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Economic diversification efforts not paying off – Sebabole

Chief Economist at First National Bank (FNBB), Moatlhodi Sebabole says Botswana’s efforts towards diversifying the economy and realizing a mixed revenue profile are clearly not paying off. Sebabole said this recently when giving pre and post budget reviews for the 2020/21 financial year.

Citing Botswana’s revenue and grants basket profile Sebabole says the figures show a clear trend of dependence on mineral revenue signaling undesirable outcome against the run of efforts and investment in trying to pick up other revenue channels. Owing to the steep downturn in the diamond market during the 2008/09 Global financial crises Mineral revenue accounted for only 30 % of Government revenue in the 2009/10 financial year with SACU revenue accounting  for about 26 %  and Non mineral economic sectors  revenue going in at 19% while VAT contributed  in 13 %.

Against all efforts to diversify the economy the Mineral revenue rose through the years to account for about 37 %  of government total budget in 2015 until dropping down a bit to just over 35 % for  2019/20 financial year. However total revenues and grants for the 2019/2020 Financial Year were  revised to P60.71 billion with the main revenue contributor being Mineral revenue at P18.43 billion; Customs and Excise at P13.79 billion; and VAT at P7.92 billion. This placed mineral revenue at just above 30 % of total revenue and grants.

“As long as Mineral revenue still accounts for over 30 % of our total revenue, zigzagging up and down through the years to over 35 %, our revenue profile poses a serious risk,” cautioned Sebabole. The Economist further indicated that other revenue windows such as Customs and Excise revenue have remained below 25 % for some time signaling trade stagnancy and little improvement on the export sector.

Within the Foreign income earning basket Mineral revenue controls the channel, sitting at almost 90 %. “In Africa it is Botswana and Angola with this unhealthy revenue profile, Angola because of their Oil and Botswana because of our diamonds, this signals that we have failed over the years to diversify our economy and promote export of other products to foreign markets,” he said.

For the 2020/21 financial year total revenues and grants are estimated at P62.39 billion, of which, Mineral revenue is estimated at P20.02 billion. Customs and Excise revenue is expected to be P15.38 billion, with Non-Mineral Income Tax estimated at P14.22 billion, while VAT is expected to amount to P8.55 billion.

These estimated figures mirror that government revenue will still in the coming years rely heavily on mineral exports. However Moathodi Sebabole who is also chairman of National Economic Transformation strategy set up by President Masisi last year says government consolidated efforts and singling out Export development as one of its key priority areas sparks some confidence going forward.

Delivering the Budget Speech on Monday Minister of Finance and Economic Development Dr Thapelo Matsheka highlighted that amongst government‘s key priority areas promotion of export growth comes on top. “The objective is to ensure that the drivers of economic growth in Botswana shift towards export promotion. This, Mr. Speaker, will address the balance of payments problem, which has emerged in recent years as a constraint to economic growth,” he said.

Dr Matsheka explained that as a result, greater effort is required in implementing the country’s Export Strategy, since increased exports of goods and services do not only contribute to growth, improved balance of trade position; but are necessary for replenishing the country’s foreign exchange reserves. The Minister explained that on the positive fronts, acknowledging the slight progress thus far, and preliminary review of the first half of National Development Plan 11 signals that economic performance was in line with the original NDP 11 projections, while economic diversification progressed fairly well during the first half of NDP 11.

The share of the non-mining private sector in value added terms rose to 66 percent in 2018, compared to 63 percent in 2015. The sectoral pattern of growth also showed that the services sectors of Transport & Communications, Trade, Hotels & Restaurants, and Finance & Business Services were the fastest growing sectors.   

He however noted that Botswana still imports most of its requirements, including basic products that do not require huge investment to produce locally. Minister Matsheka explained that using Government’s purchasing power through programmes such as the Economic Diversification Drive (EDD) and citizen empowerment initiatives, additional measures will be put in place to ensure reduction in the country’s import bill. “It is only through a deliberate and vigorous implementation of the Export Strategy and Import Substitution Strategy that the country can restore its external balance and create the jobs that are required in an inclusive economy, in which Batswana are major players,” he said.

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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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