SOE reforms’ can kicked further down the road

Lewanika Timothy | Monday February 12, 2024 06:00

Serame’s address, in its many features, was composed like a jazz song, with a series of highs and lows, well-tuned to low-pitch notes that represent the economic perils the nation faces.

At the beginning, the tempo was allegro and the speech sounded like a revolutionary budget that is going to lift Botswana to record highs amidst global economic perils. The announcement of political party funding to the tune of P34 million, the increase in sport spending and the ramping up of the development budget, were melody to many ears that pricked up to listen to the Finance minister.

Public finance experts were listening with much eagerness as well wondering if the same creativity in distributing the kitty would spread to spending on parastatals. Then came the low notes, hidden in Paragraph 87, a tempo made to sound like things that are just fine. Those lettered in economics know very well the bearing those notes have on the economy.

“Mr Speaker, total expenditure and net lending (in 2023–24) is estimated to increase by P1.42 billion to P88.79 billion. “This increase is due to the growth in the recurrent expenditure, particularly Personal Emoluments, Grants and Subventions and Other Charges...” she said.

While government has been promising to cut down on its huge public sector spend, it seems the promise is nowhere near seeing the light of the day. Proposed spending on grants and subventions for the upcoming financial year stands at a whooping P16.7 billion, an increase of P313 million from the current financial year.

Reviewing the numbers and policies this week at First National Bank Botswana’s traditional post-budget event, renowned economist Keith Jefferis, said that one of the most worrying features of the trajectory of the economy is that wages and salaries remain a huge cost to government and this weight is increasing.

“The deficits in Botswana’s budget have been structural deficits and as in the case of this budget, wages and salaries remain one of the largest cost to government. “What we are seeing is that the cost of running government is increasing year on year,” he said.

Parastatals are by definition government-run and owned entities. They not only account for a huge chunk of public employment in the country but many are notorious for draining government coffers due to their perennial financial losses.

At the last count, the country had 64 parastatals spread across the different ministries, with the majority of these loss-making and having been in such a state over many years, draining the ever-tightening budget of billions of pula annually.

Parastatals are key to service delivery and are divided into commercial and non-commercial, meaning those expected to run on a profitable or ‘going concern’ basis and those that by the nature of their activities exclusively rely on support from government for sustenance.

Last year April, President Mokgweetsi Masisi announced a whole-government shake-up, rearranging ministries and mandates and laying out plans for parastatal reforms. The pace of the changes within the parastatals has been slow, with critics saying expecting some of the tougher reforms to be implemented in the run-up to a general election, is unrealistic.

Debates around public sector reforms are particularly abrasive, as they could potentially affect hundreds of thousands of jobs and livelihoods. And yet, these particular reforms are amongst the most urgent as they directly impact upon the establishment of a private-sector-led economy.

The government of Botswana is caught between a rock and a hard place: whether to continue financing unviable entities or to make tough sacrifices and reduce public sector spending through cutting jobs and closing down parastatals that provide very little social and economic gain to government.

The initial gusto with which President Masisi and Cabinet promised to streamline parastatals last year, has noticeably died down. The pledges to rein in blanket funding of these entities are also proving easier said than done, judging by the numbers coming out of the budget.

Fiscal authorities in particular seem to be caught in a dilemma. On Monday, Serame pinpointed the increase in parastatal funding as a risk to the budget, but draft budget estimates released on Tuesday show that the blanket support will generally increase in years to come.

“(The) revenue risk when combined with expenditure risks from increased demands on government spending emanating from the rising wage bill and subventions to State-Owned Enterprises can widen the fiscal deficit and compromise fiscal sustainability,” Serame said.

The draft budget estimates meanwhile, show that government intends to spend P16.8 billion on local authority grants and parastatal subventions in 2024–25, rising to P17.3 billion in 2026–7.

The slow pace of parastatal reform appears set to continue.