Due to adverse impacts of COVID-19 on the economy, Botswana finds herself in a tight corner, and is forced to revisit the initial budget allocations for the year 2020/21, and suspend some projects to free up funds and redirect money to more pressing issues such as massive spending on public institutions to reconfigure spaces for new normal health protocols.
This is in addition to hundreds of millions of pulas spent on fighting the pandemic itself, that is in terms of procurement of medical supplies and testing equipments, incurring costs on quarantine and isolation facilities in addition to logistical expenditures from contact tracing and curbing the spread of the virus.
On Monday, the Minister of Finance and Economic Development, Dr Thapelo Matsheka told parliament that government prioritization exercise has released over P910 million from deferring and suspending some expenditures planned for this financial year.
Dr Matsheka explained that aside reduced spending from little to zero international travels, cancelled physical meetings and conferences government has put some projects on hold to give way for high priority development projects.
Minister Matsheka shared that much of the freed funds across government budgeting system would be consumed by COVID -19 related projects such as building ablutions, installing health protocol apparatuses for the new normal.
Matsheka further revealed that Government has taken a decision to accelerate national projects under Public Investment Programme contained in the Mid-Term Review of National Development Plan 11.
The Minister noted that the projects have also been amplified by the Economic Recovery and Transformation Plan (ERTP), which is intended to catapult Botswana out of economic downturn caused by COVID-19 pandemic.
When putting Mid-Term Review before Members of Parliament on Monday Minister Matsheka explained that the Public Investment Programme will move swiftly to implement massive development projects with significant economic stimuli, major infrastructure projects in rail and road construction as well as agriculture.
The Minister added that a number of projects associated with the digital transition have been included along with those focused on energy independence and energy exports.
The novel corona virus whose origins are traced to China in the city of Wuhan in December 2019 has restricted international travel for the larger part of 2020 first half, muting global trade and eroding business sentiments across world economies.
Growth projections by World Bank and International Monetary Fund (IMF) for Global Economy stood at -3 % from initial growth rate of 3 %.
In Botswana authorities projected that the economy would shrink by 13 % against the initial projected growth of 4 % for the 2020/21 financial year. Government however later revised growth rate to a contraction of 8 %.
Minister of Finance & Economic Development, Dr Thapelo Matsheka revealed in April that against initial projected revenue of P62.4 billion, Botswana‘s economy would only generate a projected revenue of about P48 billion.
Government then moved to trim its 2020/21 budget from P67.6 billion to P59.6 billion. Budget deficit would now shoot up from initial P5.2 billion, 2.4 % GDP to over P10 billion which would be over 5 % of GDP, well over government threshold of 4%.
The Minister announced then that Government would therefore do away with some planned expenditures and projects. He revealed that conferences and meetings would be cancelled, especially international travels by government, state funded institutions and parastatals.
Funding to parastatals and quansi-governmental institutions would be significantly reduced. “No luxury of attending international conferences but rather we are going to be a destination of conferences as a country,” he said in April.
The decline in government revenue will be attributable to a massive reduction in Mining & Mineral revenue which is anticipated to shrink by over 33 %. The drop in mining and mineral revenue is predominately as a result of halt in rough diamond sales due to travel restriction and stand still in trading across the industry.
The diamond industry is Botswana‘s key foreign income earner and largest contributor to GDP. It was projected that diamond revenue will bring to the table a total of P20 billion ,Dr Matsheka revealed that Government experts revenue from mineral revenue to only be around P6 billion.
Botswana’s diamond business partner De Beers Group last week released their half year results, figures are showing significant declines in earnings, as well as reduced production owing to depressed demand across global markets.
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”