Finance minister, Thapelo Matsheka has received critical backing for his major policy shifts announced on Monday in which he plans to restore fiscal stability by raising levies, tightening tax collection and instituting greater cost recovery in the public service.
The plans for the sweeping reforms have triggered debate through the country, with many fearing that a population already plagued by stubborn unemployment, wage stagnation and inequality will be forced to bear the burden of fiscal consolidation.
However, with the first three years of NDP 11 having burnt an P18.8 billion hole in government coffers and its traditional go-to sources of support, Matsheka was expected to take unpopular decisions. The budget revealed on Monday it carries a P5.2 billion deficit, the majority of which will be funded by further drawdowns on reserves and domestic borrowing sources, which experts have warned are reaching their limits.
On Monday, in a speech often punctuated by interruptions from fellow legislators, Matsheka announced that he expected to raise at least P500 million in the coming fiscal year from revisions to review of user fees and service charges.
Several ministries have already begun reviewing their fees, charges and levies some of which, Matsheka said, were last adjusted a decade ago. All fees, charges and levies across the public sector would be adjusted from April 1 and thereafter on an annual basis, Matsheka said on Monday.
The new minister will also pursue more aggressive tertiary student loan recovery and more burden-sharing for sectors such as health where an unpopular financing strategy will see more cost-reflective service fees in sections of the public health sector.
Incentives, subsidies and tax exemptions are also under the spotlight in Matsheka’s race for revenue, while the number of parastatals is due to be cut from its current 60 to reduce the billions spent on subventions as well as duplication of roles and mandate irrelevance.
International Monetary Fund mission chief for Botswana, Papa N’Diaye said the institution was impressed with Matsheka’s commitment to kick-starting the country’s fiscal consolidation.
“Part of fiscal consolidation is to look at the efficiency of spending and also the
“We welcome the establishment of a Cabinet sub-committee to look into the issues of parastatals and their governance.”
Bank of Botswana governor, Moses Pelaelo told BusinessWeek government had a track record of returning to fiscal stability after periods of deficits. The central bank, government’s economic policy advisor, has previously recommended that subsidies on food, fuel, education and other items need to be gradually phased out, while tax coverage should be broadened in order to maximise resources for infrastructure development. Pelaelo said Matsheka’s plans to streamline development spending were also appropriate for fiscal consolidation. “The budget speech made it very clear that what they want to do is make sure that ongoing projects are completed and the development expenditure coming in the next year is focused on growth generating sectors of the economy.”
Business Botswana CEO, Norman Moleele said the organisation was looking forward to consultations with government on the review of fees and charges across the public sector. The business lobby group also welcomed Matsheka’s decision to hold off a tax increase and opt for tighter tax collections instead.
“In view of the fiscal pressures facing the economy and the fact that tax increase would render us uncompetitive, we support efforts to improve the efficiency of revenue collection by expediting tax assessments as well as boosting access to information on all taxable transactions,” Moleele said.
“It is very important to act in a timely manner and ensure effective implementation of all reforms that the minister proposes in the 2020-2021 Budget. Therefore, productivity has to improve so that our reputation does not only end in planning but execution too.”
Matsheka’s speech and budget are set to get scrutinised by legislators in coming weeks before the almost inevitable passing of the Appropriations Bill carrying the proposals.