragmatic manner, the central bank posits that privatisation has been disappointing.
Matthew Wright, Deputy Director, Monetary and Financial Stability at Bank of Botswana said that privatisation the private sector must lead the next stage of development in Botswana.
Government adopted a Privatisation Policy in 2000 as part of a strategy to improve the efficiency of the public sector.
This strategy included the sale of public assets and outsourcing the non-core public services. However, Botswana Telecommunications Corporation Limited (BTCL), whose privatisation process has hit a snag while in the advanced stages.
The move to turn the National Development Bank (NDB) into a commercial bank kicked off with commencement of the transition Act in June 2014. NDB would become the first indigenous bank in Botswana, if it were to go public with Government remaining as a shareholder and citizens getting 49 percent, the same model proposed by BTCL.
Linah Mohohlo, Governor at the central bank, noted that NDB’s loss position is an example of why privatisation should be done in a pragmatic manner.
Mohohlo said that BoB has no control over NDB as it is a statutory body and is under the Ministry of Finance and Development Planning. Mohohlo however revealed that NDB had breached a statutory requirement to submit its financials to Bob within six months after its March 2014 year end, only doing so early in 2015, citing a new core banking platform that it had introduced, as the reason for the delay.
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.