A P24bn budget miscalculation
Mbongeni Mguni - Lewanika Timothy | Monday May 26, 2025 17:57
For the financial year 2024-2025 technocrats at the Ministry of Finance missed their revenue projections by P24.89 billion a staggering miss for people who live and breathe macroeconomic numbers for a living.
Preliminary figures shared by the Minister of Finance in February showed that the deficit shot above the forecast 3.2% of GDP to nine percent, another big jump in numbers that cast doubt over the work of the country’s technocrats or the political head honchos that are superiors to these technocrats.
By February, the Government Investment Account (GIA) where government keeps its savings, was at P3.1 billion, down from P10.4 billion in February 2024.
The gross miscalculation of revenues and the resultant spiralling of deficits, has led to a rundown in the GIA, to the point where it reached just P250 million in December 2024 – the lowest point on record.
Government has been running budget deficits in the years since 2017–18 with COVID-19 only deepening the numbers. Preliminary figures for 2022–23 had suggested that the country achieved a largely balanced budget on the back of record diamond sales.
Other deficits have largely been funded by drawdowns on government’s reserves as held in the GIA, local capital market borrowing, and to a lesser extent, external debt.
When the then Finance Minister, Peggy Serame, projected a P8.7 billion deficit for the 2024-25 financial year, on the back of a record P102 billion spending plan and equally historic P93 billion revenues, economists said the numbers appeared very ambitious.
“I’m a bit sceptical about some of these revenue figures,” Keith Jefferis, former deputy governor of the Bank of Botswana and a one-time senior policy advisor at the Finance Ministry, said at the time. “There’s large increase projected in revenue, which is one reason the deficit has been kept fairly small. “There’s only a small reduction expected in mineral revenues, at five percent, but when you read any of the diamond trade commentaries right now, if we only had a five percent reduction, that would be a very good outcome. “If you look at Rapaport, one of the main diamond trade commentaries, they are projecting a 20% decline in Botswana’s diamond revenues this year, after a 37% decline last year. “So, that minus five percent is quite ambitious.”
Informally, economists hinted that the revenues in the 2024-25 budget were patently overestimated in an effort to minimise the forecast deficit for the year. At the original deficit of P8.7 billion, the shortfall in 2024-25 would have been equal to 3.2% of GDP, which would fall within the limit of four percent/GDP that government set for itself. Instead, it ended up at nine percent of GDP.
At the time of the 2024-25 budget, Jefferis said the projections for other revenue items such as non-mineral tax and Value Added Tax budget were also ambitious. According to the figures, non-mineral income taxes were expected to increase from P15.9 billion in 2023-24, to about P22 billion in 2024-25, while VAT was expected to jump from P12 billion to P15 billion over the same period.
“That’s quite ambitious given that we have no new taxes or tax increases. “I’m a bit sceptical,” Jefferis said.
Much of the miscalculations in revenues has been due to the dramatic collapse of diamond sales since the third quarter of 2023 and the manner in which the downturn has been more prolonged than the usual downcycle.
However, other analysts have noted that fiscal bean-counters have tended to adopt overly ambitious expectations of revenue in recent years, expectations that often defy the realities on the ground.
For instance, the 2023-24 budget originally carried a P7.59 deficit, which a year later was revised to P7.13 billion before new Finance Minister, Ndaba Gaolathe, in February announced that the shortfall was actually P11.1 billion. At that level, the deficit was 4.25% of GDP.
For 2024-25, the forecast deficit was forecast at P8.7 billion despite the Finance Ministry bean-counters being fully aware that diamonds were yet to recover. Gaolathe in February revealed that the deficit actually hit P24.7 billion.
The technocrats were also aware that the downturn was moving from being cyclical to structural, meaning that rather than the boom-bust cycle of previous decades, this slump was due to more permanent factors such as the explosion of synthetics.
Those who have begun doubting the Finance Ministry’s bean-counters even cast suspicious on the 2022-23 shock drop in the deficit. The deficit for that year moved from an estimated P4.9 billion to just P1.27 million which is more or less a balanced budget. That financial year also witnessed strong diamond sales, as the precious stones rebound from the pandemic low.
The distances by which projected budget figures miss the actual is something credit ratings agencies and international financiers will be tracking to see whether the country is actually able to forecast its budget trajectory.
Analysts say the challenge may not be one of bad-faith amongst the bean counters, but rather under-estimating the new world diamonds have entered into.
“They’re doing things the same way they have always done them which is to expect a recovery in diamonds, provide an allowance for under-spending of the development budget and factor in economic conditions. “But times have changed, especially with diamonds,” an analyst tracking the numbers told Mmegi this week.
This financial year, Gaolathe expects revenues of P75.5 billion, which if reached would be a new record. This is despite the lack of a recovery in diamonds and the announcement by De Beers that production will be cut this year.
Expenditure is forecast at P97.6 which again if reached would be a record.
Most economists believe the bean counters are once again being too ambitious.