Recently the Bank of Botswana detonated a truth bomb with a 40-page analysis on how the country can transform into a high-income economy.
The analysis, made as part of the analytical section of the Bank’s 2018 Annual Report, was laid before a full session of Cabinet led by President Mokgweetsi Masisi recently. And according to the central bank governor, Moses Pelaelo, the analysis and its recommendations were “well received”.
The uncomfortable facts in there, however, have not been as well received by the general public, judging by the responses to excerpts of the analysis published by Mmegi and other media.
In particular, the central bank’s researchers have touched a raw nerve by suggesting a review of the country’s expansive service and product subsidies, as a way of redirecting funding towards faster industrialisation and the dream of a high-income economy.
The BoB believes government needs to mobilise domestic resources and the options available include re-prioritising public spending to free funds for infrastructure development in pursuit of industrialisation and a high-income economy.
The researches believe there is a case to be made for the gradual removal of some subsidies that constitute a large proportion of the government budget and reallocate resources to infrastructure.
A number of these subsidies are to be found in the agriculture sector, where today, a very large part of the sector is supported by government. This in the form of the close to P1 billion spent annually on the agricultural inputs programmes (ISPAAD, LIMID) and the now annual P1 billion or so spent on emergency drought relief.
Aside from that, hundreds of millions more are lost to the fiscus both through the tax zero-rating/ exemptions of certain agricultural goods and also corruption in the inputs programme where middlemen are reportedly bilking the system.
The issue of subsidies and cost-recovery is very sensitive in a country of high unemployment, low wages and extreme inequality. Many citizens are barely able to keep their heads above the water and for them, these state-funded subsidies are the difference between life and death.
For many, any talk of reducing subsidies, particularly in key areas such as health, education, electricity, water, transport and food items, is taboo.
The BoB’s reasoning is that re-priorisation of public spending towards infrastructure development and in pursuit of industrialisation would come with greater employment and higher incomes. It would also lower the need for subsidies.
We suggest that as a start, government could ensure that its subsidies are not blanket protections that treat beneficiaries as homogenous groups. Some of the current beneficiaries of subsidies in electricity, transport, education, health and food are not deserving of them and can afford to pay the true cost of these.
With diamond mining set to taper out within the next two decades, cost recovery in the area of the provision of public services and goods is unavoidable.
“Big government doesn’t work! It just doesn’t work!”
- Lou Barletta