Debt to finance 2020’s P18.3 billion deficit
COVID-19 pandemic chokes export receipts
But Botswana’s debt far below 60% of GDP
Bank of Botswana’s (BoB) latest special research bulletin researchers – Baby Mogapi and Karabo Badirwang – said Botswana’s public debt will rise owing to Covid-19 pressure.
The two made the projections in the research topic titled “An Assessment of External Sector Developments in Botswana and Policy Implications’’ which covered public debt, among others.
According to Mogapi and Badirwang, given the adverse impact of Covid-19 containment measures on economic activity generally, and more specifically on exports receipts, public debt is expected to increase considerably to finance current account deficit, which stood at P18.3 billion in 2020.
Notwithstanding the increase in public debt, Botswana has maintained a low and sustainable public debt during the period under review, averaging 16.5 percent during 2004/2005 to 2018/2020.
“The total public debt has been below the maximum statutory threshold of 40 percent of GDP, which comprises 20 percent ceilings for external and 20 percent for domestic debt, including debt guarantees. Total debt has also remained far below the set threshold of 60 percent of GDP for SADC macroeconomic convergence targets,” said researchers Mogapi and Badirwang respectively.
Public debt, they said, comprises domestic and external liabilities of the public sector, which includes: the central government and its agencies, general government, a non-financial public sector, government-owned financial corporations as well as public bodies outside the central government, including both guaranteed and a non-guaranteed borrowing by the Government.
For Botswana this will, in addition to central government, include the public guaranteed loans. Mogapi and Badirwang also said between 2005/06 and 2008/09, total public debt as a percentage of GDP (debt-to-GDP ratio) averaged 6.1 percent alongside current account surpluses.
However, the duo posit that the global financial crisis of 2008 and the resulting lower demand for diamond has contributed to a decline in government mineral revenues, which is very vital.
Furthermore, the combination of sustained high level of public spending and a drastic drop in diamond revenues resulted in a sharp deterioration in both current account and fiscal deficits.
“The current account balance recorded deficits from 2009 until 2012, and along with anticipated a further decline in fiscal buffers led Government obtaining a budget support loan from the African Development Bank (AfDB). Consequently, total debt-to-GDP ratio increased to 18.7 percent in 2009/10, due to the first drawdown (of P6.7 billion out of an approved P10.4 billion) that accounted for approximately 8.8 percent of GDP.Additionally, Botswana received financing from the Chinese Government, the International Bank for Reconstruction and a Development (IBRD) from 2009, which increased total public debt to its peak of 26.4 percent in 2011,” the researchers added.
Meanwhile, the research by Mogapi and Badirwang suggest that the services account which comprise transportation, travel and other services is mainly influenced by tourist receipts in travel component.
“The balance of the travel account had been on an upward trajectory, except in 2020, where it declined from a surplus of P4.5 billion in 2019 to P1.4 billion in 2020. This has resulted from the negative effects of the COVID-19 pandemic on the tourism industry, as evidenced by the large decline in tourist visits due to travel restrictions, which is estimated to have a reduced by 38.9 percent from 1.8 million in 2019 to 1.1 million in 2020,” they said.
Services account is part of current account alongside merchandise trade, income and current transfers.
“Consequently, exports of travel decreased significantly from P7.6 billion to P2.4 billion in the same period. Imports of travel services also registered a decline of 67.7 percent from the P3.1 billion to P1 billion, also attributable to COVID-19 related travel restrictions,” said researchers.
Foreign direct investment inflows in Botswana were largely stable during the period under review, averaging P2.2 billion annually, with the lowest level of P564 million as recorded in 2013, due to the loan repayments from the subsidiaries in Botswana to the parent companies abroad.
As the pressure mounts on the government revenue, The Minister of Finance and Economic Development Peggy Serame is hitting the ground running looking for external borrowing to finance fiscal activities.
Parliament approved a loan from World Bank with Serame explaining that government will disburse P1.1 billion from the facility to Ministry of Health and Wellness for the COVID-19 resources.
Botswana Defence Force (BDF) was given a share of P204 million to fund costs of its deployment of soldiers to Mozambique, in its mission to help the country fight insurgents at the Cabo Delgado region.
For this financial year, she said, an estimated deficit of P 6 billion or 3.0 percent of the Gross Domestic Growth (GDP) was anticipated during the presentation of the national budget in February 2021.