Budget 2017/18: Govt�s behemoth job creation task
Brian Benza | Friday February 3, 2017 18:00
But it will not be business as usual for the minister this time around, as the 2017-2018 Budget Speech comes on the heels of the country having experienced one of its worst socio-economic calamities due to the sector-wide job losses that characterised the second half of last year.
While job creation has been entrenched in the thematic themes of previous budget speeches, which targeted inclusive growth, the nation will this time around expect Matambo to lay out a clear plan on how government plans to, at the minimum, replenish the jobs that were lost last year.
But creating so many jobs would of course require massive resources, and this would be the source of the minister’s predicament as it comes when government is already spending more than it earns (budget deficits), and the economy is not yet out the woods after registering negative growth in 2015.
In 2016, economic pundits expected the economy to have recovered and grown by about 2.7%, but this level of growth will not be enough to create the number of jobs needed.
Contemporary textbook economics prescribe that it is for the private sector to create jobs while government’s task lies in providing an enabling environment and this is why the expectation for Matambo is to reign in recurrent expenditure and dedicate more resources towards economic diversification and infrastructure development.
“The key focus should be diversification projects, with mainstream multiplier effect to the consumer – by increasing productivity in production sectors (manufacturing, agriculture), and creating sustainable employment.
In order to achieve a tangible and accelerated diversification, the developmental budget has to focus on infrastructure development that improves: the supply side of the economy such as energy and water, which improves business confidence and will improve prospects for Foreign Direct Investment. Both these models require massive effort towards public-private-partnerships to enhance the project management and quality delivery,” Research Manager at FNBB, Moatlhodi Sebabole said.
The 2017-2018 budget strategy paper says priority areas for the coming financial year include developing diversified sources of economic growth, human capital development, social development; sustainable use of natural resources.
But with another budget deficit expected this year, finding resources to invest in these areas would be critical.
The projected deficit for 2017-2018 is a budget deficit of P6.8 billion, or -4.1% of the projected GDP and a mix of borrowing, both domestic and external, and drawdown on its cash balance, will be considered to fund the deficit.
While the budget deficit levels are not alarming as they remain within fiscal rules limit, analysts believe that what is worrisome on the budget dynamics is the operational budget, which runs to levels of 70% of total budgeted expenditure.
“The focus should be more on capital formation and thus a bigger infrastructure budget. Also, the budget utilisation is generally below 80% year-on-year, which hampers progress and successful implementation of budgeted projects.
“The budget structure of 55%-65% income coming from a combination of minerals and SACU is not diverse and sustainable. This is because both these income streams depend on external markets for demand of minerals in the global world; as well as trade prospects for South Africa,” Sebabole said.
But fighting from the minister’s corner would be the strong performance of the 2016-2017 budget, which has been aided by significant revenue growth.
Data published by the Bank of Botswana shows that for first half of the 2016-2017 year, fiscal revenues printed at P27.7 billion, relative to the P23.5 billion that was collected in first half of the 2015-2016 financial year and P25.8 billion in the first six months of the 2014-2015 financial year.
This significant revenue growth, thanks in large measure to an unanticipated over-collection in mineral revenues (mostly royalties and dividends) and the non-mineral income tax take, compares with a much smaller overshoot in expenditures, which came in at P29.4 billion relative to P27.6 billion in the first half of the 2015-2016 fiscal year and P25 billion in 2014-2015.
“On the whole, the fiscal deficit for the first half of the current fiscal year printed at just -P1.7bn, compared to -P4.1bn in the first half of last year.
“The relatively strong performance thus far in the current fiscal year leads us to believe that, contrary to government budget forecasts of a widening of the fiscal deficit from 2.6% of GDP to 3.3% of GDP, the fiscal gap could in fact narrow in the current fiscal year when the full-year outcome is published in the February budget,” analysts at Standard Bank believe. For the upcoming fiscal year beginning in April, the fiscal authorities hope to cut the deficit to 2.2% of GDP and to one percent in 2018-2019.
Economic experts believe the 2017-2018-budget deficit estimate of 2.2% is reasonable, especially if one considers that heavy capital outlays related to the rollout of NDP 11 are unlikely to occur before last quarter of 2017. “It is also important to bear in mind that, while the fiscal authorities have only priced in a marginal recovery in Southern African Customs Union (SACU) transfers, the government of South Africa has in fact budgeted for a full normalisation in SACU outflows from R39.4 billion in the current fiscal year to R56 billion in 2017-2018 financial year – in fact, a touch higher than the R51 billion that was paid out in 2015-2016,” the analysts say in a market commentary.