Though total revenues and grants to the Botswana treasury are estimated
at P27.36 billion (US$1 = P7.98), the minister unveiled a P37.79
billion budget for 2009-2010 on Monday that left a gaping P13.4 billion
deficit in an economy famous for perennial budget surpluses.
If we permit total expenditure outlined in the estimates, the net result would be a budget deficit amounting to P13.4 billion.
The budget deficit will be financed by drawing down part of
government's reserves that have been built over the years, but
especially during the recent boom period and by borrowing both
domestically and internationally. In boom times we do not spend all our
income so that in recessions we are able to draw on our savings, Mr
Gaolathe said in Parliament during his 2009-2010 budget speech.
He explained that under normal conditions, the current deficit would
not be prudent but at the same time, the country must recognise that in
the extraordinary circumstances such as these, a fiscal stimulus to
boost growth and employment in the economy is appropriate.
He proceeded to announce a raft of measures that will be used to seal
the deficit and protect one of Africa's booming economies from the
effects of the global credit crunch. These include a freeze in public
salary hikes, efficiency in resource use, review of government
expenditure, belt-tightening, borrowing and using foreign reserves.
The minister warned that if the country fails to use its resources
productively, the economic stabilisation will be short-lived, with
disastrous consequences.
Our savings will have been used up without adding to future income,
and our ability to borrow at reasonable rates to finance projects in
the future will be limited.
The size of the government expenditure would then have to be curtailed
dramatically. At this stage, we should undertake whatever reforms are
necessary, with all deliberate speed, and avoid abrupt and painful
externally imposed adjustment in future, he cautioned.
Analysts say that Botswana, the world's leading diamond producer by
value will be one of hardest hit countries by the crisis, hence the
minister has moved fast to try to limit the damage.
Since the GDP and government revenue will both be adversely affected
by the deteriorating world economy, we must now anticipate that both
GDP and government revenue will be substantially lower. Yet because the
situation is still evolving, it is by no means clear just how big the
effects will be, Mr Gaolathe said.
He stated that it is clear that in the current circumstances, the
country must be prepared to run a deficit to help stabilise the
domestic economy while recognising that there must be a limit.
Consequently, over the coming months we will continue to evaluate our
situation and adjust government spending accordingly, he explained.
Among the measures he said will be taken to cushion the economy is a
limit on total government expenditure in light of the evolving
situation; and maintaining a deficit of less than 10 percent of GDP
averaged over the financial years 2009-2010 and 2010-2011.
The deficit will be finance largely by drawing from our savings, and
where favourable financing is available, by borrowing, he stated. He
said the Botswana government's policy has been to balance the budget
over the medium term and accumulate surpluses during boom years to
assist during hard times.
The minister said the budget for 2009-2010 is relatively ambitious with
the intention to catalyse economic growth which would lead to more
employment opportunities and improved living conditions.
He said besides belt-tightening to improve efficiency in spending,
there will be vigilance in planning, prioritisation and financing of
carefully though-out sustainable development projects and programmes.
He added that the government intends to promote the informal sector as another avenue to create additional jobs.
Mr Gaolathe asserted that the global financial crisis has affected
Botswana mainly through lower mineral exports, hence reduction in
government revenue.
It is going to be crucial for us to find innovative ways of addressing
our development needs within the limited expected revenues.
There is need for all to exercise even more financial restraint and
discipline to smooth the adjustment process necessitated by the decline
in mineral revenues.
It is for this reason that a number of belt-tightening measures will
be adopted in 2009/2010 financial year and beyond. These include
minimal growth in (vehicle) fleet expansion as well as zero growth for
travelling votes, manpower establishment, except for a few critical
departments such as new primary schools, new and upgraded health
facilities. Other measures will be invoked during the year should the
need arise, Mr Gaolathe said.
He explained that diamond sales revenue is expected to decline by about
50 percent because prices are expected to decrease by 15 percent with
production falling by 35 percent. The Botswana diamond production for
2008 was 32.6 million carats compared to 33.8 million in 2007.
In the 2007-2008 financial year Botswana had an overall budget surplus
of P3.81 billion, far higher than the estimated P787 million because of
unanticipated revenue earnings and significant under-spending.
Before the global financial crisis set in, it was expected that
Botswana will have a budget deficit of P331.9 million in the last
financial year. But now the revised budget shows a substantial deficit
of P6.2 billion, mainly due to increases in recurrent budget by P1.66
billion and development budget by P3.99 billion while total revenue
decreased by P207.61 million.
Mr Gaolathe said expenditure and net lending for the 2009-2010
financial year is P37.79 billion, an increase of 5.3 percent from the
P35.88 billion from last year. It is a slightly below the 40 percent
GDP forecast for the year.
Besides saving for a rainy day during good times, Botswana has adopted
a fiscal rule that requires that government expenditure do not exceed
40 percent of forecast GDP while the ratio between recurrent budget and
development budget is 70:30 percent of the total budget.
Mr Gaolathe said the forecast GDP in current prices is P96 billion
while the current budget has allocated 72.15 percent to the recurrent
budget and 27.85 percent to the development budget.
Total revenue and grants are estimated at P24.39 billion with customs
and excise revenue as the largest contributor with 28.97 percent. The
second largest contributor is mineral revenue at 28.02 percent due to
reduced diamond revenues for 2009.
The recurrent budget takes P27.36 billion, an increase of P3.9 billion
or 16.4 percent from the previous year. The ministerial budget takes
93.1 percent while statutory expenditure takes the rest.
The Ministry of Education takes the largest recurrent budget at P7.57
billion or 29.4 percent followed by Local Government at P4.47 billion
or 17.4 percent; State President (P3.38 billion or 13.2 percent);
Health (P2.2 billion or 8.6 percent). These ministries take 68.6
percent of the total ministerial recurrent budget of 25.73 billion.
Mr Gaolathe announced that the development budget is P10.56 billion and
out of this, the Ministry of State President takes the lion's share of
P2.09 billion or 19.83 percent, followed by Local Government with P1.45
billion or 13.69 percent; Works and Transport with at P1.257 or 11.9
percent with Minerals, Energy and Water Resources getting P965.7
million or 9.15 percent and Education with P890.5 million or 8.43
percent.
The huge share of the development budget going to the Ministry of State
President has been a bone of contention in Botswana especially because
most of it was used for military expenditure. This year Mr Gaolathe
announced that the bulk of the money (83 percent) will be used to fund
HIV/AIDS programmes, the military, the police and security intelligence.
The minister said that because of the tight budgetary outlook arising
out of the unfolding global financial crisis and economic slowdown and
the need for long-term sustainability and maintenance of employment,
the government has decided against public sector salary increments.