Earlier in the year, President Mokgweetsi Masisi and the ruling party seemed headed for an untroubled second term, with a popular suite of policies and the record P102 billion budget anchoring the president’s campaign.
However, by mid-year, the downturn in diamonds became prolonged, eating into the budget plans, forcing accelerated drawdowns on savings and causing murmurs of concern amongst those tracking the numbers.
In August, a now famous update by Econsult showed that the Government Investment Account (GIA), which represents government’s savings, had dropped from P19.1 billion in July 2023 to P5.1 billion in April 2024, “a drop of P14 billion in only nine months”.
“Clearly this rate of depletion is unsustainable,” researchers at Econsult, who include former deputy Bank of Botswana governor, Keith Jefferis, said in the update.
The GIA, which is managed by the Bank of Botswana and represents government’s share of the Pula Fund, is an asset generally unknown by most outside the finance and banking sector.
Government often dips into the GIA to fund various needs such as the 2016 Economic Stimulus Plan and budget shortfalls. Frequent withdrawals from the Pula Fund are also made to support the country’s import bill.
However, the sharp drop in the GIA this year triggered broad discussions about the direction of the economy, its management by the Masisi administration and more troublesome questions about the long-running need for economic diversification.
Prior to the famous update, however, in fact a month earlier in July, Mmegi reported on how the fall in the GIA had resurrected a 2020 debate within the BoB about the need to safeguard the Pula Fund from frequent withdrawals.
“Conversations are progressing between us and government,” the BoB’s financial markets department director, Lesego Moseki, told Mmegi in a mid-June briefing.
“This is a project that requires extensive consultations and I think we have made progress between us and the Ministry (of Finance).”
Moseki revealed that the central bank had put out external feelers for best practices on ringfencing the reserves.
“We may also need external advice and that means the project may take some time before it’s finalised.
“We have had a tentative discussion with the IMF because we need a legal framework and people who have done this before in other countries to help us.”
Public concern grew about the state of government finances and Finance Minister, Peggy Serame sought to provide assurances around both the spending patterns in the record budget and the GIA, which had suddenly become a trending topic.
Serame, in an address to Parliament, called for calm and reassured that government was not flying off a fiscal cliff, with coffers running bare and pandemonium reigning in the Finance ministry.
“The ministry therefore, wishes to allay any fear that government spending is reckless,” the minister told legislators.
“The reduction in GIA has been due to the financing of the imbalance between low revenues and high expenditure commitments much of which have been aimed at addressing the country’s pressing development needs and stimulating economic growth.
“Notwithstanding this, government remains fully committed to its fiscal consolidation programme as well as rebuilding the relatively low fiscal buffers to sustainable levels.”
By that point, however, the GIA and its performance had exploded into the public discourse about the general election, being linked broadly to the under-performance of the economy over the years, weak employment creation, limited citizen opportunities, stubborn poverty and other themes.
Masisi’s supporters say his opponents “weaponised” the issues around the economy, with the main bullet being the GIA. His supporters point to the fact that the broader challenges in both the economy and the budget predate the Masisi administration and are related to the general decline in diamond revenues over the years and the growing development backlog the government has had to pursue.
His critics, however, say the Masisi administration over-promised, inflated spending plans even in the face of declining revenues and within this expenditure, compromised value for money through public finance wastage and corruption.
Government clearly hoped it would calm the storm of public criticism over the economy by highlighting development projects, while waiting for diamonds to recover.
Instead, the fiscal hole appeared to grow in the months from Serame’s assurances to parliament, with the flood of leaks on spending cutbacks and other measures, inflaming public panic on the direction of both the budget and the broader economic trajectory.
To her credit, Serame did publicly state prior to the flood of leaks, that government would cut back on non-essential recurrent expenditure such as travel, new fleet, workshops and others.
As part of the publicly stated plans, development spending was slowed to later in the financial year for some projects, with Finance Ministry technocrats revealing that this action had affected approximately 22% of the approved budget of P29.8 billion.
Serame also went further by telling legislators that government had agreed to ringfence the Pula Fund and was looking to develop a law to that effect.
The measures were lost in the uproar however, particularly as more figures emerged on just how deep diamond revenues had dropped in the half year, adding to further outrage about the slow pace of economic diversification.
The economy, in its various manifestations, has featured as a hot spot in previous elections. In fact, both Masisi and his predecessor, Ian Khama, faced baptisms of fire when checking into office for the first time. Khama battled through the 2009 recession in his first year, which contracted the economy to its worst level ever, while Masisi, shortly after winning the 2019 elections, faced off against a COVID-19 driven slump that caused the second worst contraction in history.
In both instances, the GIA was impacted, but for Khama, the damage was softer as the reserves had benefited from the 2003 to 2008 boom years in mineral revenues, during which diamond production reached its highest level in 2006.
For a fund that has existed in the shadow of the more well-known Pula Fund, the GIA this year sprang into public discourse and, whatever its future fortunes, will now be closely monitored and debated outside of finance sector circles.
