Diminishing revenues in the midst of spiralling costs and very high public expectations – this is the ugly scenario facing the minister of Finance and Economic Development Dr Thapelo Matsheka as he prepares to unveil his maiden budget speech on Monday.
Dr Matsheka therefore has to undertake an intricate balancing act of generating confidence that Botswana is a strong going concern – with an ability to keep and create jobs while at the same time keeping costs in check.
With last year having been an elections year – the costs caution was thrown to the wind – as Government moved to increase public servants salaries in an attempt to buy favour at the polls.
It was not long however before reality struck. By the end of the same year Government realised its mistakes and pronounced a freeze on new appointments.
Government’s situation has been particularly worsened by the fact that diamond sales, which have been the main source of Government revenue over the years, were particularly low while another source which is tax revenue from the regional Southern African Customs Union (SACU) has been on decline over the years.
Government faces intense pressure of keeping its General Elections promises – with particular key priority being generation of employment. Recent government data has shown a surge in unemployment figures, in particular the youth who make the majority of the population.
NDP 11 mid-term review
As the Mid-Term Review of the National Development Plan 11 shows, the ministry is well aware of the challenges at hand. Below is an excerpt from the review document: “NDP 11 envisages a “front-loaded” pattern of spending and fiscal deficits. The first years of NDP 11 projected high levels of spending, around 35 percent of GDP, driven by a large development budget focused on overcoming infrastructure backlogs and developing essential new infrastructure. Revenues were projected at a fairly steady level of around 31 percent of GDP throughout.
“Hence, the substantial deficits in the early years as spending exceeded revenues would have to be balanced by much lower levels of spending in the second half of NDP 11, in order to generate a broadly balanced budget over the Plan period as a whole. The projected spending pattern in NDP 11, therefore, saw a major reduction to 25 percent of GDP by the end of the Plan, compared to 35 percent of GDP at the beginning.
“Data are now available for 2017/18 and 2018/19, as well as for the last year of NDP 10 (2016/17), which was not available when NDP 11 was prepared. For the first two years of NDP 11, revenues have been slightly higher than projected in monetary terms, with non-mineral revenues performing better than mineral revenues (which were below projections). However, as nominal GDP was also higher than projected, revenues have significantly under-performed when measured as a percentage of GDP. Recurrent spending has been higher than projected in NDP 11 in monetary terms, but lower relative to GDP. However, development spending has fallen significantly behind the ambitious projections in NDP 11; and as a result, total expenditure is lower than in NDP 11.
“Thus, the large deficits anticipated in the first two years of NDP 11 have not been fully realised, and the overall fiscal deficit is smaller than in NDP 11. The cumulative deficit for 2017/18 and 2018/19 is now projected at P7.3 billion, compared to a projected P14.2 billion in NDP 11. This is mainly due to a lower-than-expected deficit in 2017/18.
“The foreseeable budget deficits mean that the second financial buffer, Government’s net financial assets (NFAs), are being reduced6. Whereas Government previously had positive NFAs, the level of NFAs is now negative, meaning that liabilities (debts and guarantees) are greater than assets. This reduces Government’s ability to manage fiscal shocks, such as unexpected reductions in revenue. The level of government debt (including guaranteed debt) is closely associated with the NFA position. The total of debt and guarantees has been fairly stable during the first half of NDP 11, after increasing rapidly during the global financial crisis. Government debt is mainly foreign debt, from multilateral institutions such as the World Bank and African Development Bank, but also includes domestic borrowing through the issuance of bonds and treasury bills. Guarantees relate to both domestic and foreign borrowing by public enterprises. As at March 2019, total debt and guarantees were estimated at 23.2 percent of GDP, well below the legal limit of 40 percent of GDP”.