Weakening fiscus expected to raise gov’t debt appetite
Officials from the Ministry of Finance (MOF) anticipate that limited capital inflows into government coffers will compel government to seek additional debt from various financial instruments. In their presentation of the budget statutory paper to Members of Parliament, officials disclosed that the expected high deficit for the 2024–2025 financial year may lead to a reassessment of debt ceilings and an increased reliance on borrowing to finance budget shortfalls.
Batane Matekane, the director of Macroeconomic Policy at MOF, explained that the financial pressure from implementing government initiatives like the Transitional National Development Plan (TNDP) will create a significant gap between government earnings and budgetary costs, necessitating financing through borrowing. “We expect high budget capital costs due to the implementation of TNDP projects alongside weak revenues from diamonds, which may place the nation in an unfavourable fiscal position,” he said.
Matekane highlighted challenges faced by traditional revenue sources for the government, particularly the declining mineral revenues from diamonds. He further disclosed that the projected deficit for the upcoming financial year is P5 billion, with earnings expected to be P83.6 billion against a projected budget cost exceeding P88 billion.
“Risks to the outlook include shrinking warnings, especially from falling mineral revenues which we predict will widen the deficit even further,” he said. In January, the government initiated a seed round to raise P2.4 billion in debt from the capital market, marking the largest single bid for funds under the domestic borrowing programme in nearly two years.
The auction involved three treasury bills and two bonds by the Bank of Botswana (BoB) under the P30 billion domestic borrowing programme approved by Parliament in September 2020, designed to fill budgetary gaps while enhancing the capital market’s depth. Matekane appealed to legislators to review credit legislation governing government borrowing structures, as the ministry contemplates additional debt options amid an imbalanced fiscal position.
While Parliament doubled the government’s domestic borrowing programme to P30 billion in September 2020, the central bank has struggled to meet debt targets due to market interest rates surpassing what the government is willing to pay.
As per draft budget estimates in the statutory paper, the ministry aims to allocate P17.1 billion for interest and principal repayment on various domestic and external loans in the upcoming financial year, compared to the P10.4 billion budget for the current financial year ending on March 31.
This includes settling a local bond of P3 billion maturing in June this year. To cover the forecasted P7.6 billion deficit for the upcoming fiscal year, the government plans to raise a net of P3 billion from the local capital market and an additional P2.7 billion from external lenders.