BoB’s voice in the wilderness hits home
Mbongeni Mguni | Wednesday August 9, 2023 11:40
Each year, the Bank of Botswana (BoB) carefully selects a theme topic for its annual report and for several years, the central bank has hammered home the ever increasing need to change the direction of the country’s economy.
The BoB is government’s economic advisor, an army of the country’s finest economic minds, highly trained in specialised and emerging subjects who spend their time analysing the risks and opportunities facing the country’s books.
Prior to making the annual report public, executives from the central bank brief Cabinet on the themes, detailing their forecasts, concerns and suggested recommendations.
The recent launch of the 2022 Annual Report followed the same process, but carried more urgency according to the numbers shared by the central bank around the reforms required to stabilise the economy’s trajectory.
Nearly all the graphs showing historical performances of various macroeconomic indicators shared by the BoB indicated a gradual downward decline, from before the pandemic, before the 2015 recession, before the 2008 global recession and stretching all the way back to the dawn of the millennium.
From the budget balance, levels of foreign reserves, national savings as housed in the Government Investment Account, to the concentration of revenue streams in the budget, the figures made for depressing viewing.
Essentially, revenues in the national budget have generally been declining over the years, while spending has been rising. Economic shocks associated with the key sources of revenues have worsened the situation and fiscal buffers have been declining for years before the pandemic.
“We are saying, if you look at our fiscal balances, we are now in structural deficits and that’s why we talked about reinventing the fiscal management,” Governor Moses Pelaelo told Mmegi at a briefing on the Annual Report.
“When you have deficits in one year and so forth, that’s fine, but if you have had them since 2018 or whatever the figure is, and you continue to have these deficits, then there’s a problem.”
In fact, for a variety of reasons, the country has been running deficits since the 2017-18 fiscal year. These have drained government savings and forced authorities to raise more debt from the local capital market and international financiers, while raising taxes and other levies. Borrowing costs from the local capital market have also been rising, particularly last year, pushed up by rising inflation which reached a 14-year high in August.
“Our fiscal balances have been coming down and therefore our fiscal sustainability is beginning to be impaired to a certain extent,” Pelaelo told Mmegi.
For the central bank, the critical challenge is that the country’s revenue base remains anchored on mining and customs revenues under the Southern African Customs Union. For 2023-24, these two sources are expected to contribute about 60% of revenues or P48.2 billion. Both sources are in flux, Pelaelo said.
“There are current negotiations right now about SACU, there is also the African Continental Free Trade Agreement and so there are lots of things that are coming in.
“Then there are minerals which are finite resources.
“We are now beginning to talk about Jwaneng (Mine) plateauing and we are going to be going underground to search for those diamonds meaning the production costs are going to become higher.
“We can no longer continue to be rent-seekers and depend on just digging the ground to get diamonds.”
The grim picture is the reason why for years, the central bank has been recommending that government rein in spending, particularly on its broad-based subsidies and simultaneously broaden the tax base, amongst other urgent reforms. Ending blanket subsidies in particular, in areas such as water, electricity, health and education, has come up frequently in the central bank’s recommendations and this year was no different.
“The government has a social register and we have also advocated for a digital or biometric Omang where we can load everyone’s profile and say this person is an orphan, or this person is earning less than P5,000 and when they go to Marina (Hospital), they are the ones that can be allowed to come in without paying.
“But there are those of you who are seeing private doctors every week, month, and paying P270 consultation fee and you also pay P100, 000 for being hospitalised in a week at a private hospital.
“In Marina, that number is P60 a day, I think.
“We need cost recovery of some kind to deal with this question of fiscal consolidation.”
The BoB’s voice in the wilderness has long been heard by government. In fact, many of its recommendations can be seen in documents produced by technocrats at the Ministry of Finance, such as the Economic Recovery and Transformation Plan and the Transitional National Development Plan.
Even tougher reforms such as rationalising the civil service, improving the efficiency of public service delivery and shifting towards a private sector-led economy, have also been initiated to some extent.
The challenge is government’s large turning circle, essentially the pace of reforms required. Even after passing the required laws and amending policies, government has to deal with considerations such as political and social impact, as well as consultations with stakeholders who include financing partners, unions and others.
As the economic think-tank, the central bank concerns itself with what must be done.
“You simply have to show a chart to government to say, by the way, here is a problem that if we don’t reverse this trend, there will be a problem down the line,” Pelaelo told Mmegi.
“The single most important product out of a central bank is information. That’s what we do and we give this information.
“We are not elected officials and those that are elected in Parliament are the ones that make these decisions and they will implement.
“Those that are private sector businesses will use this information.”
But the room for changing direction is running out. The central bank warns that returning to fiscal sustainability and building economic resilience has to happen now. The levels of the foreign exchange reserves and government’s savings confirm this as well.
“We have seen the shocks; September 2001 brought us down, the global financial crisis was a major shock. “In 2015, another commodity drop, then COVID found us.
“If we are found now with our ratios being where they are, we will not have the buffer for the fiscal space or the monetary policy space and the external buffers, to be able to survive.
“We will have serious challenges.
“This challenges all of us, not just government, to say what can we do to reverse this trend that has undermined our economic resilience and introduced structural vulnerability.”