Mmegi

Moment of truth for P35bn wage bill

To the streets: Public servants argue that they are underpaid and overworked. Government, meanwhile, says going forward, it has no choice but to either cut remuneration or reduce employment numbers PIC: KENNEDY RAMOKONE
To the streets: Public servants argue that they are underpaid and overworked. Government, meanwhile, says going forward, it has no choice but to either cut remuneration or reduce employment numbers PIC: KENNEDY RAMOKONE

Of the forecast spending of P97 billion for the upcoming financial year, just over P35 Billion will be used on personal emoluments and pensions, majority of which is for civil servants’ salaries. With the country stuck in one of its worst fiscal positions, it’s becoming clear that government has difficult decisions ahead. Mmegi Staff Writer, TIMOTHY LEWANIKA reports

For the 2022/2023 financial year, government expenditure stood at P74 Billion with the largest portion of this amount going civil servants’ salaries and associated expenses, a decades-old trend that has weakened the budgets back.

Government has been kicking the can of fixing the public wage bill issue down the road for many decades, mainly because of the cushion of diamond revenues and fattened reserves.

Now, authorities are warning that the time for hiding face has passed, as a fiscal drought besets the nation.

Think of Botswana’s economy as a flight carrying luggage beyond recommended aviation standards. No doubt the plane can get off ground and fly for a bit, but mid-air the pilots will battle with slower performance and even the threat of crashing.

That is exactly where Finance Minister cum Vice President, Ndaba Gaolathe, finds himself. He has been called in mid-air to pilot a plane which for many miles has run on a heavy load.

What will he do now? Drop the luggage mid-air to save the lives onboard or like his predecessors fly on for an extra mile hoping for a miracle that may never arrive? Most importantly will the people he is trying to save understand his decision if the plane lands?

In a recent parliamentary address, Gaolathe stressed the dire situation the country finds itself in and the difficult measures required to avoid the economy from crashing off a fiscal cliff.

“What I can say is that the situation is bad, worse than what we had thought”.

“It’s so bad that when I was talking with the President, I said we have to start by decreasing his salary and mine for perhaps a year, in order to right the ship,” he said.

The fact is that it’s not just the President or Vice Presidents’ salaries that need decreasing; it’s the whole civil society that needs re-consideration. Salary cuts for the civil services head honchos will be a minute, insignificant antidote.

The International Monetary Fund (IMF) in an array of studies and reports over the years on the Botswana economy, has pointed out the need to slash the public wage bill in order to rebase it in accordance to levels manageable by a growing economy like Botswana. In its 2024 article on Botswana, the IMF revealed that the country’s fiscal buffers and declining revenue were huge push factors for government to act on the unsustainable wage bill.

“The budget balance has shifted from a surplus of more than 12 percent of GDP in FY2006/07 to deficits averaging five percent of GDP over the past five years. Indeed, total revenues have fallen from more than 40 percent of GDP in 2007 to 28 percent of GDP in 2023.

“Half of this decline reflects falling mineral revenues, but both non-mineral and South African Customs Union revenues have also fallen.

“Government spending, however, has kept pace with GDP, averaging 34 percent of GDP over the past 10 years.

“The public sector wage bill is high by international standards, at 13 percent of GDP,” researchers at the IMF noted.

A year prior in its 2023 article on Botswana’s economy, IMF researchers echoed the same worry over the wage bill, citing its size as a threat to a sustainable fiscal stance.

“Botswana’s public wage bill is large compared to other emerging market economies—both as share of GDP and public expenditure,” IMF researchers noted.

In a recent budget pitso, Gaolathe shared plans to address the IMF worries by rebuilding buffers and cutting down on spending.

“Central to this agenda will be efforts to rebuild fiscal buffers and implement robust expenditure management to ensure sustainability,” he said.

“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.

“The measures will also include accelerating reforms of State-Owned Enterprises (SOEs) and implementing additional cost-containment measures.”

While it is obvious what government has to do, there is a fear of political backlash that may emanate from cutting jobs at a time when the economy is grappling with unemployment. This is why pilots before Gaolathe, no matter how bright and well vested in economic theory they were, could not act on this matter.

It is also made harder by the fact that job creation is the apex goal of every incoming government in Botswana. Cutting civil service jobs to save the economy, while a noble idea, will not be well received by the populace which after every five years decides the fate of every political party and politician. It is a decision that can only be made when the lenses of politics are put aside.

However, another complication of chopping the civil service wage bill is that since Independence, the country’s growth trajectory has meant that government is the prime employer in the economy. The private sector, despite the numerous policies, programmes, laws, funding and facilitatory legislature put in place, has remained a smaller creator of jobs in the economy.

While policies such as “private-sector development” and “transformation” have largely been accepted nationally, government remains the biggest employer with civil servants and their salaries supporting vast sections of the economy, as well as households.

Of late, climate change has caused perennial droughts in the country and decimated communal farming, forcing the rural economy to lean heavier on civil service jobs, a situation that can be seen in that one civil servant’s salary generally supports upwards of five extended family members.

In the absence of adequate private-sector led employment creation, any rash decisions could throw many into the ranks of the unemployed, ballooning government’s already tight social relief programmes.

On the other side however, the 2024-25 budget is expected to incur a deficit of up to P18.6 billion, up from the original forecast of P8.7 billion, after mineral revenues, particularly diamond sales, plummeted, while spending remained robust.

The Government Investment Account, which is managed by the Bank of Botswana and represents government savings, has fallen to record lows as the Finance Ministry has drawn down deeper to finance the widening budget deficit. Government has also borrowed more on the domestic capital market to fund the deficit, in the process incurring higher costs as lenders have raised the levels of returns they seek in the debt programme.

The budget strategy paper for the 2025/2026 financial year shared that cutting the wage bill is an immediate fiscal action. This is alongside cutting subventions to state owned entities which are earmarked.

“Specifically, focus will be on reducing the public sector wage bill, grants and subventions, and accelerating the implementation of State-Owned Enterprises reforms together with other cost containment measures.

“While government has put measures in place to improve the efficiency of public spending, equally reducing dependence on mineral revenues through economic diversification and private sector-led growth model is vital,” the paper revealed.

The eagerly-anticipated 2025-26 budget will show to what extent the new administration is able to tackle a long-running challenge.

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