P13 billion Budget deficit projected

Botswana’s Balance of Payments (BoP) amounts to P21.1 billion defict as of September 2020, a Bank of Botswana Report has shown.

The report shows a gloomy picture on already limping government coffers days ahead of the 2021/22 budget speech with the balance of payment deficit having grown vastly.

According to central bank, the overall BoP was in deficit of P21.1 billion for the twelve months to September 2020, compared to a deficit of P7.3 billion in the twelve months to September 2019.

“The deficit mainly resulted from larger payments for imports than receipts from exports in the current account, as alluded to earlier. This resulted in a higher deficit in the current account, as compared to a small surplus registered in the financial account,” the Monetary Policy Committee report indicated.

The government foreign exchange reserves also decreased in 2020.

As at the end of September 2020, the foreign exchange reserves amounted to P58.8 billion, a decrease of 18.3 percent from P72 billion in September 2019, the central bank revealed.

“The decrease was a result of the drawdown in foreign exchange reserves to finance government obligations, such as imports, external loan servicing and funding embassies. In foreign currency terms, the level of reserves decreased by 21.5 percent from USD6.5 billion in September 2019 to USD5.1 billion in September 2020,” BoB underscored.

The reserves also decreased by 25 percent from SDR4.8 billion to SDR3.6 billion over the same period with level of reserves as at the end of September 2020 equivalent to 10.9 months of import over goods and services.

The current account is estimated to have recorded a big deficit of P7 billion in the second quarter of 2020, compared to a revised deficit of P219 million during corresponding period in 2019. The merchandise trade, services and income accounts recorded a combined deficit of P10.6 billion, which was partly offset by a surplus of P3.6 billion in the current transfers’ account, which is dominated by the SACU revenue receipts. Exports decreased by 75 percent while imports decreased by 23.1 percent, leading to a deficit of P8.7 billion in the merchandise trade account.

“Diamond exports, which accounted for 81.3 percent of total exports of goods in the second quarter of 2020, fell from P16.1 billion in the second quarter of 2019 to P3.6 billion in the second quarter of 2020. During the same period, diamond imports also decreased from P5.5 billion to P4.4 billion,” said report.

In the backdrop of deficits in government funds, the minister of Finance and Economic Development Thapelo Matsheka has conceded that budget deficit of P13 billion may be realised.

Dr Matsheka, who leads a pivotal ministry tasked with spearheading comprehensive revival of the economy shuttered by COVID-19 pandemic, said government budget deficit is skyrocketing. It is anticipated that the budget deficit will rise particularly that the contributing sector to the economy has been hit hard by the COVID-19 with diamond sales declining tremendously in 2020.