Govt. budget projections overly ambitious
The finance and economic development Minister, Peggy Serame presents her maiden budget this coming week amid sentiments that the economy is not yet out of the woods.
While government expects the economy to grow by close to 10 percent this year, independent analysts say the projections are overly ambitious.
In fact, they posit the economy will only grow by half of that, a scenario which can spoil the new finance Minister, Peggy Serame’s wish of presenting a budget with a surplus.
The onset of COVID- 19 in Botswana early 2020, has battered the country’s revenue and there are many projects that the citizenry will be hoping the Minister will start.
A long serving technocrat with the Finance and Trade Ministries, who for years has contributed to the national budgeting process in one way or the other, will this time around face disquiet from Members of Parliament and a jittered public who want nothing but food on the table.
She is well aware that the stakes are high. While she may be tempted to sway public confidence on her side by presenting a favourable budget, numbers on the ground will show that revenue has plunged, and reserves are close to pre- crisis level.
There is also a mounting debt which sooner than later can attract the wrath of credit rating agencies. Unemployment rate has reached record levels. Budget deficit has widened and, while diamonds, the mainstay of economy, have shown some signs of recovery, other non- mining sectors are yet to come to the party.
It does not end there for Serame. As a matter of fact, the much- touted economic diversification drive which was meant to further improve the country’s revenue base, has not delivered the intended results.
For poor Serame, all odds are stark against her to present a moving budget which can inspire the general populace that has largely been affected by the COVID- 19 plague.
An economist by profession, the new Finance Minister is well aware that spending more of what the country has on its coffers isn’t sustainable and there can be a hefty price to pay. Already the current 2021/ 2022 budget is poised to have an expanded deficit.
Government has not yet announced how this deficit will be plucked as most of the funds, including those borrowed from multilateral lenders such as World Bank, have been channeled towards fighting the COVID- 19 scourge.
‘ STOP FUNDS LEAKAGES’
Botswana, as a developing and middle- income country continues to invest heavily on infrastructure in a bid to help improve ease of business, both for domestic investment and Foreign Direct Investment attraction. As a result, billions of Pula are being spent annually to improve existing infrastructure such as roads, schools, and dams among others. More is also being spent to construct new projects. However, an economic and social research consultant, Mosimane Rammika told Botswana Guardian that the Minister must come out clearly and explain to the public the measures that government has come up with to reduce wastage in the public finance system.
“There are a lot of leakages within government finance system. This trend has been going on for a number of years and it needs to be addressed as a matter of urgency given the economic circumstances we find ourselves in,” Rammika said this week.
Former Finance Minister, Dr. Thapelo Matsheka has previously highlighted this concern. “The problem of “poor value- for- money” associated with some Ministries has featured prominently in previous Budget Speeches, and is worth repeating here.
“Public Expenditure Reviews are useful ways of identifying means of improving spending efficiency, and will be acted upon. Coupled with this, is the issue of poor expenditure outcomes; for example, an assessment of Public Investment Management by the IMF in 2017 revealed that 37 percent of public expenditure on infrastructure goes to waste in Botswana,” Matsheka who was this week controversially removed from cabinet, disclosed at the time.
The new Finance Minister must announce specific measures on how government intends to cut wastage. “Government is spending more as a result of leakages. This problem needs to be addressed because at the end of the day, it is the man on the street who suffers as money which could have been spent on social amenities is now being used for something else,” added Rammika.
Analysts at Ninety One, formerly Investec Asset Management Botswana also concurs with Matsheka and Rammika that value for money is key as there is always a price to pay for wastage.
“Value- for- money is reflected in poor service delivery and is ultimately an unfair tax on citizens, especially the taxpaying public,” portfolio manager, Pako Thupayagae and analyst Laone Babitse said in a note.
Half the time, wastages go side by side with poor implementation of projects. RSM, a Gaborone- based audit and tax firm agree. “There are deep- seated project execution problems that existed before COVID- 19.
“Bottlenecks in the implementation of the development programme, and the resultant underspending, points to capacity challenges in areas such as project design, contracting processes, project implementation, project monitoring and evaluation,” they pointed out,
AN EXPANDED BUDGET EXPECTED
Commentators are of the view that, while government revenues are yet to reach desirable levels amid uncertainty surrounding COVID- 19 new variants, Serame, will nonetheless present an expanded budget, especially within the development budget portion.
Total expenditure and net lending for 2021/ 2022 is projected at P70.61 billion. This includes P56.05 billion which was proposed for recurrent expenditure ( both Ministerial and Statutory), while P14.75 billion was proposed for the development budget.
Rammika is of the view that an expansive development budget is key especially in an economy like Botswana where government controls the economy.
“It is simple, if government does not increase the national budget, we are all doomed,” he said. As it has been the tradition, many agree that the defence and education ministries will continue to get the lion’s share of the budget.
Serame is also expected to increase the budget for the projects in areas such as solar energy, maintenance of existing assets as well as serving of loans, which in the past year have increased.
In fact, it has been reported that government’s total debt is at P45 billion. In the past year alone, Botswana secured funding from both the World Bank and African Development Bank to the tune of US$ 250m and US$ 137m respectively. These loans are expected to finance the country’s Economic Recovery and Transformation Plan ( ERTP).
BROADEN REVENUE BASE
For decades, government has tried but in vain to diversify the economy. The result of the narrow economic base has filtered into the country’s budget, as the mining sector still contributes significantly to the national budget.
This is the scenario that the Minister, who is almost a year into the job must tackle head on. “I expect mineral revenue to be the biggest contributor to the budget,” Rammika said, adding that, this is a stark reminder that the country has dismally failed to diversify away from the mineral sector.
In the current financial year which ends this April, mineral revenue is poised to contribute P23.20 billion or 36.33 percent of total revenues to the budget, which is significantly higher than the revised budget of 2020/ 2021 of P6.56 billion.
Non- Mineral Income Tax is estimated at P13.78 billion, which is the second major source of revenue.
Customs and Excise revenue is estimated at P13.52 billion, while VAT is estimated at P10.67 billion.
Rammika added that government has to look into sectors such as agriculture to diversify into. Agriculture which was once the darling of the economy contributes less than five percent to the national economy.
However, pundits are of the view that with proper initiatives, the sector can come back to life. Programmes such as Integrated Support Programme for Arable Agriculture Development ( ISPAAD), which will be replaced by a new programme this year, have yield limited results. In the latest Gross Domestic Product ( GDP) figures for Q3: 2021, the sector’s performance was not any better as it dropped by 4 percent.
“The unfavourable performance was mainly due to a decline in real value added of Livestock farming by 8.7 percent. This weak performance was attributable to fewer cattle marketed during the quarter under review.
“Cattle sold to Botswana Meat Commission and municipal abattoirs registered a decline of 12.3 percent,” Statistics Botswana said.
Serame is well aware of calls from International Monetary Fund ( IMF) that the other option which can help government to diversify is emphasis on promoting non- mineral exports, manufacturing, and transformative sectors ( including green and climate adaptation technologies).
BUDGET DEFICIT SET TO WIDEN
Some analysts are of the view that, Serame is likely to present a budget with a widened budget deficit, as more and more projects, which are of critical importance are supposed to be funded, even though funds for such are not readily available.
In addition, the complexity of new COVID- 19 variants may force government to spend even more. Dr. Mosepele Mosepele, a senior member of the Presidential Task Force, earlier this week announced that more booster shots for COVID- 19 are needed to fight the disease.
Previously, government has projected a budget deficit of just over P6 billion for the 2022/ 2023. However, towards the end of 2021, the Finance Minister, presented a supplementary budget for some ministries, a development which is likely going to further increase the estimated deficit.
Meanwhile, economic analysts at Econsult, have warned government to trim down budget deficits. “There is greater need to bring the budget to a surplus as debt is at historically high levels, and savings have been run down. A renewed thinking to promote growth which is export- led ( and not mineral- led) is critical,” said the Econsult, a privately- owned economic think tank.
“This can be achieved by promoting domestic production, improving export competitiveness and diversification, encouraging inward investments by creating an environment which is favourable for attracting investment and business operation.
“But on the fiscal side, the most critical objective is to reduce the size of government, which is simply unaffordable in its current state, in the long term’.
PARASTATALS’ RESTRUCTURING AND MERGING
There are growing calls that government needs to make a decisive decision on what could be done to improve efficiency of some parastatals. Unfortunately, Serame, who has sat on a number of parastatals’ boards, will have to deliver the good or bad news relating to each and every parastatal.
The previous Minister, Matsheka has raised concerns over some of the loss- making parastatals.
“I am pleased to report that a comprehensive Rationalisation Strategy covering all parastatals has been developed. Implementation of the Strategy will address issues such as duplication of activities and overlapping mandates.
“Some parastatals have also been identified for privatisation, while others could be closed. This will reduce Government spending on these entities,” stated Matsheka when delivering his last budget speech last year.
Government has over 60 pararatatals currently spread across various ministries.