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Striking right balance: Sustainable development vs Sustainable debt

Over the past two decades, sub-Saharan Africa has made considerable economic progress: extreme poverty levels have declined by one third; life expectancy has increased by a fifth; and real per capita income has grown by about 50 per cent on average. Yet, sub-Saharan Africa is still only half way to meeting the Sustainable Development Goals.

To achieve these goals, according to International Monetary Fund IMF Blog, sub-Saharan Africa will need financing. One of the ways to access financing is through borrowing. It makes sense for governments to incur debt if done wisely. If debt is used to finance projects that boost productivity and living standards, such as investing in roads, schools, and hospitals, and if governments can recoup enough of the benefits of these investments to repay the incurred debt, then borrowing is worthwhile, IMF said
However, room for borrowing has become more limited in this region as public debt levels increased rapidly between 2011 and 2016; they have since stabilized at around 55 per cent of Gross Domestic Product GDP on average.

 IMF further indicated that countries in the region have also relied more heavily on commercial borrowing on domestic and international financial markets, such borrowing accounted for more than 70 per cent of the increase in debt stock this decade. This shift to non-concessional financing means more spending on debt service and less on social and infrastructure investment. It is clear that sub-Saharan African countries will not be able to simply “borrow their way” to the Sustainable Development Goals SGDs.

So, what is needed? This was the topic of a conference organized by the IMF together with the Government of Senegal on December 2 2019, in partnership with the United Nations and the Cercle des économistes. Dakar was a fitting venue as Senegal has launched its Plan Sénégal Emergent aimed at transforming its economy, creating jobs, and boosting living standards. It was also apt because, as I told the conference attendees, policymakers can draw inspiration from the Lions of Teranga, Senegal’s national soccer team, which impressed everyone at last year’s Africa Cup of Nations.

IMF stressed that the Lions of Teranga’s success is based on a balanced approach, between the urge to attack and the need to defend, between individual efforts and team performance. Similarly, Africa is seeking to find the right balance between financing development and safeguarding debt sustainability, between investing in people and upgrading infrastructure, between long-term development objectives and pressing immediate needs. In short, a balanced approach is needed; and, in order to get there, all stakeholders will need to raise their game.

There are five powerful tactics that we can all pursue to find the right balance between development and debt, three directed at sub-Saharan policymakers and two at the international community and the private sector. The first tactic is to generate higher public revenue. This is an area where sub-Saharan Africa lags other regions. ‘’We estimate that revenue collection is 3–5 percentage points of GDP below revenue potential. Closing that gap can be done, as shown by the good example of Uganda, where, with technical support from the IMF, reforms helped raise the revenue-to-GDP ratio from 11 per cent in 2012 to almost 15 per cent last year’’.

The second tactic is to make investment spending more efficient, IMD said. The reality is that only about 60 per cent of the region’s infrastructure spending translates into public capital stock. For every dollar spent, you are getting only about 60 cents worth of assets. The third tactic is to strengthen public debt management. A key objective is to boost debt transparency by providing accurate, comprehensive, and timely data. This in turn can help build trust with investors, support domestic capital markets, and reduce debt service costs.

‘’And yet, even as countries pursue the three tactics, we all need to do more. Boosting domestic resources is critical, but not enough. Even strong domestic efforts are likely to cover just a quarter of the estimated SDG needs. So, the global team also needs to do more’’ IMF expert highlighted

So, fourth tactic: Advanced economies can do more, especially when it comes to aid. The goal is to raise official development assistance to 0.7 per cent of donors’ national income. Donors could also focus more on infrastructure by providing grants and concessional financing for projects with credibly high rates of return.

‘’Fifth tactic: We also need to bring in more private-sector players, including more foreign direct investment, to help close the significant financing gap. Responsibility for achieving the SDGs must begin with efforts by the public sector, but it cannot end there. Above all, we need to ensure that private and public players can both end up on the winning side. A good example can be “blended finance,” which brings together grants, concessional financing, and commercial funding’’.

How can we encourage risk-sharing? How can we scale up development finance for the benefit of all? These are just some of the issues that Africa is now grappling with. But it is clear that we all benefit if we act jointly to promote the good of Africa. As the Senegalese proverb puts it: “Whatever one person can do, two people can do it even better.” That is the spirit of the Lions of Teranga. It is the same spirit that lies at the heart of what we are trying to achieve across sub-Saharan Africa.

Other experts close to IMF indicated that those multilateral and advanced economies must help capacitate the emerging economies effective and efficient revenue collection especially from multinational companies who may be understating their bottom line. Additionally politicians in most emerging markets especially in Sub-Saharan Africa are using politics to amass national resources through corrupt means and end up acquiring huge properties in developed countries at the expense of the poor national.

Why don’t assist these poor countries by letting these selfish leaders account for some of the acquired properties through illicit measures. There is also need to increase financing to watchdog institutions in Sub-Saharan Africa who can assist in monitoring the appropriation of national budgets in emerging economies. Another expert indicated that the major problem of the sub-Sahara Africa continent is bad political leadership and followership. Both are contributory factors with the direct consequence of corruption.

Also, the international community has aided these two factors to their self-centred goals. Thus, this region will keep grappling with all factors mentioned in this article until the advance nations and or international community start working for the benefits of Africans as against their self-centred goals

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Botswana on high red alert as AML joins Covid-19 to plague mankind

21st September 2020
Botswana-on-high-alert-as-AML-joins-Covid-19-to-plague-mankind-

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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