Finance Minister advised to walk the talk
There is an urgency for government to walk the talk when it comes to care free spending and broadening revenue collection base. The restoration of fiscal sustainability and rebuilding of buffers cannot be over- emphasized for a country like Botswana, which is coming from a low base as a result of COVID- 19 plague.
This is the message that Botswana Guardian has deduced from a research note conducted by Ninety- One headlined: “The 2022 Budget Speech: Refocus. Reform. Restore,” which was published this Tuesday.
Analysts at Ninety- One, a leading asset manager, are of the view that, last month’s budget speech by Finance Minister Peggy Serame, focused much on what could be done to address concerns, same as what her predecessors have said, with limited progress being made so far.
“Many of the measures outlined to restore budget sustainability from both a revenue collection, that is, broadening the tax base, and spending management, for example, reducing the wage bill and weaning State Owned Enterprises from government, have been touted numerous times in the past without any apparent follow- through,” said Portfolio Manager, Pako Thupayagale, analysts Onkabetse Tadubana and Leano Babitse. The Finance Minister, who is less than a year in her position, admitted there is an urgent need to diversify revenue base. “The first challenge is to broaden the domestic revenue base by extending the tax net, and improving the efficiency of revenue collection,“she said.
The Minister told lawmakers last month that the implementation of the above measures gained momentum in the 2021/ 2022 financial year, and include revision of user fees and services charges across Government. These will continue to be implemented in the 2022/ 2023 financial year, said Serame, a former trade minister. However, the Minister has not told the nation much on how they have helped the national coffers since they were implemented in April 2021. Attention will also be paid to ensuring that those who should pay taxes, do so. “Planned activities include a review of taxation laws to enhance efficiency and collections; use of ICT to improve collection efficiency; increased tax audits and inspections; and enhanced public education for taxpayers to achieve better compliance,” she announced.
Botswana, a middle- income country, has also in the past been roundly accused of spending on projects which had minimal returns and less impactful to the overall economy. Government which is running budget deficits amid the COVID- 19 pandemic, must stop depending blindly on diamonds, which are surely not forever. Ninety- One market watchers have advised government to concentrate even more on restoring fiscal sustainability and rebuilding buffers. According to available data, the
Government Investment Account ( GIA) - the government’s equivalent of a savings account- is forecast to be only 1.4 percent of Gross Domestic ( GDP) at the end of FY 2021/ 22, compared to 17.4 percent of GDP in 2017/ 18.
“The erosion of this buffer indicates rapid and significant withdrawals which weren’t or couldn’t be replenished timeously. In other words, to finance its spending, the government simply dipped into its savings and these drawdowns have grown and accumulated,” they said. While the Ninety- One analysts are worried public spending must be put on check at all times, it appears the Minister on the other side, thinks otherwise. “The expenditure budget will always face demands that are greater than the available fiscal resources. Public spending is essential for stimulating the economy, providing public services, and financing investment that will provide public goods to support future growth and efficiency. The challenge is not just to manage the overall level of spending, but to ensure that spending is focused on productive and prioritised activities, and that spending on programmes and projects is carried out efficiently,” she posited. Government is the biggest spender in the economy.
Meanwhile, Thupayagale and his colleagues said there has been little consideration given to the nature, direction and magnitude of structural reforms that are needed to stimulate economic growth and employment in the private sector. “While Botswana is currently benefitting from a robust recovery in the demand for polished and rough diamonds, longer- term fiscal consolidation is going to be more reliant on spending discipline and economic ( and therefore revenue) diversification, to ensure sustainability,” they said.
De Beers, the rough diamonds producer which owns Debswana with government has projected strong rebound of the diamonds market this year. Perhaps, these projections have led to government’s optimism on economic growth. Real GDP is projected to grow by just over 4 percent this year. “It is anticipated that the performance of the non- mining sector will improve, underpinned by among others, accommodative monetary conditions, improvement in water and electricity supply, as well as finance, insurance and pension funds sectors,” said the 2022 Monetary Policy Statement released weeks ago.