Diamond savings fund deferred to 2017


A proposal to put 40 percent of minerals revenues every year into a diamond fund to buffer savings for future generations has been deferred to 2017 due to delays in preparations of the new National Development Plan (NDP 11) macroeconomic outline.

The proposal contained in the 2015-2016 Budget Strategy Paper (BSP) released last September as part of a raft of changes to the fiscal rule, was initially earmarked for implementation in the coming financial year. But the proposal was conspicuously absent in the budget speech read by Finance Minister, Kenneth Matambo this week.

The secretary for Financial and Economic Policy, Taufila Nyamadzabo has told BusinessWeek that when first mooted, the proposal was meant to run concurrently with the next budget as well as the NDP11. “At the time the proposal was made the two processes were meant to run together but the delay in preparations of NDP11 meant that we had to defer the plan.  This was a proposal that needed political approval and on advise from the Botswana Economic Advisory Council (BEAC), we had to defer,” he said.

NDP11 will now commence in 2017 after its forerunner; NDP10 was last year extended by a further year from the initial 2016 ceiling. Had it been implemented this year, a total of 7.7 billion would have been transferred to the fund, dragging down the budget into a deficit. It is estimated that, as diamond prices continually rise, the savings could create a fund for future generations worth approximately P120 billion, depending on the drawdown rules and rates of return.

According to the BSP, the review of the fiscal rule was expected to contribute to the rebuilding of the country’s net financial assets, which dipped into negative balances due to the global financial crisis.

At the end of the 2012-2013 financial years, Botswana had a net debt of P28.3 billion against cash balances of P20.6 billion leaving the country in a precarious P7 billion negative net financial position. This was a significant decline to the pre-recession level where the country balance sheet was constantly in the positive peaking at P28 billion in 2008.

When presenting the budget speech, Matambo said government’s net financial assets were now marginally out of the red standing at 1.7 percent of GDP as at the end of March 2014. The rebound was largely on the back of an increase in government’s balances at the Bank of Botswana from P20.61 billion to P31.75 billion over the 2013-2014 financial year, while government’s net debt and guarantees had increased only marginally over the same period, from P28.33 billion to P29.52 billion. “We expect our net position to continue to improve further by the end of the current and coming financial years.  However, we need to decrease our net debt and increase our balances in the Government Investment Account, if we are to be in a position to absorb a major external shock of the magnitude we experienced in financial years 2008-2009 and 2009-2010,” said the minister.

Government investments in financial assets are in the form of the Pula Fund and the Government Investment Account (GIA) both of which represent important financial buffers or cushions.

Barring an unlikely major deposit find, diamond revenues are expected to decline significantly after 2050, when the resources will either be depleted or be too deep to be economically recovered. Meanwhile, Botswana’s second highest revenue contributor, SACU, is under threat as negotiations for new revenue sharing formulae among the union members continue.

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