Foreign reserves to finance salary hikes

  • Masisi at pains to appease public servants towards elections
  • Limited budget could frustrate salary hike eff orts
  • PEMANDU report recommendations ‘too expensive’


President Mokgweetsi Masisi is likely to dip into foreign reserves to afford a decent salary hike for public servants aimed at appeasing them towards the upcoming general elections, documents from Ministry of Finance and Economic Development reveal.
A document titled the ‘Economic Background Paper To Inform Government’s Position On The Review Of Salaries And Conditions Of Service For Public Officers’ authored by the Ministry of Finance and Economic Development published on the 27th November 2018, reveals that for government to implement the PEMANDU report recommendations on a public sector salary hike, it’s either domestic or foreign debt is sought, or government withdraws from reserves kept at the Bank of Botswana. Government had engaged a Malaysian research firm, PEMANDU Associates to make an assessment of the public sector salaries and wages, which were found by the firm to have been over 45 percent lower than the market rate. Consequently, the research firm recommended a salary of up to 20 percent increase, would costgovernment at least P1.4 billion.
According to Matambo and his team, it is very important that any salary negotiations take into account that a budget deficit of P7.15 billion or -3.4 percent of the Gross Domestic Product (GDP) is projected for the next financial year of 2019/2020. Due to the projected deficit, the finance Ministry said this leaves a limited headroom of only 0.6 percent or P1.3 billion, before the country reaches its set threshold of 4 percent of GDP.
The ministry also said the threshold also takes into account the country’s fiscal rule of restricting total government expenditure to 30 percent of GDP, out of which the wage bill should be 10 percent of GDP.
“However it should be noted that these preliminary budget figures of 2019/2020 financial year to be presented to cabinet and Parliament do not include any provisions for the normal salary adjustments of public servants to compensate for annual inflation”.
PEMANDU Associates’ report was conducted for the Directorate on Public Service Management (DPSM), completed on December 20th 2018, titled ‘Remuneration System Project Report for Grades A to D. Recently, President Masisi said government will hike public sector salaries, but not as high as everyone would expect. In this case, the Economic Background Paper To Inform Government’s Position On The Review Of Salaries And Conditions Of Service For Public Officers’ authored by Minister Matambo and his team states that government will either implement the full recommendations which will cost P1.4 billion and hike the budget deficit to P8.6 billion (approximately -4 percent of the GDP). The second option is to implement half (50 percent) of the PEMANDU recommendations, which will be equivalent to P711.6 million hiking budget deficit for 2019/20 to P7.9 billion or -3.7 percent of the GDP.
According to Kwabena Antwi, market analyst at Kgori Capital, he does not expect drastic changes when looking at the 2019 Budget Strategy Paper (BSP).
“Rather we anticipate nuanced emphasis on areas of concern for Government. This is predominantly in terms of backlogged infrastructure projects such as roads and housing,” he said. Antwi further added that the recurrent budget should grow by 3 percent-5 percent, due to increased expenditure on public service salaries and pensions. “The growth in this expenditure will be partly due to increases in the number of public servants and the actual increase in public servant wages, given recent discussions around President Masisi’s review of public servant salaries,” he said. The Kgori Capital expert said government will likely refrain from mentioning a particular figure for public servant wage increments on account of the ongoing negotiations taking place.
In terms of Ministerial allocation, the lion’s share of the recurrent budget will likely be allocated to Education and Health. Antwi said he does not expect a large increase in development expenditure despite 2019 being a National Election year. The main thrust of expenditure will likely be focused infrastructure projects such as roads, Government staff housing and schools, building on efforts which began to be rolled out in the previous budget period.
Kgori Capital expects a moderate increase in Government revenue. Mineral Revenue should increase slightly due to the stabilisation in diamond trading conditions in key export markets, according to Antwi. Customs & Excise revenue will likely remain flat given a stable outlook for trade within the region and the Rand. He further said Non-mineral income tax will modestly increase due to Government’s drive to increase tax collections and close tax loopholes. VAT, company tax and personal income tax rates will remain unchanged.