The International Monetary Fund (IMF) says the pace and composition of the country’s return to budget surpluses in the next few years should be carefully managed to preserve growth and protect the most vulnerable in society.
Remarks on Wednesday by visiting IMF deputy managing director, Tao Zhang and his Botswana mission chief Papa N’Diaye appeared to strike a softer tone from the line the institution took in November after its annual assessment. At the time, the IMF had urged local fiscal authorities to adopt measures “beyond those currently considered” in order to start fiscal consolidation in the 2020-2021 financial year. The first three years of NDP 11 have incurred cumulative deficits totalling P18.79 billion, whose funding through drawdowns on reserves and domestic debt, have raised concern about the erosion of buffers and fiscal stability.
Finance minister, Thapelo Matsheka announced a further P5.22 billion deficit in his budget speech on Monday, stressing government’s commitment to “rigorous fiscal consolidation measures” going forward.
On Wednesday Zhang told BusinessWeek the dilemma facing Botswana of returning to balanced budgets while preserving growth and protecting the most vulnerable, was a challenge shared by other countries. “At the moment, we believe fiscal sustainability can be achieved in a gradual way with proper measures being taken and a small surplus achieved in the medium term,” he said, during a briefing at the Bank of Botswana.
“In the whole process, we have to take care and protect the most vulnerable. The measures taken for fiscal consolidation must be on both spending and revenue. “Many countries are facing the same challenge of how to achieve fiscal sustainability while supporting development objectives and protecting the vulnerable”.
Government has said it expects a balanced budget next year, which would out of necessity mean curtailing expenditure and raising revenues. By the end of the 2019-2020 financial year on March 31 this year, Matsheka expects government spending to have reached P68.6 billion compared to the P67.6 billion he plans to spend in 2020-2021. However, within the budget for the upcoming year, development spending has been slashed to P12 billion from
For his part, N’Diaye told BusinessWeek it was necessary for Botswana to rebuild its fiscal buffers and protect itself against shocks it has suffered in the past, such as the collapse of diamond exports.
“Consolidation is important and what is key is to calibrate the pace and composition of it,” he said. “In fact, rebuilding the buffers creates space for government to pursue its transformation agenda. “There are measures in the recently announced budget that already speak to fiscal consolidation, such as the need for efficiency in spending, the reduction of subsidies and the role of state owned entities.” In March, the IMF board is due to consider a report by the team that conducted the November assessment. Both Zhang and N’Diaye expressed support for the commitments Matsheka’s laid out in the budget speech for fiscal consolidation.
Bank of Botswana governor, Moses Pelaelo said the central bank had the utmost confidence in government’s ability to get the budget back on track.
“The IMF deputy director met with His Excellency (President Mokgweetsi Masisi) yesterday and this issue came up.
“All I can say and summarising from what I deduced from that meeting is that the President and his government have the political capital and the will to undertake the necessary reforms to ensure fiscal sustainability, which they have been doing all along. “The challenge is global, the demand for our commodity. “Critically, some of these elements like streamlining subsidies and incentive schemes, increasing efficiency of spending, making sure that ongoing projects are completed and that the next development expenditure focuses on growth-generating sectors, these are commitments that government is making.
“Given the record on fiscal sustainability and discipline, there’s no doubt in my mind that government is fully committed and that the fiscal discipline and prudence we have known government for will continue.”