Gaolathe highlights risks but goes big on spending
Mbongeni Mguni - Pauline Dikuelo - Lewanika Timothy | Monday February 17, 2025 11:36
Gaolathe plans to spend P97.6 billion in the upcoming financial year, set against forecast revenues of P75.5 billion. The resultant expected deficit of P22.1 billion, if realised, will be the second largest in absolute terms in the country’s history, coming after the projected P24.7 billion for the current financial year which ends on March 31. Gaolathe’s proposed spending is P4 billion higher than the P93.4 billion the government expects to have spent when the current financial year ends. Both the current financial year’s expected deficit and next year’s are significantly above the fiscal rule under which the government aims to limit budget shortfalls to no more than four percent of the GDP. The Finance minister acknowledged the issues in his speech. “It is evident that the proposed budget for the 2025–2026 financial year triggers important fiscal policy questions on fiscal consolidation, fiscal discipline, fiscal sustainability, budget credibility, financing of the deficit and its implications on debt sustainability,” he said. “With a projected deficit that exceeds the ideal threshold of four percent of GDP, our commitment to conducting fiscal policy in line with global best practice is more critical than before.”
He added: “This calls for stringent measures and action to improve productivity and deliver more with less, improve operational efficiency in public procurement processes, utilise e-services to deliver government commitments as well as maximise revenue collection.” The new government was under pressure to progress projects outstanding in the Transitional National Development Plan, whilst accommodating new initiatives under its human rights-based economic development priority. In addition to increasing old-age pensions and introducing allowances for new-borns, Gaolathe also allocated funding for free sanitary pads for female students, whilst pledging to revisit social allowances “as our economy regains its strength and our fiscal position improves”.
Gaolathe expects that the stronger spending will have a greater impact than in the previous administration, due to initiatives the new government is taking to enhance public finance efficiency. “To be clear, we inherited a government machinery plagued by deeply entrenched systemic inefficiencies that have crippled progress and development,” he told legislators. “As an urgent response, I wish to reassure Batswana that the new government remains resolute in committing to fiscal consolidation plans and rebuilding buffers. “Our fiscal strategy hinges on effective revenue maximisation, public expenditure efficiency and implementation of a robust debt management strategy.” Responding to the budget, Business Botswana's head of policy and research, Mpaphi Tsholofelo, said investors welcomed the transparency around the macro-economic policies the new government intends to pursue. He added that the private sector was pleased with the intentionality shown by the new government in its various policies, particularly the commitments to speed up the Public Private Partnership (PPP) initiative. Nlume Modise, senior portfolio adviser at Fifth Quarter Investment Managers, said there is both capital and interest from the private sector here and abroad, to partner with government in public investments. “The biggest problem has generally been around the ecosystem and absence of collaboration to understand what investors need,” he said at a Business Botswana post-budget review. “It’s about taking steps to remove bottlenecks. “We have to be thick-skinned and approach issues from a solutions point of view. “Hopefully the PPP Bill due to be tabled will address some of these bottlenecks and many of these are systems and structures.”
First National Bank Botswana economist, Gomolemo Basele, stated that there was a need to further intensify fiscal consolidation given the constrained income from mining.
“Fiscal consolidation needs to be intensified and we expect development expenditure to improve if mineral revenue improves,” he said. “It is important to note that there is still room to borrow and increase borrowing domestically and from international developments. “There are still means we can tap into.” World Bank resident representative, Liang Wang told BusinessWeek that in budgets, expectations often exceed what can realistically be delivered. He noted that the Vice President aimed to align the speech with the government's PPP targets. Wang acknowledged the economic downturn and pointed out that Gaolathe, as the country's lead economic policymaker, had limited options to navigate the challenges. He also emphasised the government's commitment to delivering on its promises. 'I think the Vice President also highlighted that they want to achieve this in a fiscally responsible way,' Wang said in an interview.
He further observed that there are deliberate efforts to implement measures that will steer the economy toward medium-to long-term sustainability. However, given the limited resources available, achieving this balance is challenging, making the entire budget approach difficult to execute, Wang said.