Botswana sinking deeper into bad debt

Dithapelo Keorapetse | Friday April 7, 2017 17:07

According to Minister Kenneth Matambo, the object of the project is to improve availability of water supply and efficiency in provision  of water supply as well as improving wastewater and sludge management. Emphasising his point, the Minister indicated that the proposed sub-projects are located in the western, eastern and southern parts of the country, which are the driest and most populated.

The Minister argues that the P1,5 billion will enable the much needed investments in water supply to rural and urban areas for mitigating drought impacts, and improving wastewater treatment.

According to the Minister, the proposed loan is US$ 145, 500, 000 (approximately P1,515, 625, 000) from the IBRD is sought and that the remaining balance of US$ 14, 500, 000 or about P151, 041, 667 will be contributed by the Government from domestic resources.  

It is normal for any Government to seek credit for the purpose of socio-economic development.

The money can be sought from International Financial Institutions  (IFIs), domestic banks or financiers and from other Governments. Sometimes the money comes as grants.

If the Government has less revenue than expenditure, these budget deficits are financed through borrowing. It has been going on for some time but not as frequent and for such large amounts until in the recent past.

The country has for instance borrowed to a total of P10 billion from the African Development Bank (AFDB) to stimulate the economy. Several capital projects were also financed by loans from AFDB including Morupule B, North-South Water Carrier Projects and the Kazungula Bridge.

While borrowing is normal, it is frequently showing lack of prioritisation of local resources which is obviously coming from less rigour in technical appraisal of projects funded.

Why do we, for instance, need constituency funding separate from the National Development Plan (NDP) framework? We are now throwing money at problems and end up not having enough to start really needed projects.

Otherwise, we should have put in 50% of the funding for these water projects and only get a loan for the other 50%. Currently, Government says it is still at feasibility stages of Gaborone internal roads and hasn’t used a 2010 loan amounting to P2 billion. How do you spend seven years planning for a loan you already have? 

Over time, these loans will require heavy payment which may call for further increases in taxes to repay the debt. This may put a strain on our revenues needed for development.

The cureent leaders are committing future generation with a debt which may be too high to sustain, especially if this is going to be the norm.

Borrowing should be done as a last resort rather than just taking advantage of the strong reserves and good credit rating- the ruling party is indeed destroying the future. 

The Government would need to demonstrate that this is the best option and that they do not have the local resources to at least fund some parts of the project from Government coffers.

Why not delay some of the projects like the procurement of arms of war such as tanks and fighter jets. 

The role of Parliament in sanctioning borrowing has been minimal. Parliament  in Botswana doesn’t have the power of the purse. That is with the Executive. It controls what happens. The legislature is used for rubberstamping finance-related decisions.

Parliament doesn’t sanction borrowing, revenues and expenditures, but is used to legitimise those decisions already made by the Executive.  

The latter gets its way because it has 30 members, more than enough to form a parliament quorum.  

The Executive dominates the backbench of the ruling party and gets its way. 

The Minister didn’t see the reason to explain to Parliament why the Government needs the loan. He is not explaining what were his options. Did he check with domestic creditors or banks? Did he consider other IFIs?

Did he think about aligning priorities in terms of expenditure? What were the merits and demerits of every option? Was debt financing through IBRD the best option?  Parliament should be able to interrogate these matters.

The Minister asked Parliament to consider the matter urgently and the treasury Chief showed impatience in members debating the issue.

Most ruling party members who stood up to support just sang from the same hymbook; that water is needed and the loan must be approved. On the other hand, the opposition questioned a lot of things including the relegated role of Parliament.  

Opposition MPs were also worried about full disclosures of conditions of the loan. The Minister had said that the terms of the loan are that it is with an interest rate of London Interbank Offer Rate  plus a variable margin; a commitment fee of 0.25% charged on the outstanding loan balance from time to time; repayment period of 19.5 years, including  a four year grace period.  

Parliament has no way of knowing if these are the only conditions. Examples were given to the Minister of past tied aid to African countries.  

These included conditions to liberalise trade and finance, inflation targeting, privatisation, cutting public service expenditure low and the state rolling back from playing a leading role in the economy.

In short, Washington Consensus or neoliberalism was a condition for the loans from Breton Woods institutions.  

The Government of Botswana's political economic posture is that of neoliberalism. There is no empirical evidence to show that this has worked for developing economies around the world .

What exists, in fact is a substantive negation of the Washington Consensus. The Asian Tigers development from poor to industrialised States proved that the state is vital in economic development.

Parliament should have asked the Minister these questions if it had time and knew full details of the loan, including hidden conditions.  

Botswana shouldn’t be indebted; it has enough resources to develop its people. The problem is misplaced priorities. Why buy arms of war when the country is not facing conventional security threats? Why arm the country when it’s people are unemployed and poor? It doesn’t make sense!