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Gov't seeks P37bn to revive economy

Government is proposing to increase Value Added Tax (VAT) to 14% in the next two years, while also introducing new taxes such as sugar and carbon, as part of initiatives to boost revenues and support a P36.5 billion shortfall in funds required to lift the economy out of the COVID-19 crisis.

According to documents before Parliament this week, government is proposing P14.5 billion for funding under a final version of the Economic Recovery and Transformation Plan (ERTP) and another P22 billion as the cumulative budget shortfall from 2020/21 to 2022/23.

Finance and Economic Development minister, Thapelo Matsheka is asking legislators to approve the new funding as part of the revised Mid-Term Review of NDP 11, with the ERTP as an addendum. The Mid-Term Review contains government’s planned projects and policies for the balance of NDP 11 to March 2023, with the ERTP essentially reprioritising and accelerating these. Members of Parliament (MPs) will on Monday debate the new proposals, which include a list of priority infrastructure projects and policy initiatives designed to promote export-led growth, improve the efficiency of government spending and financing, develop human capital and boost investment in infrastructure.

According to the documents before MPs, the ERTP will require P500 million to be spent this year, followed by P7 billion in 2021/22 and another P7 billion in 2022/23. The Finance Ministry estimates that the budget, meanwhile, will suffer deficits of P13.1 billion this year, P8 billion in 2021/22 and P446 million in 2022/23.

Spending in the period to 2022/23 will be focussed on economic clusters such as agriculture/beef, tourism, financial, business and information technology services. Projects have been identified in digital transition, SME development, health and education as well as productive infrastructure.

Projects include infrastructure and utilities in the area around one of the dams in the north-east Botswana to attract horticulture farmers and livestock feed producers, resuscitating the Zambezi Integrated Agro-Commercial Development Project, tourism facilities around dams such as Gaborone Dam, funding commissioned creative work and supporting manufacturing.

Other projects include maintenance of major roads supporting economic activity, upgrade of Gaborone roads, establishment of dry ports within the country and boosting renewable energy.

The documents propose that a grant of P1,000 be given to informal and small enterprises that did not benefit from other support measures “on condition that they register with the Local Enterprises Authority in the ongoing database exercise”. It is unclear whether the grant will be a once-off or regular affair.

Government is also proposing an additional six-month repayment holiday for CEDA loans to December 2020 and extending the wage subsidy for the tourism sector for another six months. To fund the ERTP and the budget left under NDP 11, government plans to look largely within, doubling the limit for domestic borrowing to P30 billion, while commercial banks have pledged P3 billion.

Government will

limit withdrawals from the foreign reserves in order to maintain their use as a fiscal buffer. Funding from external financiers such as the IMF, World Bank and AfDB will be used as a last resort, according to the documents in Parliament.

However, domestic resource mobilisation will underpin government’s efforts to raise the P37 billion.

“A considerable portion of the remaining financing gap will need to be filled by domestic resource mobilisation,” reads the final ERTP.

“In addition to raising user charges and fees for public services, there is need to urgently initiate a programme and timetable with respect to the measures to raise additional revenues.”

Government estimates that should it introduce carbon taxes at the levels recently done in South Africa, it could raise about P300 million from liquid fuels and P400m from electricity annually.

Again, if a sugar tax on sweet drinks was introduced in Botswana at the same rate as has been done in South Africa, the expected revenue raised would be around P150-P200 million annually.

“While these interventions could have negative short-term impacts on employment in certain firms and industries such as coal mining companies and producers of sugary drinks, international evidence shows that this can be offset by the impact of expenditure switching such as to other beverages or using the tax revenues generated to keep other taxes low, leading to increased employment elsewhere,” the documents read.

Besides adjusting VAT, withholding tax will also be raised from April 2021, while electricity and water tariffs will be progressively raised to market levels. Cost sharing and cost recovery will be revamped “without compromising inclusivity”.

“Those able to pay should bear a greater portion of the cost of providing public services by government pay, through means-tested user fees,” the documents read.

“Education is one area that could be considered, but the principle could be extended to some components of health care.”

Presenting the proposals to MPs this week, Matsheka said the size of the adjustments made to revenues and expenditure meant the funding requirements would have to be addressed “upfront”.

“Some money will have to be raised through a combination of increased domestic revenues such as taxes and levies, and borrowing,” he said. “It is important to note that there is little scope to draw down further on the Government Investment Account which is the Government’s portion of the foreign exchange reserves, as this needs to be preserved as a financial buffer.”

On Tuesday, legislators were given two “clear” days to study the proposals before debates begin on Monday.




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