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More tariff hikes as Gov’t plans to stop BPC, WUC subsidies

The catastrophic economic mess occasioned by COVID-19 pandemic has pushed government to embark on an unprecedented cost containment undertaking – discontinuing subsidies for some parastatals.

This is aimed at managing the little remaining funds after COVID-19 wiped out billions of pulas projected for 2020/21 financial year, and further disrupting revenue streams for the entire remaining part of National Development Plan 11.

The diamond sales window alone, which is Botswana‘s main cash stream is likely to deliver a little P6 billion this year, against the initial projected revenue of P20 billion, mirroring a whopping 60 % decline.

Last week Government through Ministry of Finance released a draft recovery plan intended to stabilize  the economy , balance expenditure with depressed revenue , and keep the national  fiscal fabric afloat until markets and revenue streams bounce back to glory, something which global experts anticipate to happen somewhere around  mid 2021.

Coming out clearly from the Economic Recovery & Transformation Plan (ERTP) which was prepared by the treasury with input from Bank of Botswana, University of Botswana and Botswana Institute of Development Policy Analysis (BIDPA), is the intention to embark on massive domestic revenue mobilization.

This according to government officials will be undertaken to relieve government of spending burden and free up resources for major infrastructural and investment projects that can pump significant stimuli into the national economic grid.

Reducing funding to parastatals and government agencies has been underscored as one of those avenues earmarked to save Botswana’s deteriorating revenue basket.

On an annual basis government spends billions on parastatals and agencies across different ministries. These are amongst others, research institutions, government think tanks, investment promotion agencies and regulatory bodies.

Amongst the organizations resourced by taxpayers through subvention are State Owned Enterprises, in particular those providing essential services like water and electricity have been receiving significant backing from Government through tariff subsidies.

However in the highly anticipated new expenditure blueprint, these parastatals will have to fend for themselves. Botswana Power Corporation(BPC) and Water Utilities Corporation (WUC) have been singled out as some quasi-governmental organizations that will no longer have it easy with receiving money from government, with suggestion that they  will have to seek credit lines if need arise.

“Parastatals such as BPC and WUC, with high capital expenditure needs, can potentially raise their own funds from capital markets by borrowing to finance their new projects,” reads the economic recovery plan.

The document further stated, “But these parastatals need to be able to charge cost-reflective tariffs to become financially self-sustaining and eliminate dependence on transfers and subsidies from government.”

BPC receives  tariff subsidy from government in the average region of P1 billion annually to cover operational costs and cushion consumers against high tariffs while Water Utilities occasionally receives  around P350 million pula depending  on dynamics of a particular financial year.

This year just after COVID-19 took its toll, Government announced a 22 % increase in electricity tariff.

The regulator Botswana Energy Regulatory Authority (BERA) explained that the tariff increase was to ensure cost reflective, affordable and appropriately priced service that supports BPC operational costs so that the corporation can continue fulfilling its mandate of delivering quality, reliable and sustainable power supply to its customers.

Just after Botswana emerged out of a month long lockdown, Permanent Secretary in the Ministry of Land Management, Water & Sanitation Services, Bonolo Khumotaka  revealed  that Water Utilities had lost over P100 million from unpaid bills.

She reiterated that Water Utilities Corporation was therefore suffocating from overwhelming operating costs that are not recovered.

To rectify this perennial dependence on government capital injection the economic recovery plan wants consumers to pay more.  “Electricity and Water tariffs will be progressively raised to market levels within a specified period of about 3 – 5 years.”

“This should reduce the need for government financial support and allow these corporations to raise funds in the market on the strength of their own balance sheets,” observed officials at the Ministry of Finance.

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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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