Generally, Botswana is known for its prudent fiscal policy, with excess government earnings being saved or invested in offshore accounts to shield the mineral dependent economy from rainy days. Despite this track record, the government has, in recent years, been withdrawing significantly from these savings to finance national budget gaps.
The situation has decreased the economy’s resilience in the face of future shocks.
In its first quarter 2024 economic review, Econsult economists, Keith Jefferis and Sethunya Kegakgametse, said the country was headed down a path of fiscal unsustainability, adding that the continued tendency to finance deficits through savings may harm the economy in the long run.
“One of the major concerns in recent years has been long-term budget sustainability,” the researchers said. “This follows the switch from structural budget surpluses in the period up to the late 2000s to structural deficits since that time. “This is in turn because fiscal expenditure has not been reduced in line with declining revenues, making the current fiscal trajectory unsustainable.”
The researchers added: “In recent years, questions have been raised about the sustainability of Botswana’s public finances, the emergence of structural budget deficits, the depletion of government savings alongside rising public debt, and the quality and efficiency of government spending.”
In February, while delivering the budget speech, Finance Minister Peggy Serame the record P102 billion stimulus budget was designed to lift more parts of the economy and drive activity.
Jefferis and Kegakgametse said the cumulative effects of structural budget deficits can be seen in the long-term decline in government’s Net Financial Assets (NFA), which are roughly equivalent to government savings minus debt.
“The current level of the NFA is not in itself a concern, as public debt is still relatively low, but the trend is unsustainable. “Its impact is disguised by the fact that deficits have mainly been financed by running down savings rather than borrowing. “But if cumulative deficits had been financed by borrowing, this would have been equivalent to a rise in public debt from 10% to 70% of GDP, which would have set alarm bells ringing,” the researchers stated.
Serame expects a deficit of P8.7 billion for this year or nearly minus three percent of GDP, the highest budget shortfall since the COVID year of 2020.
