13 Aug 2024

Minister of Finance, Honourable Peggy Serame says government remains committed to fiscal consolidation programme and rebuilding the relatively low fiscal buffers to sustainable levels.

Updating Parliament on the current state of public finances on Monday, Ms Serame noted that subdued economic activity was expected to have implications on the budget, particularly minerals.

However, she said government was implementing necessary interventions to deal with current realities.

“Notwithstanding the challenges at hand, domestic economic is however anticipated to rebound in 2025, which is in line with global economic recovery, particularly in the major markets for diamonds,” she said.

Minister Serame explained that government was not reckless in spending but reduction in General Investment Account (GIA) had been due to the financing imbalances between low revenue and high expenditure commitments much of which had been aimed at addressing the country’s pressing development needs and stimulating economic growth.

She assured Parliament that government was also committed to improving efficiency in revenue collection as well as other fiscal measures to reverse the current fiscal situation.

She said the country’s economy, like others was experiencing a slowdown and consequently a decline in revenues, hence there was no need to panic.

Currently, she said GIA was low on account of the commitment to increasing spending in order to stimulate economic growth and support recovery as well as poor performance of the mining sector.

“Government spending substantially increased due to among others payment of personal emoluments of P5.75 million, expenditure on Botswana Public Officers Pension Fund (BPOPF) of P1.5 billion for pension augmentation, tariff subsidy to Botswana Power Corporation (BPC) of P1.5 billion, payment for acquisition of land from Tati Limited Company of P939.3 million, which was a final settlement,” she said.

Additionally, she said the substantial increased expenditure also accounted for P623.1 million for water projects, Chema Chema Fund of P200 million, Air Botswana at P123.5 million for purchase of additional fleet, subvention to State Owned Entities (SOEs) and Revenue Support Grant (RSG) to local authorities among others.

However, Minister Serame said the economic landscape had substantially changed compared to the time when the Budget Speech was delivered in February 2024.

“For instance during the year 2023, economic growth decelerated to 2.7 per cent, lower than the 3.2 per cent that was anticipated, indicating weaker than expected performance of the of the diamond industry,” she said.

She said the weak performance in the diamond market experienced in 2023 continued into the second half of 2024 and was driven by various factors including competition from lab grown diamonds, low demand from key markets and evolving consumer preferences.

She said during the global and financial crisis of 2008/2009, the country’s economy was hard hit to the extent that the country had to deep into its fiscal savings as well as to obtain substantial budget support financing from among others, the African Development Bank (AfDB), the sum of P20.31 billion to help finance government programmes.

Minister Serame also indicated that COVID-19 pandemic had devastating effects on people’s lives and the economy.

“Government responded expeditiously to contain the scourge, save lives as well as stabilise and stimulate growth of the economy. Since the COVID-19 pandemic was an extra ordinary occurrence, government had to again dig deep into the accumulated fiscal savings, which were supplemented by a number of budget support loans from the World Bank, AfDB, OPEC Fund and the Japan International Cooperation Agency (JICA) to finance government programmes,” she added.

Therefore, the minister explained that the GIA had been on a downward trajectory falling from P30.5 billion in 2008 to P21.8 billion in 2009 and further to P13.6 billion in 2010, when the world was hit by the global financial crisis.

Again, she said due to the impact of COVID-19, the GIA declined from P23.9 billion in 2018 to P2.8 billion in December 2020.

“It however, recovered in 2021, increasing from P5.6 billion in December 2021 to P12.1 billion in December 2023, owing to the combined impact of the recovery in the diamond market and resumption of economic activity globally as most economies opened up,” she said.

However, Minister Serame said the economy was short lived, as the GIA fell to P5.1 billion in April this year from P18.5 billion in April last year. She said as at the end of May this year, the GIA was at P4.1 billion, compared to P19.1 billion in May last year.

As such, Ms Serame said the downward trajectory of GIA was indeed a marked reduction as it impaired on the ability of government to finance the budget and provide adequate buffer to the economy against unforeseen events and shocks in the future.

Ms Serame said the dynamics of GIA were worth explaining to Parliament because it represented government’s savings account held at the Bank of Botswana (BoB).  She said the GIA received government’s surplus cash balances derived from budget revenues and other financing operations, such as borrowing, net of spending and financing outflows.

“Historically, the GIA received inflows from budget surpluses and experienced outflows in the event of budget deficits. GIA is more than just a simple savings account at a bank. Under the agreed arrangement between the Ministry and BoB, the GIA also represented government’s shares of the Pula Fund portion of the foreign exchange reserves,” she said.

Therefore, Ms Serame said the value of the GIA depended on the three main elements, being flows of cash in and out of the account, representing the balance of government’s revenue, spending and financial operations.
On the revenue side, Ms Serame said collections had been lower than expected adding, as at June this year, actual total revenue and grants was P18.2 billion against the expected collection of P23.4 billion.

She said inflows of the GIA had declined owing to the weak performance in the diamond downward market, which fell significantly in 2020 due to the COVID-19 pandemic impact.

She said in the first half of this year, diamond sales were $1 949 million, compared to $2 428 million last year, representing a decline by 46.1 per cent.

Furthermore, she said government expenditure increased as government implemented an economic response to the COVID-19 pandemic with a view to address issues related to provision of support to workers, stabilisation of businesses and establishment of a COVID-19 Pandemic Relief Fund with a capitalisation of P2 billion from government. ENDS