Budget deficit widens to P7.8bn on diamond slump
Mbongeni Mguni | Friday October 11, 2019 18:00
At that figure, the deficit will be the largest the budget has suffered in 11 years and the latest in a series of continuous shortfalls since the start of NDP 11 in the 2017-2018 fiscal year.
Figures contained in the Budget Strategy Paper 2020-2021 released by the Finance Ministry on Tuesday indicates that the deficit this financial year will be anchored on a 21% drop in mineral revenues from P21.1 billion to P16.7 billion.
De Beers’ rough diamond sales for the year have encountered severe difficulties owing to high levels of inventory in the midstream, where manufacturers are also struggling to secure credit.
De Beers, which owns 50% of Debswana, has thus far recorded year to date sales of $3.21 billion compared to $5.39 billion and $5.31 billion by the same time in 2018 and 2017 respectively.
Debswana, owned 50% by De Beers and the Government of Botswana, slowed production in the second quarter but says it generally expects to keep to a production guidance of 24 million, the same as in 2017.
The Strategy Paper, a blueprint released each year by the finance ministry as part of the budgeting process, described the softer sales as “potential headwinds”.
“Should the situation persist, it may pose further risks to the domestic revenue outlook, as it would affect the growth in mining value added and a spillover to other sectors that depend on mining activities such as manufacturing and finance business services, which include diamond cutting and polishing as well as sorting and valuation,” the Paper reads. Revenues for the 2019-2020 fiscal year, which ends on March 30 next year, are forecast at P58.2bn against expenditure of P66 billion.
This is against the original estimates in the February 2019 Budget Speech of P54.5 billion in revenues and P61 billion in expenditure.
Besides lower mineral revenues, the 2019-2020 budget deficit is also worsened by a civil service salary increase which took effect in April.
The Strategy Paper also forecasts a P6.9 billion deficit for 2020-2021 or -3.1 percent of GDP, with revenues of P59.1bn versus expenditure of P66bn. Mineral revenues are forecast at P17.5 billion, marginally higher than the forecast for 2019-2020.
The finance ministry’s deputy secretary for macroeconomic policy, Kelapile Ndubano told a consultative meeting on the 2020 Budget that tough measures would have to be taken going forward.
“We need to see more efficient government spending focusing on urgent needs, as well as higher revenue collection,” he said on Tuesday. “We also need to see other options of raising revenues including raising taxes, which are the lowest in the region. “We are not saying we are looking at raising them now but it’s an option that we may look at when it comes to that.
“Also the fees and levies for public services will have to be looked at, especially for greater cost recovery in services such as health and education.
“We need to be discussing these things to see how far we can go in terms of cost recovery,” he said. Ndubano said government might have to revisit a previous proposal to reduce the size of the civil service in order to restrain recurrent spending going forward.
He added that the additional resources required for the civil service salary increase this year, had meant a reduction of the development budget for next year and beyond.
From an estimated P17 billion in the current fiscal year, the development budget is forecast to fall to P12 billion between 2020-2021 and 2021-2022, declining further to P10.8 billion in 2022-2023. “We will be engaging soon to make sure all the projects that are ready for execution are prioritised in our spending,” he said.
“The impact of these deficits is a deterioration of our net financial assets and we have to rebuild these buffers so that if there are serious shocks, we are able to cope for longer.”
The ministry’s senior policy advisor, Wilfred Mandlebe said the numbers in the Strategy Paper would be further tuned as the impact of the slump in diamond sales became clearer later this year. “We will go back and look at them, especially given what’s taking place in the diamond market,” he said.