Supplier payment crisis hits cash-poor gov't
Mbongeni Mguni - Lewanika Timothy | Monday May 12, 2025 09:22
Reports reaching Mmegi indicate that inflows and outflows within government have become strained, as expenses associated with the new financial year shoot up, while revenues which were already weak from the prolonged diamond slump, remain at low, inconsistent levels.
Government’s debt pile is ballooning meanwhile, with larger bids to raise funds in the local capital market, with authorities even tapping the Botswana Public Officers Pension Fund directly for P3 billion last month. The debt stampede threatens to push government to its set limits quicker than expected.
Government’s desperation for funds to meet its running costs has seen it drain the capital market of funds, causing it to increasingly fail to secure the amounts it is seeking, while paying ever climbing interest rates. The draining of liquidity in the capital market has meanwhile led to some banks unilaterally increasing their lending interest rates to match the higher deposit rates they now have to offer in order to attract the lower level of deposits available in the market.
At the receiving end are the businesses, particularly SMEs which are suffering the brunt of the government financial crunch. Government’s traditional role as the sun around which the economy revolves, means businesses, consumers and the entire private sector are being squeezed harder, as public finances gasp for breath.
In an economic commentary on the first quarter, researchers at leading consultancy, Econsult, said that government’s ballooning debt levels have put it in a liquidity corner, making it hard to fulfil its monthly cash flow commitments.
The research team, led by former Bank of Botswana deputy governor, Keith Jefferis, said that government was delaying payments to suppliers, hedging on SACU receipts which are credited at the first week of every quarter.
“This problem has become increasingly serious during 2024 as government runs out of money at the end of each quarter and has to delay payments to suppliers and handing over deductions from payroll to beneficiaries such as unions, insurance, medical aids and banks, until SACU transfers arrive in the first week of each quarter,” Econsult researchers said.
According to Finance Ministry insiders, the Government Remittances Account (GRA), which is the government’s main account where all its revenues are deposited and which feeds all other accounts, must maintain a balance of between P300 million and P700 million at any given moment. The funds are for government’s running costs.
Anything below this can be drawn from the Government Investment Account (GIA), which represents government’s reserves or savings. Anything above P700 million in the GRA can be transferred to the GIA.
The result is that the levels of the GIA fluctuate significantly from week to week. In previous years of healthy diamond revenues and budget surpluses, the GIA housed tens of billions of Pula.
Since the 2016-17 financial year, government has run budget deficits, worsened by the COVID-19 pandemic and election-fuelled spending, which has drained the GIA and forced higher borrowings.
In recent years, it has frequently trended near empty, being recorded at just P251 million in December, before recovering to about P2.7 billion in January. The new financial year spending on April 1 would have pushed the GIA’s balance down, but the figures are yet to be made public.
Government’s failure to pay suppliers has not been met with a slowdown in government procurement or purchasing leading to a backlog or arrears in money owed to suppliers. Researchers also noted that these cash debts are not directly recorded on government accounts.
“It is also understood that government accumulated significant arrears on payments due to suppliers – amounts that are not included in the government accounts, which are compiled on a cash basis, thereby causing total debt numbers to be under-recorded,” Econsult researchers said. “And the GIA, rather than being restored as per the annual borrowing programme, was partially depleted.”
Government central role as the biggest buyer of goods and services in the economy means that most of the businesses affected by delayed payments and settlements are unwilling to public speak out for fear of reprisals or other forms of censure.
Selebi Phikwe-based prominent businessman and seasoned entrepreneur, Palalani Moitlhobogi, said the payment situation had broadly improved compared to the 2022 and 2023 period when non-settlement was at its worst.
“People were owed from as far back as 2022, but it would appear the payments have started coming in and these are legacy debts that people are slowing getting paid,” he told Mmegi on Thursday. “In Phikwe, non-settlement of payments literally takes away the little in this economy. “Our economy was based on mining not government and whatever was left after the mine closed, those industries and service providers are dependent on government. “They are feeling the pinch.”
Moitlhobogi however said pronouncements by the new administration around its commitment to private enterprise and SMEs, had injected confidence in entrepreneurs.
“What they have said seems to support the idea that they will be very supportive, but only time will tell. “It’s still the same public service that had driven us to the ground that is still there. “What government has said is encouraging and maybe in the next six months we will see something. “Businesses are quite positive for that and you can see in private sector circles that there is optimism.”
Moitlhobogi said the private sector in Phikwe had fresh ideas to turn around the town and was eager to engage with policymakers.
“We are hoping for better relations with government to find new engines of growth and we are ready to provide alternatives,” he said.
Meanwhile, the Finance Ministry is reportedly weighing fresh alternatives for funding. Minister Ndaba Gaolathe recently played down the idea of floating a hard currency bond, but it is understood more engagements are being made on concessional bilateral funding.
Botswana has one of sub-Saharan Africa’s strongest sovereign credit ratings, but has largely avoided hard currency debt due to fear of the Original Sin, where foreign currency debt repayments escalate beyond control due to exchange rate fluctuations. With an economy anchored on a precarious single commodity, fiscal authorities have traditionally sought to rely on reserves rather than external loans.
Gaolathe is currently in Switzerland for various engagements and is due to in London where he will host an investor roundtable seeking deals in the financial services sector, critical minerals and eco-tourism, amongst others.