Forecast budget deficit trimmed, but risks grow
Mbongeni Mguni - Lewanika Timothy | Monday September 18, 2023 06:00
However, the rosier picture for the country’s finances is offset by rising risks emanating from Russia’s ongoing war in Ukraine and global uncertainties which are putting pressure on the projection of 3.8% economic growth for the 2023-24 year.
The latest forecasts are contained in the draft Budget Strategy Paper, a blueprint prepared annually by technocrats at the Finance Ministry as part of the planning process for the next budget.
The Ministry has kicked off countrywide consultations based on the Paper and has also invited members of the public to provide feedback, ahead of the budget’s finalisation early next year.
The lower forecast deficit is overshadowed by expectations of slower growth due to mounting risks to the economy, the draft Paper shows.
“It is anticipated that performance of the economy will be slower in the second half of the year, as growth in the mining sector moderates,” the draft reads. “On the back of this, real GDP growth is revised downwards by two percentage points to 3.8% in 2023 from the four percent that was earlier projected in January 2023. “This growth profile could be revised down depending on the dynamics of the Russia-Ukraine conflict, regional economic developments, particularly in South Africa among others.”
The Paper adds: “Furthermore, recent power outages due to recurring plant shutdowns at both Morupule A and Morupule B could also limit growth prospects especially for other sectors in the economy. “The non-mining sector is however anticipated to continue contributing positively underpinned by, among others, government interventions aimed at accelerating economic transformation and building economic resilience.”
The growth outlook for 2023-24 and the forecast of about four percent in the medium term, both fall below the levels the country’s economy needs to expand by to reach the high income status by 2036, a government priority and target.
Finance Ministry technocrats said the growth levels were also not conducive to employment creation, with an expectation that growth of 3.8% would yield just 7,000 jobs this financial year.
“Over the short to medium term, prospects of a reduction in unemployment remain uncertain. “This is because the economy remains centred on the capital intensive mining sector while the extent to which the non-mining economy can grow is limited by the nature of the sectors which mainly serve the domestic market, thus creating limited job opportunities,” the draft blueprint reads.
While the deficit for this year has been trimmed, technocrats expect the budget shortfall to reach a cumulative P10,8 billion this financial year and the next, which represent the period of the Transitional National Development Plan passed by Parliament last December.
The cumulative shortfall will be funded through borrowings from the capital market, external loans as well as a return to drawings from the Government Investment Account (GIA).
The GIA, which represents government’s savings, reached record lows in 2020 due to COVID-19 related drawings and has been slowly recovering as a result of the warming economy and an injection of International Monetary Fund receipts.
The Finance Ministry expects the budget to return to a surplus in 2025-26, at P2.3 billion, followed by another surplus of P6.9 billion in 2026-27. The surpluses are due to be driven by fiscal consolidation plans, which include more efficient spending, tax reforms and parastatal rationalisations.
“Slower implementation of the planned fiscal consolidation could further erode fiscal and external buffers, increasing Botswana’s vulnerability to external shocks, with negative effects on growth and fiscal sustainability,” the draft Strategy Paper reads.