The country’s vice president and finance minister, Ndaba Gaolathe, says the state of public finances is worse than the new administration expected to find. Addressing journalists on Thursday, three days after he was appointed Finance Minister, Gaolathe painted a grim picture of the budget.
“What I can say is that the situation is bad, worse than what we had thought.
“It’s so bad that when I was talking with the President, I said we have to start by decreasing his salary and mine for perhaps a year, in order to right the ship.”
Perhaps seeing the impact of the bleak outlook on those in the room, Gaolathe moved quickly to assure that the new administration was determined to steer the country out of the situation.
“The government of today and the leader of today, Boko is well prepared to not only resolve this situation, but we are going to achieve all the things that we said we would achieve.
“The situation is worse than we thought, but we have the people, the leadership, the civil servants who have everything that is required to get us to the new Botswana that we have been talking about.”
Gaolathe said Boko’s upcoming State of the Nation Address would provide more details on the state of the budget and the plans to get out of a hole caused largely by the prolonged diamond downturn and the previous administration’s expansionary spending plans.
This year, the budget deficit was expected to reach P8.7 billion, but most analysts expect it to be significantly higher as diamond sales continue to underperform, while election-fuelled spending spiralled prior to the poll on October 30. At its original forecast level, the 2024-25 budget deficit equalled 2.9% of Gross Domestic Product (GDP), the widely used measure of economic activity, but this is expected to widen sharply due both to a higher deficit and smaller GDP.
Gaolathe’s revelations come after a veil of silence fell over budget figures this year, with the last Finance Ministry update on the fiscal position being the Budget Speech in February and the revenue and expenditure estimates published around the same time.
However, early in October, former finance minister, Peggy Serame, told Mmegi the deficit was still hovering around the originally forecast levels.
“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 said.
“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.”
Knowing the true state of public finances has been complicated by the challenges in the Government Accounting and Budgeting System, a key tool in tracking inflows and outflows.
However, all analysts expect that tough decisions are due for the new administration, particularly as government increasingly leans on debt from the local capital market to keep its head above water while waiting for a recovery in diamonds.
“Some spending cuts have been announced, but not to the extent that would keep the budget deficit down to the level projected in the 2024 Budget and the Annual Borrowing Plan,” Econsult managing director, Keith Jefferis said, writing in the advisory firm’s recent third quarter update.
“It is likely that the new administration that takes office after the October elections will have to quickly implement further spending cuts to bring the deficit down.”
Experts at the Bank of Botswana, which is government’s chief economic adviser, agree that there are urgent policy decisions required in the budget.
“Immediately cut spending and try to find sources of revenues,” BoB deputy governor, Tshokologo Kganetsano told Mmegi last week when asked what budget actions should receive priority in the new administration.
He continued: “Fiscal consolidation is what we need to do and do with immediate effect.”
According to Kganetsano, all economies go through weak cycles which necessitate actions to regain the right trajectory.
“It’s just like at home where you eat rice and chicken when times are good, then motogo in tough times.
“The diamond market has turned in a negative way and we cannot continue spending as if nothing is happening.
“We have to cut spending and seek to increase revenue
“By cutting spending, you can then slowly accumulate some resources, then later go back to the projects you had suspended.
“Don’t just spend for the sake of spending, but rather rationalise your spending on viable projects,” he told Mmegi.
Governor Cornelius Dekop said there was need for more nuanced spending, with the debt government is taking up being channelled to the right activities.
“Debt is not necessarily a bad thing, but when you use debt, you need to be able to pay it back and direct it into viable areas and projects,” he told Mmegi.
“You don’t do away with social protection programmes but projects should be viable where you can make money from them.
“We have to improve our efficiencies, including collection of taxes and we have to be less ambitious in our spending outlay.”
Dekop added that the economy needs institutions that are functioning optimally, especially those around the fiscus, as well as greater efficiencies which could be boosted by digitisation.
“Institutions such as the Public Procurement Regulatory Authority and others within ministries and state-owned entities, have to work efficiently.
“Productivity needs to improve in the whole economy because you cannot get efficiency or effectiveness or resource allocation efficiency with low productivity.
“Things must function in government such as GABS being automated with end to end collections.
“Things should digitised so that whether you are in Maun or Charleshill, when you make a payment, it must show in Gaborone right away.
“When you are charged for over-speeding, the policeman must have a gadget that shows that, instead a receipt book.”
While the nation waits for Boko to provide the full picture of public finances in his address on Tuesday, Gaolathe continues to count thebes to get a better idea of the situation.
“We are taking time to see where our economy is and how the funds in the budget are,” he told journalists on Thursday.
“We are not sleeping. We are confirming and we can assure you as a nation that we understand completely what needs to be done.”
