Keith Jefferis, one of the country’s most respected economists, says he has seen the situation around the record budget spending proposed this week, before.
“I’ve seen this before in 1990 and the result was a lot of waste and a lot of inflation,” he told the 30th edition of First National Bank’s budget review on Tuesday.
“I hope we will not see the same again, but I worry a bit.”
On Monday, Finance Minister, Peggy Serame presented a stimulus budget featuring record high spending plans of P102.3 billion which she said were necessary to boost private-sector led growth, job creation and economic transformation.
The spending plan is backed by P93.6 billion in revenues, yielding a probable deficit of P8.7 billion.
Describing the budget as a “people-centred and transformational spending plan” with “immense potential for stimulating growth and creating job opportunities,” Serame shared proposals indicating a significant increase in funding for development, research and other previously overlooked areas such as climate change.
Jefferis, who was recently a senior policy advisor in the Finance Ministry, told the FNBB review meeting that he had some concerns with the budget.
“It’s a high stakes or high risk budget.
“It’s aimed to be a stimulus budget, a transformative one that provides the basis for private sector-led growth and certainly there are things in there that will have those benefits.
“There’s useful economic infrastructure from roads, railways, border posts to help economic efficiency and the spending on digital transformation.
“But a lot of the expensive infrastructure is social infrastructure, not economic infrastructure.
“Sewerage, water and others in major villages are needed but they won’t generate much in the way of economic returns,” he said.
Jefferis added: “Although it’s meant to be transformative, I wonder if it’s really a break from our mineral and government-led growth model.” For the economist, the 2024-25 budget proposals carry several risks. One of them is that the revenue side is overestimated, which would then lead to the deficit being higher than the P8.7 billion or minus 2.9 percent of GDP forecast by government.
“There’s large increase projected in revenue, which is one reason the deficit has been kept fairly small,” he said.
“I’m a bit sceptical about some of these revenue figures.
“There’s only a small reduction expected in mineral revenues, at five percent, but when you read any of the diamond trade commentaries right now, if we only had a five percent reduction, that would be a very good outcome.
‘If you look at Rapaport, one of the main diamond trade commentaries, they are projecting a 20% decline in Botswana’s diamond revenues this year, after a 37% decline last year.
“So, that minus five percent is quite ambitious.”
Jefferis said the projections for other revenue items such as non-mineral tax and Value Added Tax were ambitious. According to the figures made available this week, non-mineral income taxes are expected to increase from P15.9 billion this year, to about P22 billion in 2024-25, while VAT is expected to jump from P12 billion to P15 billion over the same period.
“That’s quite ambitious given that we have no new taxes or tax increases.
“I’m a bit sceptical,” Jefferis said.
For the economist, one of the major risks involves making plans to spend a record budget, while the economic faces uncertainty, such as the issues around diamond revenues. The level of the planned spending could also trigger inflation in the local economy, presenting more difficulties to the Bank of Botswana which would have to intervene with actions such as interest rate hikes.
Jefferis said rather than focussing on spending, government could tackle economic headwinds through policy.
“There are lot of important things related to policies and I think by focussing on the budget, we can sometimes forget about policies,” he said.
On Monday, Serame acknowledged several risks to the budget, including “opportunistic behaviours” and the challenges around diamonds. She however, expressed confidence that the spending plan as well as its planned impact on the economy and Batswana, could still be achieved.
“Despite the expansionary budget with an overall balance in deficit, government will strengthen fiscal sustainability measures by maximising domestic revenue collection as well as curb expenditure growth and leakages, while addressing overall spending inefficiencies,” Serame said. Given the level of spending proposed and the high potential for lower than forecast revenues, Serame and her technocrats are expected to spend a good amount of the coming financial year making good on the Minister’s pledge.
