This year’s budget speech will act as real a yardstick for the balding Kenneth Matambo. As he steps on the parliament podium for 2013/14 budget presentation on Monday afternoon, the finance and development planning minister will, against all odds be expected to make two key economic announcements in a desperate attempt to bring economic critics to his side.
Although expectations are high economic data does not really favour him, some analysts say. Firstly, an expectation is that the minister must tell the nation that the immediate past budget (2012/13) has achieved a surplus or not. Any deficit will ruin his highly acclaimed stature in the treasury circles.
During his three years as finance minister, Matambo has never presented any balanced or surplus budget, a fact that has put his credibility to manage a developing economy under the spotlight. A balanced or surplus budget will not only earn him a pat on the back from his peers, but will also bring certainty that while the global economy is still weak, the country is still able to fund its national budget internally without additional funding from international financial institutions.
After a string of budget deficits accumulated between 2009/10 and 2011/2012 financial years due to the economic downturn, the College of Williams educated economist projected a surplus of P1, 15 billion in his 2012/13 financial speech.
“A budget deficit or surplus will depend on spending and revenue generated from exports,” explained senior researcher Prof Taye, who is stationed at Botswana Institute for Development and Research Analysis (BIDPA).
Secondly, the nation is waiting fretfully that a robust economic growth rate be announced for the benefit of all. In the last budget presentation, Matambo projected that the economy will grow by a convincing 4,4 percent, but analysts are saying the target is too ambitious for the mineral-rich country.
Last year, the Bretton-Wood institution-International Monetary Fund (IMF) also revised the country’s growth downwards to 4 percent. ”I think the target is too high,” explained finance graduate and research analyst Thabane Nehemiah. His ‘humble’ prediction is that the economy will grow by less than 4 percent. He has every reason to say so. Mining, the main cog of the economy has had a difficult year, the worst since the Pula was devalued.
Government economic data has not been pleasing.
Statistics Botswana figures for third quarter 2012 show mining added P4, 8 billion to the economy, a P1, 5 billion drop when compared to the same period the year before. Third quarter GDP (for mining) in 2012 is even lower when measured on quarter-to-quarter basis for the same year.” The decrease on diamonds sales will have an impact on the upcoming budget. The industry is the biggest puller of the economy,” explained Motswedi Securities analyst.
Amit Barkhita, a fund manager from IPRO Botswana said demand for diamond dropped significantly in 2012, but that will not deter the minister from presenting a surplus due to fluctuating currencies that worked in favour of the country. “The Pula has been depreciating against the dollar. This has helped the country on its receipts from exports.
We report our sales in Pula,” he stated. Matambo, who has one year left before his term as specially elected legislator lapses, will have nowhere to look to. Other revenue sources (non-mining) have not had a good time as expected. Southern African Customs Union (SACU) revenue is expected to drop, which will put further strain on his budget.
For sometime now, SACU members have failed to come with a revenue sharing formula. One thing remains clear, South Africa will remain the biggest beneficiary while other smaller economies such as Botswana will receive leftovers. Botswana’s share from the SACU revenue pool decreased from P7.9 billion in 2009/10 to P6.2 billion in 2010/11, representing a 22 percent decrease, according to Botswana Unified Revenue Services (BURS) latest annual report.
Commissioner Ken Morris attributed the decrease to a deduction in the members’ shares as an adjustment to account for the deficit in the Common Revenue Pool (CRP), which was released in the 2010/11 financial year, he also highlighted the fact that the revision of the revenue sharing formula would eventually reduce Botswana’s revenue share.
Barkhita said that SACU revenue decline would have a significant impact on Botswana’s budget, but all is not lost for the minister who has lately received bad press. “We will be saved by strict spending,” explained Barkhita who manages a fund of over P2 billion in Botswana. The 2012/13 budget has not been characterised by big spending on the part of government, added Barkhita.
“This perhaps explains why the minister still has a chance to present surplus,” said Barkhita. Two years ago, Matambo announced that government would reduce development budget partly because of the recession that heavily affected government’s financial position. Some sectors such as construction (which is heavily dependant on government funding) are starting to feel the effects of a cut in spending.
New projects were minimal in the current financial year. The P11 billion Morupule Power Station is almost complete. It is fully funded. However it still remains a mystery why government has moved swiftly to sign a fresh power deal with Eskom, money that could have been saved. Jacob Raleru told BG Business that they would not renew their five-year contract with Eskom.
Money used to purchase power from Eskom is likely to put a strain on current financial year (2012/13). “Lets just wait and see,” said Taye, who explained it would be ‘good’ to judge the minister after his highly anticipated budget speech.
Non-mining: will it rise?
The non-mining sector, which among others include manufacturing, tourism, financial services performed satisfactorily, although their sustainability cannot be guaranteed. The non-mining sector cannot be ruled out. “Even in the past financial year, the focus has been on the non-mining sector,” explained Nehemiah. He could not say if the non-mining sector would save the day for Matambo, but said latest performance would determine that.
Total revenues and grants for 2012/13 financial year were estimated at P42.91 billion. Customs and Excise was the biggest contributor to national budget. Mining was the second revenue earner for the budget at 28.1 percent of total bugdet. It still remains the largest sector to the treasury. Nehemiah said this clearly justifies why mining performance remains vital for the country’s budget.
Real Gross Domestic Product (GDP) increased by 5.7 percent in the third quarter of 2012 compared to 6.6 percent in the same quarter of 2011. The slow growth is attributed to mining and manufacturing which recorded negative growths of 24.0 and 5.5 percent respectively, all other sectors recorded a positive growth over the period. Real mining value-added plummeted due to a substantial decrease of diamond production by 39 percent in the third quarter of 2012.