Finance minister, Kenneth Matambo will on Monday present the 2018/19 budget speech in Parliament.
Matambo will be mindful of citizenry high expectation on incoming President, Mokgweetsi Masisi, a looming budget deficit on the backdrop of fragile recovery in the mining sector and lack of proper conditions for private sector to meet government halfway.
Two economic commentators who spoke to Botswana Guardian this week concur that expectations are high especially from a political point of view, but the current economic climate is not in a position to support such demands. President Ian Khama is expected to hand over power to Mokgweetsi Masisi early April.
The economists say that the key drivers of revenue such as minerals, Southern African Customs Union (SACU) receipts and taxes are not in any better position to enable the government of the day to meet its obligations, even at a time when there is an expected leadership transition which is normally characterised by high hopes from electorate and high promises from the political leadership.
Speaking to Botswana Guardian on Tuesday, an analyst at Motswedi Securities, Moemedi Mosele, said it be interesting to see whether the upcoming budget will be a paradigm shift (as a result of the expected political leadership) or not since problems facing the country remain the same.
Botswana, a developing country, is besieged by relatively high unemployment, HIV/AIDS scourge, poor education system, poor ease of doing business, a poor education sector as well as an agricultural sector which despite being pampered with millions of Pula is still struggling.
According to Mosele, these are some of the challenges that many Batswana want addressed, and the budget is the first point of reference to see if such problems will be addressed or not. This basically piles all the pressure on Matambo, a former Botswana Development Corporation boss. Over the years, the education sector has received the biggest budget allocation-development-but some commentators have argued that government is yet to reap investment made in the sector. In the previous budget, the basic education ministry received P6, 8 billion of the recurrent budget. According to Mosele, it is a bit tricky to state if the education sector will receive more funding or not. This is because, in recent years, the sector has not performed satisfactorily against the amount of money invested in the sector.
What Mosele is expecting, is a budget which will give more emphasis on how the investment in the education sector can bring the much-needed return on investment, and the only way out is to inculcate entrepreneurial skills within the sector.
Another analyst, Economic Researcher at First National Bank Botswana (FNBB), Moatlhodi Sebabole, said the education sector is expected to top recurrent budget. “Education and human capital remains among the key focus areas for government –therefore my expectation is that we will continue to see the ministerial allocations of the operating expenditure focusing on education and health,” he said in response.
Botswana, a mineral rich country has over the years put more resources towards ensuring that ordinary citizens improve their lives without necessarily contributing to the total Gross Domestic Product (GDP) of the country. Under the current President more resources have been channeled towards such initiatives. The most notable has been Ipelegeng;-a labour intensive programme, which hires unskilled Batswana to perform national works which do not in any way add value to the economy’s output. Both Mosele and Sebabole agree that government will continue to add more funding to social programmes such as Ipelegeng, old age pensions and destitute programmes. “We also expect government to continue to subsidise farming,” said Mosele. Government has over the years provided funding for poverty programmes such as LIMID and ISPAAD.
Even when government is expected to deal with a lot of problems, there are challenges which will come to the fore. Last year, government projected a budget deficit of P2, 35 billion. This year, there defict is expected to be even more. “Yes – the expectation is for an overall budget deficit of around 4% of GDP. The overall deficit will come about as a result of rising expenditure in line with ESP and NDP 11 implementation. Although revenues are also anticipated to improve as diamond sales continue on a positive trajectory – the pressure on base metals remains and revenue streams have not been fully diversified thus impacting the revenue side,” said Sebabole.
Last year, government announced plans to undertake a holistic simplification of both the Income Tax Act and the Value Added Tax Act with a view to developing a Tax Administration Act. “This is intended to improve tax administration efficiency, resulting in optimal revenue collection. This project is envisaged to be completed in the next financial year,” promised Matambo at the time. This has led to the Ministry considering proposals from the Taxation Review Committee which include: introduction of Transfer Pricing rules in the Income Tax Act that would curb any undesirable tax avoidance as well as underscoring the alignment of the country’s tax system to international best practice; amending the Income Tax Act, among others, to impose a penalty for non-filers irrespective of whether there is any tax to pay or not; and amending the Value Added Tax Act to include sale of property by a Deputy Sheriff as a taxable transaction.
“Once the tax regime has been overhauled to introduce strict collection measures around capital transfer tax as well as duties and customs, this will have a positive impact on tax revenue growth as currently some filtrations exist even for payment of withholding tax,” said Sebabole.
Matambo will also be forced to deal with the little he has on the plate. The economy is not performing any better. “As FNBB, we forecast a growth rate of 1.7% for 2017 and 3.2% for 2018 – way below the forecasts by the finance ministry.
“We are cautiously optimistic in our growth estimates due to the structural make-up of the economy which remains mineral-led and has limited multiplier effect on employment creation and enhanced productivity. We note that modest increase in mineral prices will support growth; whereas continued stability of water and electricity will also boost business confidence and contain rising operational costs,” said Sebabole. There will also be pressure for more funding especially that the government’s National Development Plan 11 is reaching its second year. “Yes, essentially pressures remain on government to spend more on projects in line with NDP 11. Our concern is usually on the effective implementation of the fiscal plans,” said Sebabole.