01 Feb 2021

Botswana continues to face large budget deficits with a P6.03 billion deficit or 2.87 per cent of GDP anticipated for the 2021/22 financial year, Dr Thapelo Matsheka has said.

 “This comes after successive budget deficits experienced since the beginning of NDP 11 and a very large deficit in 2020/2021 which have resulted in the depletion of the Government Investment Account (GIA),” he told Parliament yesterday.

  Dr Matsheka, who is Minister of Finance and Economic Development, was delivering the 2021 budget speech.

  He explained that in the past, deficits were financed by drawing down on accumulated savings held in the account, which is government’s portion of the foreign exchange reserves.

That option, he said, was no longer available as the GIA had been depleted by past drawdowns and the revenue shortfall in the 2020/21 fiscal year.

“The level of GIA has drastically declined from an opening balance of P18.5 billion at the end of 2019/2020 financial year to P5.6 billion as at November 2020, a decline of 72 per cent, ” he said.

He said in the coming financial year, the entire budget deficit would need to be financed by borrowing such as from the domestic capital market following the increase in the bond issuance limit already approved by Parliament.

However, Dr Matsheka pointed out that increasing domestic borrowing might put pressure on domestic interest rates which increased debt servicing costs.

“It is, therefore, essential that we minimize the possibility of government borrowing ‘crowding out’ borrowing by the private sector, which would slow down the pace of recovery,” he said.

Minister Matsheka indicated that it would also be necessary to borrow from external sources adding that his ministry was currently in negotiations with development finance partners for possible loans.

The ministry, he said,  was exploring external financing on the back of a guarantee from the Multilateral Investment Guarantee Agency (MIGA), an arm of the World Bank.

He said it was projected that additional borrowing from domestic bond issuance along with that from external lenders would be sufficient to finance the projected budget deficit.

Dr Matsheka stated that despite the anticipated additional borrowing, public debt would remain within the statutory limit of 40 per cent of GDP.

He said in view of the expected deficit, it was imperative that recurrent spending was reduced and revenues increased to bring them back into balance.

Dr Matsheka said fiscal sustainability involved accepting that government could not finance all of the demands and expectations that were placed on it.

That meant prioritising expenditures “and saying no in some circumstances”, he said.

He called on ministries to be aware that spending requests for projects and programmes that were not substantiated by proper and convincing demonstrations of their cost-effectiveness would not be approved adding that evidence- based policy making would be an absolute requirement.

Dr Matsheka said subventions to local authorities and state-owned enterprises would be reduced in future.ends