Strong growth in the majority of sub-Saharan Africa’s economies should underpin a robust regional expansion in 2014 and 2015, although energy supply constraints, strikes, and weak global and domestic demand will limit South Africa’s growth.
This is according to the International Monetary Fund (IMF) African department director Antoinette Sayeh during the release of the October 2014 regional economic outlook report for sub-Saharan Africa on Monday.
The IMF forecast that the region’s economy would grow by 5.1% this year and 5.8% next year, while SA was seen growing at 1.4% this year and 2.3% next year.
Sayeh said the region’s growth would be supported by “continued public investment in infrastructure, buoyant services sectors and strong agricultural production.”
The IMF urged countries to support policies that emphasised growth-enhancing measures given the effect a more pronounced slowdown in emerging makerts a disorderly normalisation of monetary policy in the US could have on the region’s economies.
“In particular, the focus should be on boosting fiscal revenue mobilisation, channelling spending towards infrastructure investment and other development needs, safeguarding social safety nets to encourage more inclusive growth and improving the business climate,” Sayeh said.
The report advised that monetary policies should continue to focus on reducing inflation, including by reining in countries with rapid growth and persistent high inflation.
SA is among countries that are tightening monetary policy and began an interest-rate hiking cycle with a 50 basis point increase in rates in January. Another rate increase of 25 basis points was implemented in July. The moderate rate increases are to take into account weak economic growth.
Sayeh also said fiscal consolidation, which SA, among other countries, was embarking on, should continue. “In the few countries where budgets have become overextended and financing constraints have emerged, fiscal consolidation is necessary, but will need to avoid overly adverse consequences for the poor and vulnerable groups,” she said.
The IMF acknowledged that economic growth would take a knock in countries worst affected by the Ebola outbreak. Sayeh said the virus, expected to have killed more than 4,000 people mainly in West Africa, was “exacting a heavy economic toll, with economic spillovers starting to materialise in some neighbouring countries.”
The report highlighted Ebola and high debt ratios as challenges to countries in the region.“In a few countries, continued high growth and favourable global financial makert conditions have not been sufficient to avert debt build up and financing difficulties,” Sayeh said.
The report states that during the past decade, growing links with emerging makerts have supported the region’s expansion and economic diversification but have also increased its vulnerability to external shocks.
Although global growth is projected to gradually strengthen, an expected deceleration in emerging makerts and a rebalancing of Chinese demand toward private consumption will make the external environment less supportive for the region. In particular, these trends could soften global demand for key sub-Saharan African exports, including commodities.
Tightening financial conditions stemming from a faster-than-expected normalization of U.S. monetary policy, adverse geopolitical developments, or a worsening of the countries’ fundamentals could also result in lower and more expensive access to external funding and a scaling down of foreign direct investment.
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”