The possible quick budget wins

Mbongeni Mguni | Monday November 11, 2024 13:54

The Finance Ministry’s website, the go-to source fiscal data, has been quiet this year. While traditionally, the release of data sets from the Ministry is a notoriously slow affair, this financial year, reports suggest that the challenges in the Government Accounting and Budgeting System, have made it difficult for the Ministry’s number crunchers to know the inflows and outflows required to update their reports.

What is known, however, is that the budget deficit forecast for 2024-25 will almost certainly spiral beyond the forecast P8.7 billion due to significantly lower than expected mineral revenues. As the diamond downturn persists, government has been borrowing more heavily from the capital market and also drawing down deeper into its savings housed in the Government Investment Account (GIA), while waiting for a recovery in the precious stones.

Regardless of the outcome of the recent general elections, whoever landed in the driving seat at the Ministry of Finance would have had difficult decisions involving steering away from the fiscal cliff and restoring confidence in the trajectory of the budget.

After all, while credit ratings agencies have thus far maintained both their ratings and outlooks for the country, it only takes one negative assessment to raise Botswana’s borrowing costs at a time when budget spending is increasingly reliant on debt.

Whoever new president, Duma Boko, appoints as his Finance Minister, has a few quick wins that can be instituted to instil confidence and begin righting the fiscal ship, in the days remaining until the end of the fiscal year on March 31.

Here quick does not mean easy or painless. As the Bank of Botswana (BoB), the IMF and the Finance Ministry itself have frequently stated, the budget and the broader economy require more long-term structural reforms to address an era of lower minerals, achieve transformation and escape the Middle-Income trap.

But in the 144 days to the end of the fiscal year, the new Finance Minister, assisted by the bright minds at the Ministry, could make a few changes.

Audit and review spending

Any actions will rely on an accurate assessment of the situation and the new Minister will need to call in the ministry’s technocrats as well as the central bank, to conduct a stock-take of each thebe in hand, each one owed by and to government, and receive more finetuned estimates of the thebes expected to flow in and out of the treasury in the days to March 31.

This information is what the Minister will use in tabling a request to the new Parliament for a downward revision of the February budget figures. As estimated by leading economic advisory, Econsult, with limited room for larger debt, government will need to drastically cut the record P102 billion for this financial year, or risk running a deficit as devastatingly high as P17 billion.

Actions have already begun in terms of slowing spending, with the previous administration cutting back on some recurrent expenditure around travel, new fleet, computers as well as workshops and seminars. Development spending has been slowed to later in the financial year for some projects, affecting approximately 22% of the approved budget of P29.8 billion.

Any proposals to cut the originally approved spending of P102 billion would require the Finance Ministry to go to Parliament with a request.

In the absence of election-fuelled expenditure and in the aftermath of October 31, there should be room to either cut, defer or abandon some of the spending outlined in February, based on the most immediate needs of the 144 days.

The Finance Ministry technocrats are well experienced in the area of fiscal management and in fact, for several of the past financial years’ supplementary budgets, they have re-directed or diverted funds from slow moving projects to urgent areas, or even deferred some spending.

On Thursday, BoB executives told Mmegi there was an increased urgency for the cutting of spending, given the fragile fiscal situation.

Deputy governor, Tshokologo Kganetsano, was emphatic when asked what particular urgency or priority should be highlighted, in the tightening fiscal space.

“Immediately cut spending and try find sources of revenue,” he told Mmegi during a briefing for the Monetary Policy Committee meeting.

“Fiscal consolidation is what we need to do with immediate effect.

“All economies go through ups and down just like at home where you eat rice and chicken when times are good, then motogo in tough times.

“The diamond market has turned in a negative way and we cannot continue spending as if nothing is happening.

“We have to cut spending and seek to increase revenue.”

Kganetsano said delays in cutting spending would only worsen the situation.

“It’s not like the well is dry. Something is dripping in but if the spending continues to grow, the situation will get worse.

“By cutting spending, you can then slowly accumulate some resources, then later go back to the projects you had suspended.

“Don’t just spend for the sake of spending, but rather rationalise your spending on viable projects,” he said.

Special Funds, their orders, their balances

Another quick budget win for the new Finance Minister would be to immediately revisit the literature around previous plans to review Special Funds. At the last count, the country had about 33 Special Funds with a cumulative balance of more than P10 billion.

Special Funds, under the Finance and Audit Act, are established by orders passed through the Finance Ministry as public revenues for specific purposes, and funded by various levies. With many of the funds dating back decades, public officers have battled to properly account for the revenues and expenditure, as more funds have been requested by ministries and passed through the Finance Ministry.

These funds include the Alcohol Levy, Road Collections Levy, Tourism Industry Training Fund and many others.

A few years ago, then Finance Minister, Kenneth Matambo, set about on plans to merge some of these funds and cancel others, looking at the relevance of their mandates and the fact that many of these funds are essentially an additional “tax” on certain activities and sectors.

Over the years, several Auditor General’s reports have noted that many of these funds spend their resources outside the mandates they are established for and that their accurate balances are difficult to establish. This trend exploded a few years ago in the P230 million National Petroleum Fund scandal, whose effects saw the government diverting funds from other activities to replenish the stolen assets.

Many of these funds were migrated into the direct purview of the BoB a few years ago and the new Finance Minister has the opportunity to open up the books, establish the balances of these different funds and reassess the relevance of mandates.

Blanket subsidies and efficiencies

The budget wins, as stated, can be quick, but certainly not easy. One such that can begin in the next 144 days is a review of various subsidies. For years, the central bank and other analysts have been urging government to review the blanket subsidies it has in areas such as water, electricity, health and education.

The “quick” part of this plainly difficult and reality-shifting effort, is that the spadework has long been done by institutions such as the World Bank, which have produced detailed studies on how the country can tighten its blanket subsidies to ensure that only the targetted beneficiaries actually benefit.

A good example is the Botswana Power Corporation, which was allocated a P1.5 billion in the current financial year and has received billions more in the past years. According to the BPC’s own numbers, between March 2019 and March 2022, the government paid out P2.4 billion in tariff subsidies to the Corporation to help cover the gap.

According to the last available figures, the BPC’s average costs per kilowatt hour are presently 30 thebe below the break-even point. This is despite tariff increases of 10%, 22% and three percent in April 2018, April 2020, and April 2021 respectively.

The Corporation supplies subsidised electricity to all households in the country, with the only variation in cost being applied in terms of the rate of consumption by households. All households essentially pay the same subsided rate, whether that consumer has an average income of P1,000 per month or P1 million.

The new Finance Minister can re-ignite the efforts towards establishing a national digital or biometric Omang where citizens’ profiles are loaded and their eligibility for subsidies and other government programmes regularly updated.

Related to this, but quite critical, is the broader and long-running issue of public finance efficiency, or the ability to squeeze the most out of every thebe spent. For decades, dating back to the tenure of Festus Mogae, each Finance Minister has spoken about the need to tighten wastage, misspending and corruption in public finances.

Unfortunately, the availability of health government reserves and stable mineral minerals in those years blunted the urgency of both the call for efficiency and the efforts towards achieving it. Not so with the incoming Finance Minister, who will be required to commit to eliminating wastage and boosting efficiency, as a way of restoring confidence in the fiscus.

Again, a quick win beckons here, because the new Minister has the benefit of plenty of policy proposals and documents on boosting public finance efficiency and eliminating wastage, such as the Transitional National Development Plan, numerous IMF recommendations and others.

These policy recommendations include the adoption of the three-stage project appraisal system to enhance implementation, as well as proposed amendments to the Public Finance Management Act, which will empower the minister with more effective recourse in cases of budget underspending and misspending by public officers.

The clincher

In all the quick budget wins available in the next 144 days, the most critical for the new Minister is also the easiest.

The new Minister needs to take whatever legislative, policy or regulation action is required to introduce a mid-term budget process in the country. The uncertainty that has plagued the budget and the broader economy this year, leading to investor and citizen uncertainty, could have been avoided if fiscal authorities were required to lay a mid-term budget before Parliament, halfway through the financial year.

Instead, in its absence, the Finance Ministry stopped updating the data sets on its websites, and in a highly politically-charged atmosphere, allowed something akin to William Shakespeare’s Julius Caesar: 'Cry 'Havoc!', and let slip the dogs of war.'

Botswana’s neighbours on the east and west, South Africa and Namibia, have mid-term budgets and with good reason.

“The mini-budget plays a critical role in the entire budgetary process because it sets the tone for the fiscal framework for the next national budget,” reads a note from South Africa’s parliamentary governance group.

“It also provides Parliament and the country as a whole with an update on how Treasury perceives the present economic situation. (

“The fiscal framework refers to the broad budgetary aggregates of total revenue, expenditure, and borrowing for a given year.”

For an economy dependent on a highly volatile commodity such as diamonds, whose performance is a boom-bust cyclical affair, depending on the February budget to guide the entire 12-month fiscal year, denies citizens, investors and observers a fair picture.

The outcry over the budget this year, the depletion of savings and indeed spending, could have been helped by a provision requiring the Finance Minister to lay a mid-term budget before Parliament, updating the February numbers and giving projections for the rest of the financial year.

The next 144 days will provide opportunities for several confidence-boosting interventions as the new Minister works with the technocrats to steady the ship, ahead of the new administration’s first full budget.