Thus far, the Finance ministry’s response to the steep downturn in revenues has been on the recurrent side, with restrained spending on 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 P102.3 billion would require the Finance Ministry to go to Parliament with a request.
“When November comes, we will have revised our estimates of our revenues and that means looking at expenditure again. “If it comes to a push, we might go to Parliament to say ‘This is the budget that you put in this year, but we ask you to allow us to revise the expenditure downwards so that we don’t have a huge deficit,’” Finance Minister Peggy Serame told Mmegi in recent brief remarks.
She added: “We have already started the budget preparations for next year and we are also revising our projections on the revenues for this financial year and the next.”
The budget has endured a difficult year thus far, with Debswana’s exports in the first half of the year down 47% to P17.6 billion, one of the sharpest year-on-year drops in recent times. The drop in diamond exports came after production fell 24% to 9.7 million carats in the first six months of the year, as mining activities were restrained in order to allow demand to recover in key retail markets.
Broader economic growth in the first quarter came in at a negative 5.3 percent year-on-year before improving to a negative 0.5 percent, as the impact of lower diamond sales continued.
Researchers at Econsult have said the 2024–2025 budget may need to be cut by up to P8 billion, as diamond revenues fall while the fiscal space for debt funding remains limited. In their last economic review, Econsult researchers said the approved spending for 2024–25 of P102 billion would likely produce a deficit as high as P17 billion, due to the contraction in mineral revenues this year.
Serame said the decision to go to Parliament and officially trim spending would also be influenced by the need to adhere to a fiscal rule that requires government to limit the size of its deficit to four percent of the Gross Domestic Product (GDP).
For 2024–2025, the originally expected deficit of P8.7 billion would have been equal to 2.9 percent of GDP, assuming the economy grew by the forecast 4.2 percent. Instead, without improved revenues in the remainder of the financial year and in the absence of cuts in November, the deficit will increase beyond the four percent limit.
Growth is also expected to be significantly below the 4.2 percent mark, with analysts such as those at the IMF projecting a one percent expansion for the year.
“There’s a rule that we set for ourselves that the deficit should not exceed four percent of GDP and we have to ensure that we are within that,” Serame told BusinessWeek. “It is difficult to estimate before the end of the financial year, but we are at about three point something now, but that number will move because, in November/December, we will revise, and so we can trim further expenditure.”
BusinessWeek has separately confirmed that the Finance ministry technocrats are finalising the Budget Strategy Paper, the annual document which updates the current financial year budget and growth numbers, while providing priority areas and forecast numbers for the next financial year.
It is expected that the eagerly-awaited document will be finalised and circulated publicly by early next month, giving Batswana a picture of how big a hole the diamond downturn has burnt in the local coffers.
For 2024–2025, mineral revenues were expected to contribute 27% of budget revenues or P25.62 billion. The protracted downturn in diamonds has also seen government eating into its savings, as housed at the Bank of Botswana, lowering these to P6.5 billion in July from P19.1 billion at the same time last year.
The government has been criticised for maintaining and even strengthening its spending in recent years, particularly the recurrent budget, despite long-term trends showing declining mineral revenues, especially from diamonds.
