The national budget posted a cumulative surplus in the first six months of the 2017/18 financial year, largely on the back of higher mineral revenues, figures released by Bank of Botswana this week show.
The Botswana Financial Statistics (BFS) report for October reveals that at the end of the half-year period to September 2017, the budget posted a surplus of P107 million. At this point last year, the budget showed a cumulative deficit of P1.7 billion suggesting a healthier fiscal position in the current financial year.
Government financial year starts in April and ends the following March.
“The surplus was mainly due to receipt of more than anticipated revenues and grants, which amounted to about P29.4 billion resulting from good performance in mineral revenue at about P10.4 billion or 63.7% of the anticipated minerals receipts. In the period, SACU revenues stood at P8.9 billion while other major revenue sources included payments from the Bank of Botswana which stood at P354 million,” said the central bank. On the other hand, total spending and net lending stood at P29.3 billion, comprising recurrent expenditure of about P21.7 billion and development expenditure of P7.5 billion.
At this point last year, the budget showed a deficit of P1.7 billion. The 2016/17 ended up in a surplus of P1.1 billion from an anticipated deficit of P1.1 billion.
The Ministry of Finance and Economic Development was expecting to run budget deficits from 2015 to 2020, and the new surplus figures broke the deficits forecast.
The government ran deficits in the previous two financial years, which were funded by a combination of drawing down on savings as well issuance
A budget deficit of P6.5 billion is forecast for the current financial year up from P2.35 billion announced by Finance Minister, Kenneth Matambo in February.
The deficit is seen widening to P8 billion in the next financial year leading to a cumulative budget gap of P15 billion by 2020, a development that is contrary to government’s commitment in NDP 11 to reign in budget deficits.
To finance the expected budget deficits, the 2018 Strategy Paper says that government will be guided by the Medium Term Debt Management Strategy (2016/17-2018/19), which outlines the options available in the event of government budget deficits.
“However, in the short term, the options revolve around borrowing, either domestic or external, subject to the country’s borrowing limits, and drawing down on government cash balance held as part of the foreign exchange reserves.
Each of these options has its own pros and cons,” reads the paper.
On the option of drawing down on government cash balances at the Bank of Botswana (Pula Fund), the Ministry of Finance admits this could have the potential to jeopardise the country’s sovereign credit.
Fiscal authorities also acknowledge the decline in government’s net worth, as a result of the drawdown of cash balances to finance budget deficits will also have negative implications on the ability of the country to absorb major external shocks and cushion the domestic economy in case of financial crisis.