Botswana’s public finances back in deficit

18 Mar 16

Botswana’s public finances have slipped back into deficit for first time in three years according to the International Monetary Fund.

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Gaborone, the capital of Botswana, from above

Gaborone, the capital of Botswana, from above

 

The fund said that after a rapid recovery from the 2009 downturn that saw three years of surpluses, lower revenues from mining and the South African Customs Union (SACU) as well as higher government spending, a regional drought and electricity and water shortages have pushed the public purse back into the red.

The IMF’s executive board said it welcomed the government’s plans to return to surplus within the next three years by containing current spending, particularly in regards to reducing the size of the wage bill and transfers to state-owned enterprises.

They also stressed the need to enhance non-mineral revenue collection, particularly around value-added and property tax collection, in light of subdued prospects from the SACU and diamond receipts.

“Directors generally saw merit in considering options to strengthen the framework for managing mineral revenues, including with a view to avoiding pro-cyclicality in public spending,” they added.

The southern African country’s fiscal framework had “served the government well”, according to the IMF. Low public debt and sizable fiscal and foreign savings mean the country is well-positioned to weather the current downturn.

Over the next three years, the IMF projects a gradual recovery based on higher diamond prices, wage constrains and limits on transfers and fiscal stimulus. The government is planning high levels of public investment, which directors said was justified given the need for infrastructure.

Nevertheless, with the country’s 2016/17 budget envisioning a fiscal deficit at about 4% of gross domestic product. The fund has recommended the government exercise caution and focus on the most profitable and viable investments. 

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