* Low GIA balances will not lead to domestic economic recession - Serame * Govt GIA had P4.1 billion in May 2024 * Diamond receipts have been lower than expected * Govt halts external travel save for critical trips, high-value trips
Members of Parliament from both sides of the aisle took turns this week to grill Minister of Finance, Peggy Serame on the current state of public finances, amid speculation that the government is facing financial difficulties.
The questions primarily focused on the Government Investment Account (GIA), the possibility of a recession in the domestic economy, the basis for the expected recovery in 2025, anticipated improvements in the diamond industry, government interventions to address budget challenges, and developments since the 2024 budget presentation, among other concerns.
The legislators' questions were prompted by Minister Serame's briefing to Parliament on the current state of public funds, in which her main objective was to provide an update on the government's financial situation. Serame remained composed as she addressed questions, at times providing satisfactory answers, although some MPs were still not convinced by her explanations.
She informed Parliament that contrary to claims of reckless government spending, the recent reduction in the GIA was due to the need to balance low revenues with high expenditure commitments. She emphasised that the government will continue to monitor GIA balances and expenditure trends to ensure economic and financial stability and sustainability.
"Government remains fully committed to its fiscal consolidation programme and its strategy of rebuilding the relatively low fiscal buffers to sustainable levels," the minister said. She reassured that low GIA balances would not lead to a domestic economic recession, and the government would continue to meet its statutory expenditure obligations.
Serame added that the anticipated economic recovery in 2025 is based on positive global economic trends, particularly in major trading economies such as the USA and China. These projections align with those of regional and international partners like the African Development Bank (AfDB), the International Monetary Fund (IMF), and the World Bank (WB).
She highlighted initiatives such as revitalising the marketing of natural diamonds, halting the production of lab-grown diamonds by De Beers, fast-tracking the implementation of a diamond tracking system, and the expected recovery in advanced economies, particularly in the diamond markets. Addressing the link between GIA performance and the Government Accounting and Budgeting System (GABS), Serame clarified that issues such as delayed payments across Government Ministries, Departments, and Agencies (MDAs) were due to factors ranging from slow invoice processing at MDAs to technology-related issues.
The Ministry of Finance is collaborating with Local Authorities to deploy their payment system (Great Plains) across other parts of the government to clear the backlog of invoices, with significant progress being made in the Ministries of Health and Agriculture. When asked about the impact of low GIA levels on reserves and the months of import cover, Serame explained that the GIA is used to buffer the fiscus, while reserves buffer balance of payment shocks.
She explained that foreign exchange reserves increase as export receipts grow, linked to the diversification plan. Although there has been some economic diversification, export diversification has not progressed fast enough to significantly boost foreign exchange inflows.
These inflows are essential to increasing reserve levels and the months of import cover, which, as of May 2024, equated to around 9.5 months of coverage for non-diamond goods and services—well above the international benchmark of three months and the SADC benchmark of about five months. Serame outlined that the recovery of the diamond market is also based on measures such as revamping the marketing of natural diamonds, halting the production of lab-grown diamonds by De Beers, fast-tracking the implementation of a diamond tracking system, and the anticipated recovery in advanced economies, particularly in the diamond markets.
Regarding measures to address budget challenges, Serame mentioned that in the immediate term, the government will implement a range of expenditure-containment strategies. These include halting non-critical external travel, slowing down the implementation of some development projects, deferring projects at feasibility and design stages, reducing subventions to State-Owned Enterprises (SOEs), cutting Revenue Support Grants to Local Authorities, and reducing other running expenses such as workshops, conferences, and asset replacements.
Reflecting on what has changed since the 2024 Budget Speech presentation, Serame explained that at the time of the budget presentation in February 2024, revenue projections were based on expected collections, assuming the main global and domestic revenue drivers remained stable throughout the year.
However, the reality has shown that diamond receipts were lower than expected due to the weak diamond market. Consequently, the government is now considering slowing down some of the budget proposals presented earlier to ensure fiscal policy remains sustainable. Once the situation improves, the implementation plan will be adjusted accordingly. In her briefing, Serame reminded Parliament that during the global financial crisis of 2008/2009, Botswana's economy was severely impacted, necessitating a withdrawal from fiscal savings and budget support financing, including a US$1.5 billion loan from the African Development Bank (AfDB) to help finance the government's programme.
Similarly, the outbreak of COVID-19 had a devastating effect on the lives of Batswana and the economy as a whole. During that time, the government responded swiftly to contain the pandemic, save lives, and stabilise and stimulate economic growth through various interventions. Due to the extraordinary nature of the situation, the government had to once again rely heavily on its accumulated fiscal savings, which were supplemented by budget support loans from the World Bank, AfDB, OPEC Fund, and the Japan International Cooperation Agency (JICA) to finance government programmes. This was in addition to other domestic financing options, such as the issuance of government securities.
Serame explained that as a result of these factors, the GIA, which serves as the government's savings account held at the Bank of Botswana (BoB), has been on a steady decline.
For example, its balance was P30.5 billion in 2008, P21.8 billion in 2009, P13.6 billion in 2010 during the Global Financial Crisis, P23.9 billion in 2018, P2.8 billion in December 2020 (due to the impact of COVID-19), P5.6 billion in December 2021, P12.1 billion in December 2023, following a recovery in the diamond market and the resumption of economic activity post-COVID-19, P5.1 billion in April 2024, and P4.1 billion in May 2024.
She emphasised that the significant reduction in the GIA limits the government's ability to finance the budget and provide a sufficient buffer against future unforeseen events and economic shocks.
It is important to note that the GIA is more than just a standard savings account—it represents the government's share of the Pula Fund portion of the foreign exchange reserves.
Its value is determined by three key factors: the inflows and outflows from the account, representing the balance of government revenues, spending, and financing operations; fluctuations in the Pula-Special Drawing Rights (SDR) exchange rate, which affects the Pula valuation of the government’s portion of the Pula Fund; and unrealised gains in the market value of the Pula Fund's assets.
In addition, Serame noted that revenue collections have been lower than anticipated. As of June 2024, actual total revenue and grants amounted to P18.2 billion, compared to the expected collection of P23.4 billion.
All these factors have contributed to fluctuations in the GIA over the years. Since 2020, it is especially important to note the following: inflows to the GIA have declined due to the weak performance of the diamond market, which took a major hit in 2020 as a result of the COVID-19 pandemic.
In the first half of 2024, diamond sales totalled US$1.949 billion, compared to US$2.428 billion in 2023, marking a 46.1 percent decline.
Government spending increased as part of its economic response to the COVID-19 pandemic, which included providing support to workers, stabilising businesses, and establishing a COVID-19 Pandemic Relief Fund with P2 billion in government funding. These initiatives further reduced available buffers at a time when there were limited inflows into the GIA.
Serame explained that the GIA is currently low due to the government’s commitment to increasing spending in order to stimulate economic growth and support recovery, coupled with the poor performance of the mining sector.
Government spending surged in April and May 2024, with major expenditures including P5.75 billion for personal emoluments, P1.5 billion for pension augmentation under the Botswana Public Officers Pension Fund (BPOPF), P1.5 billion in tariff subsidies to the Botswana Power Corporation, P939.3 million for the final instalment of land acquisition from Tati Limited Company, P623.1 million for water projects, P200 million for Chema Chema Funds, P123.5 million for Air Botswana to purchase additional fleet, subventions to State-Owned Entities (SOEs), and Revenue Support Grants to Local Authorities, among others.
"All these spending commitments have had a ripple effect on the budget, impacting the GIA," Serame noted
The questions primarily focused on the Government Investment Account (GIA), the possibility of a recession in the domestic economy, the basis for the expected recovery in 2025, anticipated improvements in the diamond industry, government interventions to address budget challenges, and developments since the 2024 budget presentation, among other concerns.
The legislators' questions were prompted by Minister Serame's briefing to Parliament on the current state of public funds, in which her main objective was to provide an update on the government's financial situation. Serame remained composed as she addressed questions, at times providing satisfactory answers, although some MPs were still not convinced by her explanations.
She informed Parliament that contrary to claims of reckless government spending, the recent reduction in the GIA was due to the need to balance low revenues with high expenditure commitments. She emphasised that the government will continue to monitor GIA balances and expenditure trends to ensure economic and financial stability and sustainability.
"Government remains fully committed to its fiscal consolidation programme and its strategy of rebuilding the relatively low fiscal buffers to sustainable levels," the minister said. She reassured that low GIA balances would not lead to a domestic economic recession, and the government would continue to meet its statutory expenditure obligations.
Serame added that the anticipated economic recovery in 2025 is based on positive global economic trends, particularly in major trading economies such as the USA and China. These projections align with those of regional and international partners like the African Development Bank (AfDB), the International Monetary Fund (IMF), and the World Bank (WB).
She highlighted initiatives such as revitalising the marketing of natural diamonds, halting the production of lab-grown diamonds by De Beers, fast-tracking the implementation of a diamond tracking system, and the expected recovery in advanced economies, particularly in the diamond markets. Addressing the link between GIA performance and the Government Accounting and Budgeting System (GABS), Serame clarified that issues such as delayed payments across Government Ministries, Departments, and Agencies (MDAs) were due to factors ranging from slow invoice processing at MDAs to technology-related issues.
The Ministry of Finance is collaborating with Local Authorities to deploy their payment system (Great Plains) across other parts of the government to clear the backlog of invoices, with significant progress being made in the Ministries of Health and Agriculture. When asked about the impact of low GIA levels on reserves and the months of import cover, Serame explained that the GIA is used to buffer the fiscus, while reserves buffer balance of payment shocks.
She explained that foreign exchange reserves increase as export receipts grow, linked to the diversification plan. Although there has been some economic diversification, export diversification has not progressed fast enough to significantly boost foreign exchange inflows.
These inflows are essential to increasing reserve levels and the months of import cover, which, as of May 2024, equated to around 9.5 months of coverage for non-diamond goods and services—well above the international benchmark of three months and the SADC benchmark of about five months. Serame outlined that the recovery of the diamond market is also based on measures such as revamping the marketing of natural diamonds, halting the production of lab-grown diamonds by De Beers, fast-tracking the implementation of a diamond tracking system, and the anticipated recovery in advanced economies, particularly in the diamond markets.
Regarding measures to address budget challenges, Serame mentioned that in the immediate term, the government will implement a range of expenditure-containment strategies. These include halting non-critical external travel, slowing down the implementation of some development projects, deferring projects at feasibility and design stages, reducing subventions to State-Owned Enterprises (SOEs), cutting Revenue Support Grants to Local Authorities, and reducing other running expenses such as workshops, conferences, and asset replacements.
Reflecting on what has changed since the 2024 Budget Speech presentation, Serame explained that at the time of the budget presentation in February 2024, revenue projections were based on expected collections, assuming the main global and domestic revenue drivers remained stable throughout the year.
However, the reality has shown that diamond receipts were lower than expected due to the weak diamond market. Consequently, the government is now considering slowing down some of the budget proposals presented earlier to ensure fiscal policy remains sustainable. Once the situation improves, the implementation plan will be adjusted accordingly. In her briefing, Serame reminded Parliament that during the global financial crisis of 2008/2009, Botswana's economy was severely impacted, necessitating a withdrawal from fiscal savings and budget support financing, including a US$1.5 billion loan from the African Development Bank (AfDB) to help finance the government's programme.
Similarly, the outbreak of COVID-19 had a devastating effect on the lives of Batswana and the economy as a whole. During that time, the government responded swiftly to contain the pandemic, save lives, and stabilise and stimulate economic growth through various interventions. Due to the extraordinary nature of the situation, the government had to once again rely heavily on its accumulated fiscal savings, which were supplemented by budget support loans from the World Bank, AfDB, OPEC Fund, and the Japan International Cooperation Agency (JICA) to finance government programmes. This was in addition to other domestic financing options, such as the issuance of government securities.
Serame explained that as a result of these factors, the GIA, which serves as the government's savings account held at the Bank of Botswana (BoB), has been on a steady decline.
For example, its balance was P30.5 billion in 2008, P21.8 billion in 2009, P13.6 billion in 2010 during the Global Financial Crisis, P23.9 billion in 2018, P2.8 billion in December 2020 (due to the impact of COVID-19), P5.6 billion in December 2021, P12.1 billion in December 2023, following a recovery in the diamond market and the resumption of economic activity post-COVID-19, P5.1 billion in April 2024, and P4.1 billion in May 2024.
She emphasised that the significant reduction in the GIA limits the government's ability to finance the budget and provide a sufficient buffer against future unforeseen events and economic shocks.
It is important to note that the GIA is more than just a standard savings account—it represents the government's share of the Pula Fund portion of the foreign exchange reserves.
Its value is determined by three key factors: the inflows and outflows from the account, representing the balance of government revenues, spending, and financing operations; fluctuations in the Pula-Special Drawing Rights (SDR) exchange rate, which affects the Pula valuation of the government’s portion of the Pula Fund; and unrealised gains in the market value of the Pula Fund's assets.
In addition, Serame noted that revenue collections have been lower than anticipated. As of June 2024, actual total revenue and grants amounted to P18.2 billion, compared to the expected collection of P23.4 billion.
All these factors have contributed to fluctuations in the GIA over the years. Since 2020, it is especially important to note the following: inflows to the GIA have declined due to the weak performance of the diamond market, which took a major hit in 2020 as a result of the COVID-19 pandemic.
In the first half of 2024, diamond sales totalled US$1.949 billion, compared to US$2.428 billion in 2023, marking a 46.1 percent decline.
Government spending increased as part of its economic response to the COVID-19 pandemic, which included providing support to workers, stabilising businesses, and establishing a COVID-19 Pandemic Relief Fund with P2 billion in government funding. These initiatives further reduced available buffers at a time when there were limited inflows into the GIA.
Serame explained that the GIA is currently low due to the government’s commitment to increasing spending in order to stimulate economic growth and support recovery, coupled with the poor performance of the mining sector.
Government spending surged in April and May 2024, with major expenditures including P5.75 billion for personal emoluments, P1.5 billion for pension augmentation under the Botswana Public Officers Pension Fund (BPOPF), P1.5 billion in tariff subsidies to the Botswana Power Corporation, P939.3 million for the final instalment of land acquisition from Tati Limited Company, P623.1 million for water projects, P200 million for Chema Chema Funds, P123.5 million for Air Botswana to purchase additional fleet, subventions to State-Owned Entities (SOEs), and Revenue Support Grants to Local Authorities, among others.
"All these spending commitments have had a ripple effect on the budget, impacting the GIA," Serame noted
