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Budget deficit projected to exceed threshold

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The 2021/2022 financial year is projected to register a budget deficit of P12.58 billion or a negative 5.9 percent of the GDP.

The projections are made in the 2021 Budget Strategy Paper (BSP) which is prepared by the Ministry of Finance and Economic Development.

The paper, whose main purpose is to enhance understanding among stakeholders of the macro-fiscal issues that guide the budgeting process and prioritization of budget allocation, was introduced in 2010 to guide the annual national budget preparation process.

The forecast budget deficit for the next financial year will surpass the country’s threshold which should not exceed 4.0 percent in any year.

“The projections point to a budget deficit, given the falling revenues as the demand for diamond exports in the global market is constrained. The fall in overall revenue is also exacerbated by the underperformance of other traditional revenue items,” the finance ministry noted in the BSP.

It is, however, noted that to some extent this will be offset by the implementation of the cost recovery measures and tax increases.

On the other hand, the finance ministry suggests that expenditure commitments have been increasing due to the need to cater to recurrent health and related costs and government efforts to mitigate the impact of Coronavirus.

Early this year, the budget estimates for the 2021/2022 financial year forecast revenues stood at P67.99 billion which was an increase of 9 percent from the previous year.

But that has since changed as the pandemic struck, and the projections have been scaled down to P58.77 billion which is P9.22 billion or around 13.5 percent, lower than initial expectations.

The scaling down of the 2021/2022 financial year budget estimates is said to a reflection of an anticipated decline in tax receipts from both mineral and non-mineral sources.

Minerals, which form a critical part of the country’s revenue base, are anticipated to bring in 27.3 percent lower than the previously estimated amount of P21.60 billion due to an anticipated slow recovery in the global economy and the international diamond market in particular.

The mineral revenue is expected to suffer a setback from lower demand in the key markets of polished diamonds being China and the U.S due to uncertainty in these markets.

Combined with the current high levels of inventory in the diamond value chain, this, according to the finance ministry, is expected to lead to lower diamond production in Botswana than was earlier anticipated, and hence lower fiscal revenues from mining.

The other major revenue for Botswana Southern African Customs Union (SACU) receipts are also expected to fall remarkably, going down by 6.3 percent from the original estimates due to slowing down of economic activity in SACU member states.

A decline in SACU receipts is also said to be made worse by the weakening of the value of the South Africa Rand (ZAR) which SACU distributions are denominated.

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