Higher mineral revenues slash 2011/12 deficit to P2.2bn

Staff Writer | Friday August 10, 2012 00:00

The revised deficit is also lower than the P3.8 billion estimated by Finance Minister, Kenneth Matambo in this year's budget speech. The 68 percent drop between the forecast and final deficit figure portends a healthier state of public coffers for the 2012/13 financial year in which Matambo, expects a modest P1.15 billion surplus in the current year.Last year, the 2010/11 forecast deficit of P10.2 billion came in at P6.5 billion or 46 percent lower than was first projected by the finance ministry, powered again by stronger than expected mineral earnings.

For 2011/12, the final figures, still due for further revision, indicate revenues at P38 billion against spending of P40.2 billion, giving rise to the P2.2 billion deficit.For the 2011/12 financial year, the BoB said the revised deficit was the result of several related factors.'Revenues grew by 19.1 percent compared to 2010/2011, driven in particular by buoyant mineral receipts, payment from the Southern African Customs Union and VAT,' the central bank says in its monthly data set. 'In contrast, total expenditure grew by only 4.6 percent compared to the projected 8.5 percent, due mainly to continued underspending of the development budget.'

A comparison of BoB final figures and finance ministry forecasts for 2011/12 indicates that mineral revenues, which include mineral taxes, royalties and dividends, rose from a projected P11.2 billion to a final P15.82 billion, powered by a 30 percent rise in global diamond prices.The rise in diamond prices between January and July was underpinned by restocking by manufacturers and jewellers following the global recession and warming conditions in major markets of India, China and the United States. However, the BoB/finance ministry comparison also indicates that besides mineral revenues, other revenue categories fell, with VAT down from a projected P5.25 billion to a final P4.96 billion.

Similarly, non-mineral tax dropped from a projected P6 billion to a final P5.76 billion, while customs pool earnings slid marginally from their forecast P8.46 billion to a final P8.42 billion. Comparisons of projected and actual expenditure were impossible as the BoB's data set did not contain final figures for spending in 2011/12.Prominent economist, Keith Jefferis told Business Week that the impact of the smaller 2011/12 deficit on the current budget would largely depend on whether the reduction was driven by higher earnings or underspending.Jefferis said underspending as the source of the lower deficit would not impact the 2012/13 budget as the spending planned for this year was already authorised. Alternatively, higher minerals as the source of the lower deficit would 'carry over' to the 2012/13 budget meaning the financial year begins on a higher standing.

Jefferis said rather than boosting this year's budget, higher mineral earnings from last year were likely to compensate for the downtrend in diamond sales seen since January. 'The higher revenues from last year are probably compensating for the fact that the diamond industry is now performing less well than it was at the time of the (planning for the 2012/13) budget,' he said.

'Since January and February 2012, the diamond industry has taken a downturn and that is a negative which may be compensated for by the higher revenues from 2011/12.' Asked to comment on the underspending by government, University of Botswana economist Emmanuel Botlhale said that it is worrying that under-expenditure was also a contributing factor to the reduced budget deficit as government expenditure is a key factor in aggregate demand.' If there is a budget under-expenditure, this will lead to reduced aggregate demand and, therefore, this will slow down the economy during post-recession days when we need to grow it. In addition, some of the projects are capital, therefore, if they are not implemented, this leads to repressed growth because they are drivers of the economy,' he said.