Permanent Secretary in the Ministry of Finance & Economic Development Dr. Wilfred Mandlebe says Botswana’s economy is in serious trouble and would soon land into a serious catastrophe if drastic decisions on fiscal reform are not taken and put into action fast.
Appearing before the Parliament Public Accounts Committee(PAC) sitting on performance and audits last Friday Dr. Mandlebe said the COVID-19 pandemic had forced the government to draw down from its cash account in order to maintain government while at the same time revenue were at its lowest level because of muted economic activity.
BACKGROUND OF THE ECONOMY BY BANK OF BOTSWANA
During the year 2020, Botswana’s Domestic output is estimated to have contracted by 7.7 percent compared to an expansion of 3 percent in 2019. The contraction in output was mainly due to the weaker performance of both the mining and non-mining sectors resulting from the adverse impact of the COVID-19 pandemic on the economy.
Early in the year, the prognosis for the world economy was a rebound in 2020, following sluggish growth in 2019. Of relevance to Botswana, prior to the advent of the COVID-19 pandemic, the global diamond market had shown an improvement, and, amidst positive global sentiments and projected stronger performance of the non-mining sectors, expectations were that it would continue to provide a boost to the domestic economy.
This was against the background of investments in mining capacity to sustain production and realignment of marketing strategies for diamonds; thus, complement the diversification and productivity improvement efforts for other sectors and services. In the short term, output growth in Botswana was projected to accelerate to 4.4 percent in 2020 from 3 percent in 2019.
However, the COVID-19 containment measures implemented in countries across the globe, including in Botswana, aimed at curtailing the spread of the coronavirus, have had an adverse impact on global economic activity.
Consequently, growth projections were significantly revised downwards, with global and domestic GDP projected to contract by 3.5 percent by the International Monetary Fund (IMF January 2021 World Economic Outlook Update) and 7.7 percent according to Government in the 2021/22 Budget speech delivered early this year.
The estimated 7.7 percent real GDP contraction is marginally worse than the decline of 7.6 percent recorded in the aftermath of the 2008/09 global financial crisis.
The movement restrictions and social distancing measures resulted in a number
of businesses halting or scaling back operations, thus constrained output levels, mainly in key export sectors, including mining (especially the diamond industry), travel, tourism, hospitality, and entertainment.
Consequently, the value of exports declined from P56.3 billion in 2019 to P48.2 billion in 2020, contributing to the worsening current account deficit, from 7.6 percent of GDP in 2019 to 9.8 percent in 2020.
The value of imports also declined from P76.6 billion in 2020 to P74.1 billion in 2019, mainly due to lower diamond trading activity, hence lower imports for aggregation by De Beers Global Sightholder Sales (DBGSS), including the restricted international movement of goods into Botswana during the time the international borders were closed and, the generally lower economic activity.
WARNING BY MINISTRY OF FINANCE & ECONOMIC DEVELOPMENT
Last Friday Permanent Secretary Dr. Mandlebe underscored that Botswana’s foreign reserves were also affected, noting that because Botswana had no revenue, the country relied on its cash balances held by the Bank of Botswana.
“Cash balances are actually a counterpart of Foreign reserves, for those cash balances to be there it meant Bank of Botswana had to liquidate some of the country’s foreign investment hence decline in foreign reserve”
Mandlebe told PAC members that very soon Government would have to make serious decisions to either accelerate domestic resource mobilization or cut expenditure because “there is simply no money to spend”
The Finance PS highlighted that 70 % of Botswana‘s national budget goes to recurrent expenditure and the bulk of that goes straight to salaries and remuneration – the wage bill
“We are in a precarious situation unless we take serious decisions to reduce government expenditure, this goes back to whether the government is in a position right now to reduce the wage bill, and we all know what that means, I don’t know whether we are there yet, but we are in a precarious situation,” he said
In addition, the Finance PS said Government has no choice but to introduce new service fees and increase some across its ministries and departments in a bid to accelerate domestic resource mobilization and raise funds for national expenditure.
The Permanent Secretary said Government “has no choice but to start charging for services previously offered for free and increase charges for some”
Dr. Mandlebe explained that his Ministry is waiting for cabinet approval ” we have asked the cabinet to approve our proposed user fees and service fees increment for 6 ministries”
He said Government expenses are way too high because of the COVID-19 pandemic. ” it is not like we are not sensitive of what Batswana are going through, but expenditure is going up because of COVID-19, we are even going to consider asking for supplementary budget from parliament because Ministry of Health has exhausted its budget” he said.
Dr. Mandlebe explained that expenditure at the Ministry of Health keeps on going up because there are new COVID variants coming up from time to time.
“We have no choice but to introduce some new user fees and increase some service fees in some ministries and government departments, we need to fight COVID, and to fight COVID we money,” he said.