Matambo treads budget tightrope
Isaac Pinielo | Friday January 30, 2015 12:00
Stagnant public revenues and rising needs set against growing public expectations on promoting inclusive growth leave him with a plethora of urgent priority tasks which cannot be implemented simultaneously.
With the new fiscal rule demanding that government sets aside up to 40 percent of mineral revenues to buffer financial savings, the need to post another budget surplus has added pressure to the mounting concern over the inadequacy of resources channelled towards driving poverty eradication, income equality and job creation.
According to the 2015/16, budget strategy paper, the budget balance for this year is expected to be about P1.4 billion in the black, thanks to the attractive diamond prices as well as strong Sacu receipts.
However, analysts believe that it would be impossible to achieve a budget surplus if government goes ahead with full implementation of the new fiscal rule, which would need about P7 billion to be set aside for financial savings.
“The commitment to save 40 percent of mineral revenues means that the budget surplus would have to be at least this big - on the basis of 2013/14 figures, it would require a surplus of P7 billion or thereabouts. So it may be implemented over a couple of year. Also the details of how the new fund will operate need to be worked out,” said Econsult managing director Keith Jefferis.
The implementation of this fiscal rule is expected to contribute to the rebuilding of the country’s net financial assets, which dipped into negative balances due to the global financial crisis. The net financial assets recorded a deficit of P3.3 billion in 2010/11, before worsening to deficits of P7.0 billion and P7.2 billion in 2011/12 and 2012/13, respectively.
High on the list of Matambo’s priorities would be the need to channel more funds towards promotion of inclusion growth.
Despite economic indicators that have grown over the last decades, Botswana still has serious development challenges, which include unemployment, poverty and inequality. “The minister will need to undertake a baseline assessment and map the way forward because, undoubtedly, current strategies are failing to promote inclusive growth,” said a public finance specialist from the University of Botswana, professor Emmanuel Botlhale.
Income inequality in Botswana is one of the highest in the world with the Gini Coefficient having increased from 0.573 in 2002/03 to 0.645 in 2009/10.
Regarding unemployment on the basis of the population aged 18 years and over, this was estimated at 17.6 percent in 2009/10 and youth and women are overrepresented in the army of the unemployed. Poverty figures do show a decrease in the poverty incidence between 2002/03 and 2009/10 and the percentage of the population that lives below the poverty datum line was 19.3 percent in 2009/10 compared to 30.6 percent in 2002/03 according to the latest Botswana Co-welfare Indicator Survey that was based on the 2009/10 data.
Critics however say the figures mask the extent of poverty in the country, as the absolute numbers for people below the breadline has increased disproportionately to the population growth.
According to the 2015/16 Budget Strategy Paper, total revenue and grants are projected to reach P52.8 billion, an increase of 5.3 percent from the proposed 2014/15 estimate of P50.2 billion.
Total expenditure and net lending is projected at P51.46 billion in 2015/16 from the estimated P49.3 billion recorded in 2014/15.
However, the general feeling is that the budget will not be much different from the recent budgets in terms of allocations.
Experts predict that the government will continue with its completion of on-going projects and existing infrastructure, promoting economic growth and improving public service delivery. Economists stated that the government’s intention was to return to budget surplus and build up reserves.
Karabo Tladi, an investment analyst at Blackthread Capital said he expects government revenue to grow at a faster rate than government expenditure, resulting in increased budget surplus for 2015/16 fiscal years. He also predicted government revenue to be boosted by the Southern African Customs Union (SACU) revenue. “The government has also spoken about reducing government expenditure as a percentage of GDP and it has been very bold in trying to achieve this, as shown by its refusal to offer any significant wage increase for civil servants,” he said.
Tladi noted that government spending is growing at its slowest rate in many years, which is why non-mining GDP in the country is subdued.
Garry Juma, an economic analyst with Motswedi Securities, said one of the focal issues in the 2015/16 national budgets is that a small surplus is expected due to the improvement of the mining sector, especially the diamond sector. “Certainly we expect the government to continue maintaining the rule of 70 percent for the recurrent budget and 30 percent for development budget,” he said.
On the issue of salary hikes, Juma said he expects the government to make a slight wage increase for civil servants but said he does not see the government announcing any figures given the fact that the matter is still under negotiations.
On the budget outturn, Jefferis added he hopes that the budget surplus will be larger because the final outturn for the 2013/14 budgets was much larger than originally anticipated, at over P7 billion, due to the outperformance of the global diamond market in 2013.
“This should have been continued in 2014, and may follow though into 2015, although there is more global uncertainty over growth rates that may cause diamond prices to weaken in early 2015,” he said.
Chief investment officer of Afena Capital Botswana, Alphonse Ndzinge, is of the view that the decline of the oil prices should provide a much-needed tailwind for consumer spending. “We have some concerns with recent trend of slowing household credit growth rates and the reduced contribution of household consumption to GDP growth figures,” he explained.
According to Ndzinge, the trend for aggregate demand suggests modest real wage growth, relatively low employment growth and restrained growth in government expenditure.
He noted that they have reduced their inflation forecast for the country considering the persistently weak inflationary pressures for the two largest indices of food and transport, particularly with the drop in oil prices.
“We now forecast that inflation will remain below the 5 percent level for the coming 12 months. At this stage, there is almost no pressure for the Central Bank to raise the policy rate this year, and we expect the bank rate to remain flat with a small probability of a cut if domestic demand pressures weaken significantly,” he said.