Finance Minister Kenneth Matambo is a special breed within the current cabinet. He is the only minister who never had to face the rigours of general elections. While colleagues were traversing the country, loudspeakers atop muddy four-wheel drive vans, tracking truant potential voters and rounding up supporters, Matambo consigned himself to a quiet life at home, a cup of tea, and feet-on-the-table kind of relaxation, the election a mere inconvenience at the most. Back in the saddle, he must have had ample time to ponder a budget with a few demands on his brain power. Matambo will have to put together a budget to satisfy the demands of the last financial year before the decade-long Vision 2016 elapses.
Botswana is faced with both an opportunity and a challenge, but the economic opportunities have to be unlocked by a very substantial investment in public infrastructure. Minister Matambo will have to present a budget that provides a platform for these investments to be made, as some of them are already midstream in development, but he must also address shortfalls in public spending coming from past financial years.
It is a complex economic and social space Matambo will be handling on Monday, and he will be watched with a hawk’s eyes by everyone from investors and international financial institutions to small businesspeople and the unemployed.
The balanced books ideology
The first principle that the Botswana Government prides itself in is balanced books. Matambo’s predecessors – from the probable originator of this principle, the country’s first post-independence finance minister Quett Masire to Festus Mogae – the men who held the keys to the safe prefer that they report positive numbers each first week of February. Surpluses have earned Botswana good ratings, a position that is seen as positive for attracting both credit on the international market and investors. Even as the global recession was emerging, the National Budget delivered by Baledzi Gaolathe in his last year as finance minister in his 2009 announced that Moody’s Investors Service and Standard and Poor’s had retained Botswana at grade “A”, a position he credited to the country’s prudent macroeconomic policy centred around saving for the rainy day.
But by 2010, Matambo had inherited a country caught up in a full blown economic crisis. He has had to hand in a few deficits in the last three financial years. In the 2010-2011 budget, the deficit stood at P10.22bn. He reduced that to P3.76bn by the next financial year. Since then there has been a concerted effort to deal with the deficit, which was over, albeit by marginal figures by the 2012/13 National Budget that realised a P922m surplus. Matambo will reveal another surplus this year as he did last year.
Critics of the ‘balance-the-books’ position argue that it sacrifices the development agenda for positive ratings by international rating bodies. In their recent statement on the forthcoming National Budget, the Botswana Public Employees Union concluded: “… we are critical of the fixation with self-imposed restrictions which limit the Budget’s impact as a tool for advancing national development, such as a revised fiscal rule”.
Escalating costs on major projects on which government has decided to embark, constant demands of the recurrent budget, and the special position of this budget as the climax of the Vision 2016 programme put Matambo in a problem. His further challenge is that he has to be seen to be driving an ambitious budget while maintaining the government’s dedication to surplus.
Public sector wage demands
The International Monetary Fund, even before the recession hit, always held the position Botswana’s public sector wage bill was becoming substantial. In the 2012/2013 financial year, the IMF advised reduction of “the size of the government”, which is calculated including the cost of the public sector. It proposed a five percent yearly reduction for the following three years. “Bolder measures are required to achieve the targeted reduction in the wage bill. Such measures include streamlining the system of non-wage payments, rationalizing the size and structure of government, tightening the link between pay and performance, strengthening payroll systems, and revising the wage scale,” the IMF team advised.
However, union leaders have argued that public sector workers are behind in their salary adjustments. The increasing clamouring for a salary increase, which culminated in the 2011 industrial action, indicates this year as the time when both positions have to find a resolution. The recession, in a way, bought the government some time. Khama, and indeed senior government officials, argued that salary increases were not affordable, presenting the deficit years of the 2008-2012 as evidence. But the recession is over now, public sector workers will argue.
Last year, the President Khama announced a unilateral salary adjustment of public service salaries. The Botswana Federation of Public Sector Unions has approached the courts, seeking to have Khama’s power in this matter reviewed. A bruising legal battle looms, which is set to throw in even some constitutional wrangling about presidential powers versus the powers of such bodies as the Public Sector Bargaining Council. But this is not about Khama’s powers as it is about what unions see as the government’s attempt to usurp the powers of the unions to negotiate at a time when the recession is over and public sector workers expect an increase. It is seen as an attempt to circumvent the process so that government can set its own increases. In a rare show of unity, BOPEU, a recent nemesis of BOFEPUSU, expressed support for its former mother body in its latest statement on the budget, a sign that government may be in for a long battle.
Matambo, the unionists say, should not pronounce anything on salary increments, taking the view that his doing so would be illegal. They expect him to follow the Bargaining Council process. There lies Matambo’s problem, whichever way the process ends, if there is any adjustment to be made, he would have to accommodate a substantial amount to the budget. The unions will be demanding a salary increase, and a sizable one at that.
Is this the post-recession, pre-recovery phase?
Matambo cannot argue that the Botswana is still in the grips of the recession, but he could not very well say we are in recession either. Therein lies his problem. It is just too nuanced a picture to present a clean statement on the economic direction of the world. Even if one could, it would be a difficult position to derive some sort of over-arching statement on the performance of our trading partners. The collapse of oil prices has put a spanner in the works. South Africa, Botswana’s biggest trading partner that accounts for 74.0 of imports (July 2014) and 10 percent of exports (July 2014), has been in an economic slowdown for the last two years. SA’s finance minister Nhlanhla Nene will wait another three weeks before presenting his , but not many expect spectacular numbers. The sub-continental economic giant, having been brought to a mere crawl last year largely because of the labour unrest in the critical mining sector, has little prospect for substantial improvement in its economic performance. Some, including the SA Treasury, have put the number at 2.5 percent growth, but even then some have argued that it is too optimistic a position. But perhaps Matambo may not have as serious a problem with the struggles of SA. Afterall, our trade imbalance means we mostly import rather than export to our southern neighbour.
The EU, which accounts for 15.1 percent of our total imports and 35.1 percent of our exports, is not a seedbed of economic growth either. The IMF warned, in its forecast, released October 2014, that growth in the EU was both fragile and varied. “Growth is still weak in the euro area, with lingering risks of more protracted low growth and low inflation,” it added. GDP growth projections stand at between 0 and 2 percent for major EU economies.
Managing a crisis
The finance minister’s main focus will be managing crises, importantly the power and the water crises. Before the recession hit, Botswana was preparing for an upgrade of its major public infrastructure, among them the Morupule Power Station (A and B), the North-South Water Carrier II, the Air Transport Infrastructure – Airport upgrades and the North-West Power Transmission.
Other projects have since been added to that, among them the Kazungula Bridge and the Trans-Kalahari Railway. These should usher Botswana into the next phase of its development programme. Both refurbishment of the old Morupule A and development of B Phase II were expected to cost P8 billion but the budget has risen astronomically due to incessant s in the construction of the power station. The power shortage has compelled government to import more electricity from South Africa, a country with its own shortage of power. This means power has to be procured at a premium. Therefore, Matambo has to okay even more payments for this while the problem of Morupule is still being addressed. The North-South Water Carrier Project, which is still under construction, requires further funds as it slowly rolls towards completion. However, Matambo should be able to celebrate the completion of Dikgatlhong Dam.
But when Matambo grabs his briefcase on Monday morning, he might feel a certain comfort in the knowledge that given the state of the world economy, not many of his colleagues around the world have had a better year.