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Gov’t sees diamond recovery lowering 2021 deficit

Digging up riches: Govt is pinning its hopes of recovery on diamonds PIC: MORERI SEJAKGOMO
The Finance and Economic Development ministry expects the budget deficit for 2021 to drop to P12.6 billion, led by a recovery of the country’s key economic sector, diamond mining.

Ministry of Finance and Development Planning documents seen by BusinessWeek show that the government is also banking on higher taxes and increased cost recovery from public services to limit the projected deficit, which would equate to 5.9 percent of gross domestic product (GDP).

The P12.6 billion forecast deficit compares to a projected shortfall of P15.2 billion for the current fiscal year which ends on March 31, 2021. The current year’s deficit, if actualised, would equal about eight percent of the GDP.

The Budget Strategy Paper, an annual blueprint published as part of the budget cycle each year and emailed to BusinessWeek on Sunday, shows that the Finance Ministry expects 2021 revenues to reach P58.8 billion compared to expenditure of P71.4 billion. Finance Ministry experts expect receipts from mining to grow to P15.7 billion in the coming financial year, from a forecast P10.5 billion this year.

“There has been a robust recovery in diamond trading in September 2020, which if sustained would underpin a stronger recovery through the rest of the year and into 2021,” the budget paper reads.

“The previous major shock to hit the global diamond industry resulted from the global financial crisis in 2008-2009, and despite a sharp contraction at that time, the industry recovered strongly in 2010-2011, which provides an encouraging precedent.”

Debswana, the De Beers’ unit whose mines produce nearly all of Botswana’s diamonds, last week reported output of 4.8

million carats for the third quarter compared to 1.8 million in the second. However, on a year-on-year basis, the third quarter production was down 15% underlining the troubles in both demand and access to customers the industry has had this year as a result of the coronavirus (COVID-19).

“In the diamond mining sector, high levels of inventory build-up since 2019 have been exacerbated by the COVID-19 pandemic in 2020,” the budget paper reads.

“Diamond sight sales were cancelled in the wake of the April 2020 lockdown in Botswana, compounded by a delay in the recovery of the retail side of the diamond value chain.

“The fiscal projections for 2021-2022 are conservative, and could be exceeded if there is faster than expected recovery in diamond exports and production.”

The ministry’s blueprint also says next year’s budget will feature tax increases, removal of tax exemptions and subsidies, as well as higher cost recovery for public services, as part of greater domestic resource mobilisation.

“There is need to develop a robust domestic revenue mobilisation initiative, which will be key in the expansion of the revenue base, given the current high level of dependence on external revenues such as minerals and customs revenues.

“This will involve raising some tax rates, reducing exemptions and allowances, improving tax compliance and revenue mobilisation efficiency.

“The 2021 budget will include initiatives in all of these areas,” the finance ministry documents read.


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