Economists warn against panic relief policies
Economists have warned for careful consideration of long lasting negative consequences arising from government’s policies that are intended to relieve businesses and people from the effects of Covid- 19.
In an effort to revamp smaller businesses and to stimulate demand in September 2020, the government of Botswana developed an economic recovery and transformation plan at a tune of about P14.5 billion. The government set up a P1.3 billion industry support fund, with an objective of supporting local businesses. On the other hand, the National Development Bank ( NDB) disbursed P50 million Agri- Business Stimulus Fund to promote smart farming.
On their quarterly Economic review, which is conducted by Stanbic Bank Botswana, University of Botswana Professors, Dr Onkokame Mothobi and Dr Jonah Tlhalefang have stated that despite these extraordinary policies, Botswana is still faced with many challenges, more specifically in the informal sector and the arts and industry.
“Despite the informal sector providing the much needed income for the 38percent of the unemployed youth, the sector seems to have been forgotten by policymakers. Moreover, it would have been even more helpful if the State Of the Nation Address had painted a picture of the performance of the COVID- 19 Response Plan than to just recapitulate it.”
Dr Tlhalefang also pointed out that the low levels of foreign exchange reserves implies that Botswana is in a weak position to defend itself from the ravaging Covid- 19. He explained that the sudden effects of the coronavirus on the economy calls for urgent policy responses to mitigate its impact on the economy as a whole and enable people to retain their jobs and incomes.
“At the same time, governments have to keep their own finances in good health in the midst of unprecedented pressures on their expenditure, revenues, and traditional sources of financing.”
The pandemic had led to halting activities in critical sectors of the economy such as manufacturing, mining and informal sector.
When presenting the State of the Nation Address ( SONA) in November 2020, President Dr Mokgweetsi Masisi stated that Botswana’s economy is expected to rebound in the coming year, with overall growth forecast at about 7.7 percent. Dr Tlhalefang pointed out that this is rather surprising, given that the economy was growing at about three percent in the previous year and more so before COVID- 19. “As per the SONA, the 7.7 percent growth of Botswana’s economy will be driven by the recovery of some critical sectors such as mining, trade, hotels and restaurant; transport and communication, which are expected to grow at 14.4 percent, 18.8 percent and 4.2 percent respectively in 2021. In fact, at the current rate and trends, Botswana’s economy will remain downbeat in 2021 and will probably recover in 2023. Household credit growth is expected to be weak in both third and fourth quarter of 2020 and definitely in 2021.”
Last year government spent more than P4 billion on various components of the relief packages. Fiscal measures that were put in place included broad- based tax relief: such as the provision for deferment of profit taxes payable by business, waiver of the Training Levy for six months; a three months wage subsidies for businesses that have been adversely affected by COVID- 19; loan guarantee scheme to support access to bank credit by affected businesses; increasing health and other expenditures directly related to COVID- 19, such as treatment, testing, quarantine and contact tracing as well as repayment holidays for bank loans for adversely affected borrowers.
Both the extreme social distancing measures, including the lockdowns and the economic relief packages were all implemented with an urgent need to prevent a catastrophic economic collapse that would have a dire human, social, and health consequences.
Dr Tlhalefang warned that in developing these policies, careful consideration needs to be taken. “Experience from the 2007/ 9 economic crisis suggests that poorly designed stimulus packages can have negative, long lasting consequences for the economy as a whole. Although there is an urgent need to deploy measures quickly, there is a need to ensure that the current stimulus packages do not create a culture of relying excessively on windfall gains dependency.”
Recently, government, through the ministry of Investment, Trade and Industry, introduced some strategies, including the Ecommerce portal, Entrepreneurship Development Fund, which targets graduates looking to venture into business as well as the Economic Inclusion Bill 2021.
The bill is expected to enable citizens to participate in the economy. Presenting the bill in parliament recently, Minister of Investment Trade and Industry, Mmusi Kgafela said the objective is to establish the Economic Inclusion Office with the primary mandate of promoting effective participation of the targeted citizen in economic growth and development.
“This will be achieved by creating an environment that is aggressive in targeting global leaders in selected economic growth areas. Once it is passed into law, the Bill will provide an opportunity for targeted citizens to conduct business with the state, as government will give preference to local organisations.” Said Kgafela.