Under the rule, 40% of mineral revenues in any particular financial year would be saved for future generations, through investment in the Pula Fund managed by the Bank of Botswana.
The budget has been running deficits since 2017–18, peaking at P16.4 billion during the pandemic. This has eroded government savings and increased its debt pile while forcing Batswana to pay higher taxes, levies and others.
While originally, technocrats expected a more or less balanced budget in 2023–24, followed by surpluses, the announcement of a 28% increase in the development budget for the next fiscal year, has postponed those hopes and fiscal authorities are eager to demonstrate a commitment to stability.
“Our fiscal strategy in the 2023–24 budget and beyond will continue to be strengthened to achieve our objectives of running surpluses and re-building buffers,” Finance Minister Peggy Serame said in her budget speech on Monday. “For medium to long term sustainability, we will explore the possibility of enacting into law the revenue fiscal rule highlighted in NDP11 to restore sustainability.”
Finance ministry documents show that by September, technocrats had drawn up a draft budget showing a P163 million deficit, or 0.1 percent of Gross Domestic Product (GDP) for 2023–24. Between then and Monday’s speech, consultations around the budget had resulted in a P4.9 billion deficit, or about three percent of GDP, largely due to the escalation in the draft development budget.
In September, the draft development budget was P14.7 billion, rising to a final P21 billion when the speech was presented on Monday.
The minister said the increase in the development budget was designed to fill infrastructure gaps and implement projects that are necessary to unlock constraints to economic growth. Government for 2023–24 is pursuing a counter-cyclical approach it has used before where it ramps up spending to support economic growth during periods of slowdowns.
“Government will, through this proposed budget, invest in the economic and social infrastructure necessary to support economic activities in order to stay on track to achieving high-income status by 2036, as well as sustaining livelihoods for the most vulnerable groups of the society,” Serame said.
Experts, who include the Bretton Woods institutions, have cautioned that a return to fiscal stability is critical for sustainable, inclusive growth and development, while ratings agencies are also tracking the latest developments. Moody’s downgrade of Botswana in April 2021 was based on a view that “fiscal consolidation challenges persist, suggesting that the erosion of the fiscal strength will be long-lasting”.
The fiscal rule was initially supposed to be implemented during National Development Plan (NDP) 11 which ran from April 2017 and ends on March 31 this year. Implementation of the rule failed largely because of fluctuations in mineral and non-mineral revenues when set against spending requirements, as well as self-admitted lack of discipline by fiscal authorities.
On Monday, Serame said she expects five percent growth in the non-mining sector over the two years, with the creation of 35,000 new jobs, while committing to “fiscal prudence and discipline”.
Analysts who spoke to BusinessWeek said the ministry’s reconsideration of the fiscal rule was part of measures to show a commitment to returning to fiscal stability.
“It was supposed to be implemented in NDP 11 and while COVID-19 was a factor, a major part of the failure was the lack of fiscal discipline,” an economic commentator told BusinessWeek on Wednesday. “By saying government will consider making the fiscal rule a law, the Minister is sending out signals about her ministry’s commitment to fiscal stability. “The ratings agencies, Bretton Woods and other financiers are watching and their opinions determine the cost of borrowing Botswana will be able to access going forward.”
