COVID-19 legacy - The good and the bad
Correspondent | Friday May 8, 2020 18:30
But just like the famous Liverpool song, there is a silver lining at the end of every dark cloud.
The coronavirus is going to leave a legacy on a number of issues facing our country. It is exposing issues of inequality, unemployment, corruption, gender violence, poor education, amongst others. It is time to put in structures in the economy to correct these wrongs. The economy is the people.
If we don’t address these thorny issues then we risk carrying a fragile and dysfunctional economy going forward. Like the Minister of Finance has said, the pandemic has taught us what we can live with and what we can do without.
The pandemic has revived the Tswana culture of ‘go ipelega’, looking at the larger donations that have been contributed. The government should also be commended on its decision to shy away from going the International Monetary Fund (IMF) route. The move also brings certainty that while the world economy is bleeding, the country is still able to fund its revised national budget internally without additional funding from international financial institutions.
The Minister of Finance deserves a pat on the back for assuring the nation that the government will not finance consumption expenditure with borrowings. In cases where the government needs funding, it is better to borrow locally using bonds and bank reserves.
The IMF treats countries like guinea pigs, they do not care about the welfare of the people. Upon dishing out the loans, they bring conditions and it becomes more like a coup d’etat where the IMF dictates what should be done. In the case of Botswana, the IMF is on record that the civil service wage bill is too high and needs to be cut, a move, which could cause a spiral in unemployment figures. Although it is prudent to borrow money from IMF and take advantage of the exchange rate between the pula and the dollar, as we will have more money coming in because of the exchange rate between the two currencies, borrowing from IMF also poses a risk of exchange rate when returning the money.
The government is giving with one hand and taking with the other hand. What the government has proposed is a relief package instead of a stimulus package. Cutting existing austerity measures and projects is not stimulus. Stimulus is injecting new money in the economy. Cutting of projects is going to affect the poor because it means services such as electricity, water and sanitation will not reach them.
Growth is important in a post-recovery period and in this regard, capital projects are drivers of the growth. Shelving them has a growth killing effect. It is a well-known fact that in order to curb the bad effects of the looming world recession, governments need to spend to stimulate the economy.
Temporary relief packages will not be enough to act as a buffer from the looming recession. Even though tax relief means more money in people’s pockets and hence more spending, it’s a temporary measure that cannot be sustained. Most of the proposed measures are not about cutting costs but delaying costs, that is deferred tax payments, repayment holidays etc.
The aftermath of the pandemic is going to leave the government with fewer sources of revenue. The tourism sector, which was seen as an alternative to the mining sector in terms of revenue contribution, has been severely hit.
The only alternative left for the government will be to increase taxes, but here it should be careful about corporate tax as too much can scare away investors. Instead we can perfect tax policing that is we should come up with distinct measures to collect more tax and each and every legitimate taxpayer should pay tax. We should guard against tax evasion and those who evade tax should be severely punished.
With the minister saying the budget deficit will be revised from P5.22 billion to P10 billion, the country is facing the risk of running a string of budget deficits, which can ruin the country’s acclaimed stature in the treasury circle and affect its credit rating.
Increases in the budget deficit are bad at a time when we are striving for fiscal prudence in the form of a balanced budget. The aftermath of this scourge is going to be felt for many years to come, some positive and some negative.
MBAKI MOLAO*
*Mbaki Molao is the pseudonym of a civil servant who cannot be named for this article due to the sensitivities of his position.