Mmegi Online :: The three major economic issues awaiting Masisi
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Sunday 18 February 2018, 21:00 pm.
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The three major economic issues awaiting Masisi

As we move into 2018, economic prospects for the year remain mixed, reflecting both international economic uncertainty as well as domestic issues. Economic growth for the year should be reasonable given the likelihood of increased diamond production, as long as the international market remains stable.
By Correspondent Fri 02 Feb 2018, 15:30 pm (GMT +2)
Mmegi Online :: The three major economic issues awaiting Masisi








However, as is well known in Botswana, diamond mining creates relatively fewer jobs directly, and the challenge remains to support other economic activities, notably those producing exports of goods and services, which is the only sustainable source of long-term job creation.

Rising international fuel prices will put upward pressure on inflation, but we do not expect this to be serious enough to require an increase in interest rates. Global economic growth is picking up, with the IMF forecasting growth of 3.9% in 2018 and 2019, the highest for several years, which will generally provide a positive environment for exports.

Two major developments will take place in the coming weeks and months. The 2018 Budget Speech will be delivered in the first week of February. 

The outline of the budget message has already been presented in the Budget Strategy Paper in September 2017, so there will be no great surprises. However, the relatively beneficial budget data will give the Minister of Finance and Economic Development some breathing space.

At the end of March, the 10-year term of His Excellency President Seretse Khama Ian Khama will come to an end, and the current Vice President, His Honour Mokgweetsi Masisi is expected to assume the Presidency under the automatic succession provision of the Constitution.

A smooth transition is expected, with the next national elections due in late 2019. We do not anticipate any immediate major policy changes, although a Cabinet reshuffle is likely. Nevertheless, the incoming President will face some economic challenges that he will have to get to grips with pretty quickly, certainly prior to the 2019 elections.

We identify three major issues that, in our view, should preoccupy the new President and his economic advisors from the beginning. First, the need to put the economy back on a path of economic openness, recognising that integration into regional and global markets for goods, services, capital and labour is essential for the long-term health and prosperity of the Botswana economy.

This recognises that creeping protectionism against imports of goods and services, barriers to inward foreign investment, and immigration restrictions on foreign investors and skilled workers are counter-productive, and indeed have contributed to the lack of dynamism and job creation in the domestic economy in recent years. Given the magnitude of the unemployment problem, large-scale job creation can only come from the growth of regionally and globally oriented, competitive producers of goods and services for export.

The alternative of inward looking policies focusing on the small domestic market and import

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substitution cannot hope to address the unemployment problem. And export-led growth obviously requires integration into global markets and economic openness.

Secondly, we hope to see a more rational basis for policy-making, with policies based on evidence and analysis, rather than just being driven by political considerations. Policy decisions are often complex, with both predictable and unpredictable consequences.

For policies to be effective, they need to be carefully considered, subject to analysis based on data, trialled through pilot programmes and refined accordingly. 

Policies need to be subject to regular evaluation using evidence to ascertain their impact; such evaluations should be published, and government should be accountable enough to accept and act on their results.

 If policies are not having the desired or anticipated impact, they should be changed or wound up. Obviously government will always have to take into account both political and economic/technical considerations in making policy choices, but in our view, the balance needs to shift in the coming years, so as to improve the nature of policies being pursued. Third, it will be essential to re-establish much better public finance discipline.

 This reflects a general problem in that the quality of public financial management has deteriorated over many years, with poor spending decisions and an in- creasing level of waste and inefficiency. However, the issue was brought home by the scandal over the diversion of monies from the National Petroleum Fund that blew up in December 2017. This resulted from a particular weakness in Botswana’s public finances, which has been the tendency for a proliferation of “special funds” (there are now 33 in total).

These funds are permitted under the Public Finance Management act, but once the order establishing a fund has been approved by Parliament, they are then subject to relatively little scrutiny. Crucially, these funds are “off budget”, in that they do not appear in the normal government budget documents that are presented for Parliamentary approval and are made available to the public.

Inflows and outflows do not generally form part of recorded government revenues and spending. And in contrast to the detailed line-by-line reporting of authorised and actual expenditure for the government budget, virtually nothing is available regarding these special funds, where the funds come from and how they are used.  Cleaning up these special funds and bringing them on-budget should form part of a more general reform and modernisation of public finance policies, laws and practices.


Keith Jefferis & Sethunya Sejoe

(Excerpt from Econsult Fourth Quarter Review www.econsult.co.bw)

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