… as finance minister Peggy Serame scurries to defend the government and reassure the nation in the face of reported fiscal crisis
GAZETTE REPORTER
Leading economist and former deputy governor of the Bank of Botswana, Dr Keith Jefferis has expressed a reluctance to engage with the critical responses that arose in the wake of his widely publicised economic analysis of Botswana’s public finances that painted a bleak picture for the country.
His recently-released report – which highlighted a significant decline in public finances – has sparked intense debate, with many accusing the government of financial mismanagement.
The ruling Botswana Democratic Party (BDP) has responded swiftly by dismissing the “claims as politically motivated with the intent to cause unnecessary panic and create a false sense of fear”.
Unfounded
The BDP statement sought to defend the government’s fiscal actions, emphasising that the accusations were unfounded and meant to undermine public confidence.
In an interview with The Botswana Gazette this week, Dr Jefferis stated that he was not interested in engaging further on the matter beyond what is detailed in his report.
He made it clear that he would not be granting any press interviews regarding the controversy.
Titled “Economic Review Second Quarter (April-June) 2024,” Dr Jefferis’s report warned that government finances are under severe strain due to a sharp decline in diamond exports.
Expansionary budgets
Traditionally, mineral taxes, royalties, and dividends have been the largest source of government revenue. The report detailed how this revenue decline has significantly impacted the country’s budget.
It revealed that lower mineral revenues, coupled with highly expansionary budgets in the 2023/24 and 2024/25 financial years, have resulted in a substantial budget deficit.
The preliminary deficit for the 2023/24 fiscal year was estimated to be double what was projected just months earlier in the 2024 budget.
Actual deficit
“Our estimate of the projected deficit for 2024/25 has also doubled to a very worrying P17 billion, or 6 percent of GDP,” the report stated.
It further highlighted issues with the Government Accounting and Budgeting System (GABS), which have delayed the finalisation of fiscal results for previous financial years.
Contrary to earlier reports that the budget was balanced in the 2022/23 financial year, Dr Jefferis noted that information from cash balances and borrowing movements indicated an actual deficit of approximately P4 billion, or one and a half percent of GDP.
Staggering drop
The report also underscored the rapid depletion of government balances held by BoB, with the Government Investment Account (GIA) balance plummeting from P19.1 billion in July 2023 to P5.1 billion in April 2024 – a staggering drop of P14 billion in just nine months.
“Clearly, this rate of depletion is unsustainable,” the report warned. It raised concerns about how the substantial budget deficits are being financed, pointing out that during the 2023/24 fiscal year, the government relied on both borrowing and drawing down cash balances.
Specifically, there was an increase in borrowing by P8.6 billion, including P2.8 billion in domestic borrowing and P5.8 billion in external borrowing, coupled with a P5.2 billion drawdown in GIA cash balances.
Not feasible
However, the report cautioned that this approach would not be feasible in the coming year due to the significant depletion of cash balances.
Further significant drawdowns are no longer possible, and the government’s 2024/25 annual borrowing programme (ABP) had aimed to rebuild, not deplete, these balances.
“It is extremely unlikely that a deficit of P17 billion in 2024/25 can be financed by borrowing,” the report asserted.
The ABP, published in April 2024, projected a substantial increase in net domestic borrowing to P13 billion, based on an expected deficit of P8.7 billion.
Expanded deficit
However, the expanded deficit would necessitate an increase in net domestic borrowing to approximately P19 billion, a figure far beyond the appetite of domestic financial institutions.
The report also noted that while some external borrowing may be feasible, it would be very expensive if sourced from commercial lenders. Such rapid borrowing, whether domestic or external, would signal fiscal instability.
In light of these financial challenges, the Econsult report concluded that the projected expenditure of P102 billion in the 2024/25 budget is “not feasible or achievable,” given the anticipated revenue shortfalls and the impractical borrowing target.
Historical and ongoing challenges
In response to the report, the Minister of Finance, Peggy Serame, addressed Parliament on the historical and ongoing challenges, including the impact of the global financial crisis, the COVID-19 pandemic, and the current economic slowdown, particularly in the diamond market.
She assured the public that the government is committed to improving fiscal stability and that there is no need for alarm or panic.
“The reduction in the Government Investment Account (GIA) has been due to the financing of the imbalance between low revenues and high expenditure commitments, much of which have been aimed at addressing the country’s pressing development needs and stimulating economic growth,” she said.
No need to panic
“Notwithstanding this, the government remains fully committed to its fiscal consolidation programme as well as rebuilding the relatively low fiscal buffers to sustainable levels.”
Seeking to reassure the nation, Serame stated: “Once again, I would like to assure the public and all stakeholders that our economy, like others, is experiencing a slowdown and consequently a decline in our revenues, but there is no need for any alarm or panic.”