Finance ministry eyes balanced budget next year
Mbongeni Mguni | Monday February 14, 2022 06:00
The country has been running annual deficits in its budget since the 2016 -2017 financial year, with the shortfall peaking at P16.4 billion in 2020-2021, worsened by expenditure on the COVID-19 response. The situation over the years has drained government savings and forced authorities to raise more debt from the local capital market and international financiers.
This week, data sourced from the finance ministry after the Budget Speech on Monday indicates that restrained spending going forward and the stabilisation of earnings from key revenue streams could produce a balanced budget and surplus in the 2023-2024 financial year.
According to the estimates, the surplus could be about P5.5 billion or 2.3 percent of Gross Domestic Product (GDP) a term that in its simplest definition relates to the size of the economy. This is compared to the P6.98 billion deficit projected for the 2022-2023 fiscal year.
The major driver in the expectations for a balanced budget, according to the estimates, will be higher revenues, helped by mining, which is forecast to reach P78.5 billion in the 2023-2024 fiscal year. Mineral revenues, which include mining taxes, royalties and dividends, are expected to reach P27.4 billion.
By comparison, revenues in the 2022-2023 budget unveiled by the finance minister, Peggy Serame on Monday, are projected to amount to P67.9 billion with mineral revenues reaching P24.1 billion.
The 2023-2024 budget could contain a spending cut of nearly P2 billion, in line with measures by government to reduce its support for commercial state-owned entities and some local authorities. The finance ministry’s estimates show that just over P500 million will be shaved off the grants and subventions in 2023-2024.
However, the biggest spending cut is forecast to occur in the development budget, which the ministry’s estimates suggest could drop to P14.7 billion in 2023-2024 from the P16.4 billion Serame is proposing to allocate for 2022-2023.
The fiscal projections for 2023-2024 come as various economic commentators and institutions such as the International Monetary Fund have urged a return to fiscal sustainability, following a prolonged period of budget shortfalls.
On Monday, Serame announced commitments to expand the tax base and collections, eliminate wastage in public spending and ramp up implementation in public works, as part of the return to fiscal stability. A rationalisation of the public service to reduce the wage bill is also due to commence, while cabinet is considering recommendations around which parastatals to merge, dissolve and sell-off.
Analysts at Econsult Botswana said there was an urgent need for interventions to ease the 'twin deficits' the country has been running in its internal and external financial positions.
“Despite the strong growth recovery experienced in 2021, evidence of serious structural problems within Botswana’s economy remains,” the researchers said in a commentary released this week. “The economy has continued to run ‘twin deficits’ i.e fiscal deficits and persistent balance of payments deficits, which indicate persistent macroeconomic imbalances. “There is a desperate need for a change of course in terms of policies to correct them.”
The Econsult researchers said there was a need to accelerate economic growth policies that are anchored on both export-led growth and export diversification, which would help the balance of payments deficits, while the need to tighten spending and return fiscal balances back to a surplus was “more pressing than ever”.
“The financial buffers, which are government savings and the foreign exchange reserves, that were present prior to COVID-19, have now been reduced and there is an urgent need to replenish them in order to provide the economy with some measure of protection against future economic shocks,” the researchers said.
The ministry’s technocrats expect that economic policies and the budget interventions being taken this year will help the government savings recover to above P10 billion by 2023-2024. The savings, housed in the Government Investment Account, fell to a record low of P3.5 billion in December 2020 due to pandemic-related expenditure.