Excerpts from the late Baledzi Gaolathe’s last budget speech are strikingly similar to the themes and statements made in more recent years by the country’s finance ministers when describing the generally leaner budget and economic trends.
At the time in 2009, Gaolathe was facing the global financial crisis, which would eventually lead to suspension of operations at Debswana, an uptick in unemployment, huge budget deficit and a 14.1% contraction in the economy, a historic low yet to be matched.
Gaolathe’s predicament was sudden because the prior decade, roughly the period between 2000 to 2008, is still regarded as one of the rosiest in the country’s history, thanks to a boom cycle in minerals.
Between 2000 and 2008, the country’s mines produced more copper than they had produced in any other eight-year period, with a historic peak reached in 2005 of 28,115 tonnes. Similar trends were seen in nickel production, which reached a historic peak of 30,883 tonnes in the same year of 2005, helped by the higher global demand and strong prices.
Rough diamond production, also rose between 2000 and 2008, trending above the historic 30 million carat mark between 2003 and 2008 and including the all-time peak of 34.3 million carats in 2006.
The crash of 2009 was therefore, a sad send-off for Gaolathe, but one which he steeled the nation for in his speech.
“I must hasten to add that, in the circumstances facing the nation today, it is even more critical for us to emphasise financial discipline and budget sustainability,” he said.
In remarks that today appear stunningly prophetic, Gaolathe warned about what would happen in the absence of discipline and budget sustainability.
“In boom times we do not spend all our income so that in recessions we are able to draw on our savings. Government will also finance some projects by borrowing.
“Let me add a word of caution, however.
“All projects and programmes, whether financed by current revenues or from our savings or by borrowing, must ensure cost-effective use of public funds.
“If we fail to use our resources productively, the stabilisation will be short-lived.
“Our savings will have been used up without adding to future income, and our ability to borrow at reasonable rates to finance projects in the future will be limited.”
The former Finance Minister added: “The size of government expenditure would then have to be
curtailed dramatically.
“At this stage, we should undertake whatever reforms are necessary, with all deliberate speed, and avoid abrupt and painful externally imposed adjustment in the future.”
Almost 16 years to the day, Gaolathe’s son, Ndaba, is set to present his inaugural budget to the nation. This time however, government savings are drained, borrowing rates on the domestic market continue to climb and there are huge pressures for urgent reforms such as cutting the public service wage bill.
Those reforms, long delayed thanks to political expedience and the buffer of healthier reserves, have moved to a stage where they are “necessary,” and require “all deliberate speed”, in order to avoid “abrupt and painful externally imposed adjustment in the future”.
The senior Gaolathe had bumper savings in hand thanks to the boom years between 2000 and 2008, while the younger is facing a nearly empty Government Investment Account, where national savings are housed.
Between 2000 and 2008, government’s finances enjoyed a boom period, moving from a budget deficit of P1.4 billion in 1998/99 to a record surplus of P7.7 billion in 2006/07. The period enjoyed consistent expansion with the national poverty rate falling from 30.6% in 2002/03 to 19.3% in 2009/10.
Not only does the current Finance Minister have little in the way of savings to lean on, he is facing huge expectations from voters who bravely changed governments last October, the first time since Independence in 1966.
Gaolathe himself has said he is “afraid of Batswana”.
“If they could throw out the ruling party that quickly, what about us,” he has said at several fora.
The economy’s challenges are mainly that mineral revenues have been generally declining in the past decade, with fewer boom years and more busts, while spending under previous administrations has been kept up, eating into the savings.
The counter-cycle spending policy, where government maintains expenditure even in crises in order to stimulate growth, appeared to work after the global financial crisis. However, spending has generally accelerated in the last decade, despite the downtrend in mineral revenues and economic shocks such as COVID-19.
While some of the expenditure is explained by the need to plug the country’s developmental gap, many analyses, including by the World Bank, have shown enduring and even deepening spending efficiencies, including wastage and corruption.
Spending around state owned entities as well blanket subsidies, poor targeting of social assistance programmes and the size of the civil service relative to the economy, have all been cited as drags on the budget through the years.
Where the level of government savings allowed Gaolathe senior’s successors to delay the fiscal warnings he made as he left the Ministry, his son does not have the luxury. The new Finance Minister has already signalled that difficult decisions have to be made in the short and medium term, to steer the budget and economy back on track.
“Central to this agenda will be efforts to rebuild fiscal buffers and implement robust expenditure management to ensure sustainability.
“By striking this balance, the government aims to create a resilient economy that is better prepared to navigate uncertainties while maintaining a clear focus on long-term growth and stability.
“Government will stimulate revenue growth by exploring alternative sources of income as well as develop sustainable financial assets to restore the Government Investment Account to levels that can effectively absorb future economic shocks,” he said at a recent budget pitso.
All eyes will be on the younger Gaolathe on Monday, delivering his inaugural speech and detailing how he intends to steer the country away from a fiscal cliff.
Many expect that Monday will inevitably demonstrate unmistakable echoes of a budget speech made 16 years ago by another Gaolathe.
