Botswana faces budget deficit

 Botswana faces budget deficit

Botswana faces budget deficit.

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Botswana’s economy is headed for a potential meltdown as the national budget deficit is projected to deepen to P7.8 billion.

The economy is inhibited by the COVID-19 pandemic whilst the government faces the pressure of striking a delicate balance between saving lives and sustaining the economy.

Asking Parliament to approve a P2.5 billion loan from the World Bank recently, the Minister of Finance and Economic Development, Peggy Serame, spoke of a deepening budget deficit that looms.

Serame said the deficit will worsen to P7.8 billion compared to the initial P6 billion that was forecast by her predecessor Dr Thapelo Matsheka’s budget speech in February. Minister Serame bemoaned sluggish economic recovery as a cause of serious concern.

“In this financial year, an estimated deficit of P6 billion or a 3.0 percent of the Gross Domestic Growth (GDP) was anticipated during the presentation of the national budget in February 2021,” she said. “This is owing to the slow recovery in the economy, given the pressures of COVID-19.”

Serame said the government’s major sources of revenues, namely mining, tourism and the Southern African Customs Union revenue pool, are also subdued as a result of the pandemic. Economic observers also point to loss of tax revenue occasioned by a protracted ban on alcohol.

Serame told the House that the loan sought from the World Bank will be used to help in the government’s COVID-19 response, strengthen the private sector and promote resilience of the green recovery.

Meanwhile, the subdued economic activity is leading to depletion of foreign reserves. In its 2020 annual report, the Bank of Botswana stated that as a result of pressure on the economy from the COVID-19 pandemic, Botswana registered a balance of payments deficit of P20.1 billion.

“At the end of December 2020, foreign exchange reserves amounted to P53.4 billion, a decrease from P65.2 billion in December 2019 reflecting a whopping decrease of P11.8 billion in the year 2020,” the report said.

“In US dollar terms, the level of the official foreign exchange reserves fell by the 21 percent from USD6.2 billion to USD4.9 billion, while in SDRs, the reserves fell by a 22.7 percent from SDR4.4 billion to SDR3.4 billion. The level of foreign exchange reserves was equivalent to an approximately 10.1 months of import cover of goods and services.”

 However Botswana has received an additional allocation of reserves from the International Monetary Fund (IMF) amounting to just over P3 billion, which the country can access to boost its budget, rebuild reserves or spend fighting COVID-19.

The IMF reserves, known as Special Drawing Rights (SDR) are an international reserve asset created by the IMF to supplement the official reserves of its member countries. Each country has a share of the SDRs and earlier this month, the IMF board made fresh allocations to boost liquidity among all countries, as a way of fighting the pandemic’s impact on economies.

Louis Schoeman

Louis is a freelance writer that has been featured on investing.com, entrepreneur.com, marketwatch.com, benzinga, seekingaplha. Louis focusses on helpful news and tips on cfd’s, forex trading and crypto. When he is not writing world class articles, he is an avid trader in crypto.

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