In their most recent economic review, Econsult researchers, Keith Jefferis and Sethunya Kegakgametse, said the government’s approved spending for 2024–2025 of P102 billion would likely produce a deficit as high as P17 billion, due to the contraction in mineral revenues this year.
Jefferis, a former Bank of Botswana deputy governor, completed a posting to the Finance ministry as a senior policy advisor, a few years ago.
The Econsult researchers said with diamonds in particular underperforming this year, government’s ambitious budget would have to be reviewed downwards, as opposed to fiscal authorities hunting for more debt.
“It is extremely unlikely that a deficit of P17 billion in 2024–2025 can be financed by borrowing,” Jefferis and Kegakgametse wrote. “The annual borrowing programme published in April 2024 already projected a huge increase in net domestic borrowing to P13 billion in 2024–2025, but that was based on a projected deficit of P8.7bn. “The expanded deficit would require a further increase in net domestic borrowing to perhaps P19 billion, which is far beyond the appetite of domestic financial institutions, even with the increased domestic investment requirements for pension funds.”
Government has been running budget deficits in the years since 2017–2018 with COVID-19 only deepening the numbers. Preliminary figures for 2022–2023 had suggested that the country achieved a largely balanced budget on the back of record diamond sales, but Econsult researchers said a subsequent review showed a shortfall of P4 billion.
The deficits have largely been funded by drawdowns on government’s reserves as held in the Government Investment Account, local capital market borrowing, and to a lesser extent, external debt.
For the current financial year, fiscal authorities in February projected a deficit of P8.7 billion, with spending being stepped up to accelerate recovery from COVID-19.
Econsult researchers said options for piling on more debt to cover the diamond downturn, were limited.
“Some external borrowing may be feasible but would be very expensive if undertaken from commercial sources. “Such a rapid increase in borrowing, whether from domestic or external sources, would be a sign of fiscal instability,” Jefferis and Kegakgametse wrote.
Spending cuts were unavoidable and this would involve reviewing the development budget which is allocated to projects, the researchers said.
“Part of the problem is the huge projected increase in the development budget to P29 billion from P14 billion in 2022–2023. “Spending this much on development projects would not be wise, given that most of them have not been subject to proper appraisal and in many cases the preparation has been rushed. “As the IMF commented at the end of the 2024 Article IV mission, execution of the development budget should be slowed and focused on high-return projects,” the Econsult researchers stated.
Official revisions of the 2024–2025 budget figures are due next month when the Finance ministry releases the 2025–2026 Budget Strategy Paper.
