The opening of Parliamentary business for 2015, on Monday next week will as is customary start with the presentation of the budget for the 2015/16 financial year by the Minister of Finance and Development Planning.
Minister Kenneth Matambo is expected to deliver a budget that is geared towards the developmental challenges that the country faces as well as a recurrent budget in the same 70:30 ratio.
In the face of an economy that is still recovering after the economic recession of 2008, it has been said that “things are better.” But the country is yet to reach pre-recession growth levels of over 7 percent and the foreign reserves have not gone back to the pre recession levels.
This week, Grace Tabengwa, a senior researcher at Government policy advisor, Botswana Institute for Development Policy Analysis (BIDPA) gave her expectations of the budget, from a policy perspective.
Recurrent Budget Allocation of P33.32 billion, an increase of P2.79 billion or 9.1 percent increase over the 2013/14 budget. Ministry of Education and Skills Development (MoESD) is expected to get the lion share of the recurrent budget which might stand at P9.26 billion or 27.8 percent of the Ministerial recurrent budget.
BusinessPost was made to understand that budget surpluses are important in the macroeconomic level as it determines credit ratings among other things. “The fundamentals do not allow reserves to run out, we need to have a buffer,” said Tabengwa.
Tabengwa also alluded to a need to step up monitoring and evaluation of budget goals, saying efforts are being done and it’s a process.
The BIDPA researcher estimates that the Development Budget Allocation and Outlined Project Activities will stand at P12.24 billion, a marginal increase of 0.99 percent over the 2013/14 revised budget of P12.12 billion.
Ministry of Minerals, Energy and Water Resources (MMEWR) is expected to get the largest share of the development budget with the expected figure of P3.55 billion or 29.0 percent. Major projects constituting 97.4 percent of the budget are: Botswana Power Corporation (BPC) Finances at P2.05 billion to cover BPC operational and maintenance cost at P1.5 billion; North-West Power Transmission line at P200 million, Emergency power supply at P140 million; Rakola substation at P100 million, Morupule A and B at P60 million, ZIZABONA at P50 million; North-South Water Carrier II from Dikgatlhong Dam to Palapye, as well as from Palapye to Gaborone at P600 million; completion of Dikgatlhong and Thune Dams at P200 million and P100 million, respectively; emergency water projects at various locations at P200 million; Kanye-Molepolole connection to North South Water Carrier at P100 million; construction of sewerage systems for Kanye and Molepolole at P80 million as well as the Oil Storage project amounting to P50 million.
Key for Prioritization Process Consistency with Key prevailing economic Challenges; Synergies with National Development Plan 10 and 11 long term development objectives; More work should be on specific programmes, projects, strategies to support the; realisation of objectives; Result Oriented Budget Outcomes will benefit from; Target Specific relevant well defined delivered initiatives to realize growth and development, sustainability.
The existing economic challenges that the country still faces, are: Prevailing poverty dynamics; High Unemployment, youth; Power, Water, Infrastructure Challenges; Limited Diversification; Private Sector Development; Human Capital Development, quality and adequacy of Skills; Competitiveness, Promoting Investment and Business Environment; Limited Diversification and Revenues; Botswana Still on Recovery Path, fiscal reforms, tight Fiscal stance an binding constraints; Implementation of the NDP 10 – its conclusion and finally, it is a critical time for implementing Vision 2016 objectives
Total expenditure and net lending is projected at P51.46 billion in 2015/16 from the estimated P49.3 billion recorded in 2014/15. Of the total, recurrent expenditure is expected to increase slightly to P38.995 billion, once again accounted for by the increase in personal emoluments; while development expenditure is estimated to reach P12.6 billion; Despite the projected budget surplus in 2015/16, the net financial assets position remains negative, as a result of accumulated budget deficits from the financial crisis period. The share of the proposed budget for the 2015/16 financial year to GDP stands at 31.4 percent, which is close to the limit of 30 percent that Government committed to achieve in NDP 10.
The 2015/16 budget unfolds in a low growth environment with global risks for slow recovery in major economies-USA as well as a global growth forecast revised downward lately with Botswana’s growth trajectory being low at about 5 percent.
There are expectations that strategies for boosting growth: such as Economic Diversification Drive (EDD), Private Sector Growth, Investment and business reforms to continue being supported across sectors and policy reforms. Budget resources should be focused on attaining sustainable growth and spearhead the growth momentum under a fiscal binding constraint. Places Emphasis on diversification of growth and revenue sources and aims to alternative sources of growth, support business environment, to stimulate private sector growth; Addressing constraints to Foreign Direct Investment and competitiveness through a focus on advancing human capital development. The budget is also expected to provide for requisite infrastructure and its continued maintenance and a total factor productivity and supportive environment for non-mining sector growth.
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.