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Higher BoB revenues pull budget out of deficit

BRIAN BENZA
Bank of Botswana
A three-fold jump in expected payments from the Bank of Botswana (BoB) saw the national budget for the year ended March 31, 2017 swing from a projected deficit to a surplus.

In the last State of the National Address before he leaves office next year, President Ian Khama on Monday said the final estimates for the 2016/17, government budgets show a surplus of P1.1 billion, compared to a revised budget estimate of a deficit of P1.12 billion.

The Ministry of Finance and Economic Development was expecting to run budget deficits from 2015 to 2020, and the new surplus figures break the deficits forecast.

Government ran deficits in the previous two financial years, which were funded by a combination of drawing down on savings as well as issuance of Bonds and Treasury Bills.

According to the latest Botswana Financial Statistics (BFS) report, the final estimates for the 2016/17 government budgets show that the surplus was mainly due to buoyant revenue and grants, which stood at 102.6% of the revised budget. “This resulted from the significantly higher than expected payments from the Bank of Botswana which were 235% in excess of the revised budget. The gain in the Bank of Botswana payments was due to unanticipated improved performance of the government investment portfolio as well as the effects of currency movements on the portfolio,” reads the report.

Government currently has P32 billion in its investment account, which the BoB manages and pays dividends to national treasury.

According to the central bank, in the year ended March 31, 2017 minerals revenues also surpassed the revised budget estimates by 7.9% due to increased rough diamond demand and, hence improvements in

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sales, while Southern African Customs Union revenues increased by 2.2% over the revised budget. A budget deficit of P6.5 billion is forecast for the current financial year up from P2.35 billion announced by Finance Minister, Kenneth Matambo in February.

The deficit is seen widening to P8 billion in the next financial year leading to cumulative budget gap of P15 billion by 2020, a development that is contrary to government’s commitment in NDP 11 to reign in budget deficits.

To finance the expected budget deficits, the 2018 Strategy Paper says government will be guided by the Medium Term Debt Management Strategy (2016/17-2018/19), which outlines the options available in the event of government budget deficits.  “However, in the short-term, the options revolve around borrowing, either domestic or external, subject to the country’s borrowing limits, and drawing down on government cash balance held as part of the foreign exchange reserves. Each of these options has its own pros and cons,” reads the paper.

On the option of drawing down on government cash balances at the BoB (Pula Fund), the Ministry of Finance admits this could have the potential to jeopardise the country’s sovereign credit.

Fiscal authorities also acknowledge the decline in government’s net worth, as a result of the drawdown of cash balances to finance budget deficits will also have negative implications on the ability of the country to absorb major external shocks and cushion the domestic economy in case of financial crisis.



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