2017 budget: Matambo’s litmus test

Finance and Economic Development minister, Kenneth Matambo will present perhaps his toughest budget next week Monday, two years before what promises to be a highly-contested general elections for the landlocked country.

As he walks inside parliament buildings to face legislators in a televised event, Matambo, who has been minister since 2009, will be aware that the country is grappling with rising unemployment rates, a looming budget deficit, reduced growth forecast and so many other challenges which need urgent budgetary resolution such as education and agriculture.

Ahead of the highly-anticipated budget, economic commentators are all in agreement, that the minister must present an increased budget which can help bring the country’s economic and social landscape under control. “Our expectations are for the minister to present an expanded budget, not aggressive,” commented First National Bank Botswana economist, Moatlhodi Sebabole. He is expected to be one of the speakers at the bank’s budget review next week Tuesday night.

Sebabole, who has an Msc in Finance from Essex University, uses the word ‘aggressive’ carefully. This is because he is also mindful that the treasury is under pressure to raise funds for budget when the fiscal year begins in April 2017.  Revenues from SACU and minerals will be hard to come by.

First and foremost, Matambo has to present an expanded budget because, the upcoming budget (2017/18) coincides with the start of the National Development Plan (NDP11). “This will bring pressure for an expanded budget to kickstart direction on the plan (NDP),” Sebabole told Botswana Guardian on Wednesday afternoon.

The draft NDP 11, which was presented last October by Matambo stated that, the total revenues for the first year of the plan are estimated at P52,7 billion and will grow by an average 6,7 percent in 2022/23.  Mathematically speaking, this means, the budget will expand by just over P4 billion. The estimates for 2016/7 budget are P48, 4 billion. Secondly, Matambo will have to present a budget which includes the cost of financing the Economic Stimulus Programme (ESP).

“This budget will cover the second year of the implementation of ESP projects. Forget whether the package has brought an increase in economic activity or not, it has to be funded,” predicted the FNBB economist. Two years ago, government came with the ESP to jack-up the weakening economy. The budget for the three-year programme is just over P3billion.

Garry Juma, head of research at Motswedi Securities also concurs with Sebabole.
“The minister will be under pressure to present a budget which will boost the struggling economy,” said Juma. Matambo and his boss, President Ian Khama have forecast that the mineral-led economy will increase at a rate of 4, 1 and 4, 3 percent during their budget and state of the nation address speeches last year.

In particular, treasury minister Matambo based his predictions on the recovery of the mining industry which had sunk the economy into a technical recession for the first half of last year.
However, things have changed as the diamond recovery has not been as expected. Diamonds are the biggest foreign export revenue earner for the 50 year old country. Any fall in diamonds revenue always spells trouble, as it is the case now. “At First National Bank Botswana (FNBB), we forecast a lower growth rate of 3.3 percent for 2017, slightly higher than our forecasted growth of around 2 percent in 2016 and much lower than the forecasts from the ministry of finance and economic development,” said Sebabole in an earlier commentary. 

The reduction in growth forecast for the year, basically means there must be more funds to be spent on activities which will pick the struggling economy, added Juma. To explain his argument further, the Motswedi Securities top analyst gave an example of budgets that preceded 2008, a recessionary period in which government increased annual budgets to jack up the economy. The resultant budget deficits were financed by tapping into foreign reserves and accessing loans from crisis lending institutions such as World Bank and African Development Bank.

He added that, the increase in budget ‘somehow helped to increase economic activity’. Meanwhile, Sebabole explained that, government is even in a much prettier position to finance the deficit, if expected revenues run short. Government is reported to have raised over P4billion in the debt market last year. “There is also room to finance the deficits coming from the expanded budget by drawing down from reserves,” said Sebabole, who has also been a lecturer at the University of Botswana.

Total foreign reserves as of November 2016 stood at P80 billion. However, government is entitled to about half of that as part of them are for pensions. Against all odds, government will be forced to come with short to medium term programmes which can help cut rising unemployment rates which currently estimated at around 20 percent. The unemployment scourge has been exacerbated by the closure of BCL mine which employed over 5000 workers in Selebe Phikwe. BCL has been put under liquidation as it has become a burden to government, Vice President, Mokgweetsi Masisi has been quoted as saying previously.

“We will continue to experience effects of the BCL closure and other copper mines,” said Juma. Some private and parastatals have also been cutting jobs to deal with reduced profitability among other factors. With limited options to deal with rising unemployment rates, government will be left with limited options but to increase budget for social safety programmes such as Ipelegeng, said Sebabole and Juma.

“There is also political pressure to do so. We are going for elections in two years time,” said Sebabole. The local government ministry which is the parent ministry to Ipelegeng, a low paying but labour intensive programme was allocated P1, 2 billion as operational budget. The total budget for Ipelegeng is over P612million. Government will also be under distress to increase budget to cater for grants associated with old age pension, World War II veterans, community home care patients, orphans among others.
More and more students are thrown into the streets as government cannot afford their tertiary education funding needs. The result has been those tertiary institutions such as Limkokwing Botswana cutting jobs. Sebabole said government might be forced to up the tertiary education ministry’s recurrent budget to deal with such challenges.

On the flip side, Juma feels government might cut the education budget and increase funding to ‘deserving projects such as infrastructure development’ that can bring immediate jobs to the mineral-led economy. More farmers will be waiting with bated breath to hear what relief measures government has designed to mitigate their commitments to National Development Bank. In a bid to fight drought, government has provided provision for relief for farmers who have been hit by previous droughts.
The relief has been in the form of reduction it total repayments for farm fertilisers and implements. Sebabole said this will also mean more budget expectations for those residing the countryside. As government runs helter-skelter to look for funds to fund the budget, Sebabole has suggested that a more diversified budget be provided in future.

“We cannot have a situation where more that 50 percent of revenues comes from minerals and SACU receipts,” said Sebabole. He added this is not sustainable given the current global uncertainties in trade and economic and political challenges to South Africa. The former is the biggest contributor to Southern African Customs Union which Botswana is a member.

This week, Standard Bank released a report that Botswana needs to diversify its economy. “We will thus be looking closely for progress on the implementation of government medium term plan (NDP 11),” said the report. Standard Bank is parent company to Stanbic Bank Botswana.