With the Minister of Finance and Economic Development (MFED), Dr. Thapelo Matsheka scheduled to deliver the 2021/22 Budget Speech on Monday, economists expect the minister to explicitly reveal how the country will emerge for the economic downturn caused by the Covid-19 pandemic.
Last year, the government announced the Economic Recovery and Transformation Plan (ERTP) which is estimated to cost P14.5 billion.
Speaking to Voice Money this week, Quantitative Analyst at First National Bank Botswana (FNBB), Gomolemo Bosele said the expectation is that Matsheka will announce key projects and initiatives under the ERTP to support Botswana’s growth trajectory.
Given Botswana’s increased funding needs as a result of the disruption caused by the pandemic, Bosele said the budget deficit is projected to widen sharply to 9.5 percent of GDP in 2020/21 from 4.9 percent in 2019/20, largely owing to the sharp decline in mineral revenue.
“At this level, the deficit exceeds the country’s self-imposed indicative threshold of 4 percent of GDP, and we expect the deficit to only gradually narrow to the threshold by 2022,” said Bosele.
Bosele explained that the reduced amounts from Botswana’s largest revenue sources have increased its fiscal pressures, coupled with the need for increased funding in order to combat the effects of the pandemic.
However, unlike its peers, Bosele says Botswana has some levers to pull regarding funding options – including tapping into foreign exchange reserves, which remain above 12 months import cover; local bond issuance as there is still a capital market appetite for paper and debt-to-GDP levels remain below thresholds.
The other option is foreign currency debt from different Development Funding Institutions (DFI).
“The government, through the MFED, approached the World Bank for budgetary support in light of the constraints to government revenue as a result of the disruption caused by the pandemic.”
While discussions are still at preliminary stages, details of the proposed funding are expected to be published during the course of the year.
Also, parliament has approved MFED’s proposal to increase the government note programme from P15billion to P30billion, along with the frequency of auctions to help fund the expected higher deficits in the medium term.
There are also intentions to increase the Value Added Tax (VAT) from 12 percent o 14 percent effective 1st of April this year while tax on sugar-sweetened beverages will be 2 thebe per gram over and above 4 grams per 100 millilitres.
“The impact of these taxes is likely to have an inflationary impact, eroding the purchasing power of domestic households,” warned Bosele.