Budget to return to first surplus in eight years

Mbongeni Mguni | Monday September 26, 2022 06:01

Ministry of Finance technocrats expect the budget to return a P355 million surplus in the 2024–25 financial year, the first in eight years and a break from a series of deficits that ran down savings and increased government debt.

According to the Budget Strategy Paper released recently, the fiscus is expected to incur a P7.7 billion deficit in the current fiscal year, followed by a narrower P163 million shortfall in 2023–24.

The projected surplus for 2024–25 will equal 0.1 percent of GDP and could be followed by a more significant P1.22 billion surplus in the 2025–26 financial year representing 0.4 percent of GDP.

The narrower deficit in 2023-24 and the surpluses thereafter will be supported by higher prices and strong demand for diamonds, as well as fiscal consolidation adjustments. These adjustments include efforts to reduce the public sector wage bill as a share of overall spending and other cost containment measures, such as rationalising State-Owned Enterprises.

“The positive prospects could, however, weaken, for instance, if the recovery in the diamond industry is short-lived because of unforeseen consequences of the current global geopolitical risks,” reads the Strategy Paper. “While the sanctions imposed on Russia’s diamond industry by the USA and European countries have the potential to boost global diamond prices and demand for Botswana’s diamonds, there remains a considerable degree of risk that could arise from the repercussions of the conflict. “These factors, combined with the slowdown in China as a result of COVID-19-related lockdowns, could affect global demand for rough diamonds and growth in mineral revenues, constraining the much-needed fiscal space to restore fiscal buffers to pre-COVID-19 crisis levels.”

Finance ministry technocrats said while the fiscus was set to improve from the next financial year onwards, government would continue to borrow both externally and domestically to replenish fiscal buffers and develop the domestic capital market.

An analysis of the Finance ministry’s projections in the Strategy Paper suggests that the surpluses from 2024–25 and beyond will come from higher revenues, while spending will increase, but at a slower pace than seen in previous years. Revenues are due to increase to P84.6 billion and P89 billion between 2024–25 and 2025–26, supported mainly by higher mineral revenues and SACU receipts. Spending over the same period will rise from P84.2 billion to P87.7 billion, with grants and subventions declining from P16.4 billion to P15.8 billion.

The civil service wage bill is projected to rise from P35.6 billion to P36.9 billion.

Macro-economic policy director, Batane Matekane, told Mmegi that fiscal consolidation efforts were unavoidable, as government had to contain costs and increase efficiency in public finance management.

“We are reorganising government to get the right efficiency, kill off duplications of efforts and close the leakages,” he said, on the sidelines of the Budget Pitso held on Tuesday. “We have to look at our expenditure management and we are advocating for cost-containment measures.”