Cash reserves for the country’s Special Funds have plunged by nearly half, dropping from over P10 billion to just P5 billion in 2024, while several other special funds have gone unaudited since 2019.
At the onset of COVID-19, the government drew P2 billion from 11 out of the 43 Special Funds, including Human Resources Development, Roads Levy, and Tourism Development, to seed the COVID-19 Relief Fund.
Withdrawals from the Special Funds included P625 million from the Human Resources Development Fund, P435 million from Roads Levy Collections, P220 million from the Guaranteed Loans Insurance Fund, and P155 million from the Tobacco and Tobacco Products Fund. Other significant withdrawals included P150 million from the Tertiary Education Development Fund, P125 million from the Housing Fund and P100 million from the Revenue Stabilisation Fund.
Further, P50 million each was withdrawn from the Finance (Tourism Industry Training) Fund, Levy on Alcoholic Beverages Fund; as well as Road Traffic Fines Fund; and lastly P40 million from Tourism Development Fund.
Although P2 billion was withdrawn from the 11 Special Funds, the allocation of an additional P3 billion from these funds remains unclear.
As at 13 August 2024, the cash balances of the 11 Special Funds were as follows: Human Resources Development Fund at P649.8 million, Roads Levy Collections at P1.1 billion, Tobacco and Tobacco Products Fund at P184.6 million, Tertiary Education Development Fund at P354 million, Housing Fund at P123.5 million, and Revenue Stabilisation Fund at P55 million. The Guaranteed Loans Insurance Fund was completely depleted.
The cash balance of the Finance (Tourism Industry Training) Fund which was dissolved in June this year was P113 million; the Levy on Alcoholic Beverages Fund was P165.7 million; Road Traffic Fines Fund was P154.4 million; while the cash balance for the Tourism Development Fund was P82 million.
Liquidity crunch fears
An independent economist and financial markets analyst, Lame Bothata said the continuous deep contraction of government revenue streams would impact the economy and trigger market liquidity.
He said the decline in the government revenue would mean that money velocity (circulation) will be limited and that can impose liquidity distress on the financial markets sector with commercial banks being the most affected.
“The economic deficiency regarding the management of special funds started when the government some years back decided to withdraw its special funds from commercial banks and centralise them to the central bank, Bank of Botswana to manage,” said Bothata.
Bothata said the major concern with the government special funds has been mismanagement and lack of accountability as some funds have not been audited by the Auditor General since their introduction.
“They are vulnerable to corruption and the clear case has been the embezzlement of P250 million under the National Petroleum Fund (NPF). There is a need to review and reduce the number of special funds. They are a burden to taxpayers.”
Call for more oversight
Under the Public Finance Management Act, 2011, Section 40 (2) gives the Minister of Finance the power to withdraw funds from any Special Fund if considered expedient or to be in the best interest of the public.
Such an act of authorising expenditure from any Special Fund for a purpose other than that contained in the written law or trust instrument establishing the Fund is done through an order, that is, a Statutory Instrument.
However, Leader of the Opposition Dithapelo Keorapetse argues that the flaw in this arrangement is that some funds can be used without Parliament’s knowledge or approval.
Keorapetse’s comments followed Minister of Finance, Peggy Serame’s response to the former’s questions in parliament relating to the administration of the Special Funds, calling for parliament to have more oversight role.
“It is the only institution charged with power of the purse and only institution that can appropriate money. This must be applicable to Special Funds,” Keorapetse said.
The Selebi Phikwe West MP had asked Minister Serame to update parliament on the amount of money drawn from Special Funds for the COVID-19 Fund Seed Capital, including how much the government got from each Fund.
Keorapetse asked the minister to further state and explain; The position of the Financial Law on the management of Special Funds including repurposing (purposes other than what is stipulated in the Fund Order) the money from the fund;
The number of Special Funds and current state of Special Funds including how much is in each fund; Funds which have not submitted their books of accounts to the Auditor General for audit and which ones have not been audited since 2019; What the Government has changed in the management of Special Funds since the National Petroleum Fund (NPF) issue; and International best practices for managing these funds and whether they have codified investments guidelines.
While Keorapetse argues that parliament should have oversight on the administration of Special Funds, Serame said following the National Petroleum Fund (NPF) scandal in 2018, the cabinet through Presidential CAB Directive 20/ (A), 2018 of July 2018 approved four measures that ensure prudent financial management of Special Funds.
Changes that she said were made include insourcing and transferring all Special Funds to the Government Remittance Account at the Bank of Botswana; ensuring compliance with statutes establishing Special Funds and imposing appropriate action where there is proof of gross mismanagement. The government ceased since July 2018, to pay interest on Special Funds managed as part of government cash balances, except for those managed on behalf of third parties. Third-party Special Funds are now paid interest at market rate.
Lastly, the government undertook a wholesome review of Special Funds to align their Fund Orders with the provisions of the Public Finance Management Act as well as ensuring consistency with domestic Anti-Money Laundering and Counter Financing of Terrorism laws and standards.
Keorapetse also expressed worry that some Special Funds have not been audited.
According to Serame, the Levy on Alcoholic Beverages Fund and Levy on Tobacco and Tobacco Products Fund’s audited financial statements have not been received since the financial year ended 31st March 2019.
Both levies fall under the Ministry of Health.
Also, the Copyright and Neighbouring Rights (Levy on Technical Devices) Fund (at the Ministry of Trade and Industry) and the National Electrification Fund (at the Ministry of Minerals and Energy) were both last audited in the financial year ending 31st March 2021.
Keorapetse says firstly it is not ideal to keep so many Special Funds with a lot of money.
“Secondly, it is important that at all the time these Special Funds are audited,” Keorapetse said in parliament.
“We know what happened when for two successive years the NPF was not audited. We ended up with what appeared to have been looting.”
Moreover, he says there appears to be inadequate compliance with Fund Orders with no investment guidelines on how funds from these Special Funds can be invested.
“That is why at any given point in time, Special Funds can be used for purposes other than what is stipulated in the Fund Order and also be invested in some questionable investments,” Keorapetse said.
“That is why there has to be guidelines and these guidelines must come in the form of Statutory Instruments that can be scrutinised by parliament as secondary legislation.
Serame had told parliament that currently there are no codified investment guidelines, however, she said investments are done following legal processes in place, such as the Public Finance Management Act.
“Therefore, when investing one has the ensure that there are safeguards not to place funds in long-term contracts to the detriment of achievement of purpose for which the Fund was set up for,” said Serame.
“However, a balance is maintained between the needs of investing the funds and utilising them to achieve the purpose of the specific Fund, hence the role of the Accountant General in ensuring that funds not required for immediate use are placed on short-term investments.”
COVID shock
While the funds from some of these Special Funds were channeled towards COVID-19, early this month, Serame told parliament since this was an extraordinary occurrence, the government had to dig deep into fiscal savings.
These were supplemented by a number of budget support loans from institutions such as the World Bank, African Development Bank AfDB), OPEC Fund and the Japan International Cooperation Agency (JICA).
Due to the impact of the pandemic, she said the Government Investment Account (GIA) declined from P23.9 billion in 2018 to P2.8 billion in December 2020.
The GIA recovered in 2021, increasing from P5.6 billion in December 2021 to P12.1 billion in December 2023 due to the combined impact of the recovery in the diamond market and resumption of economic activity globally.
But the recovery was short-lived as the GIA fell to P51 billion in April 2024 from P18.5 billion in April 2023.
As at the end of May this year, the GIA was at P4.1 billion, compared to P19.1 billion in May 2023.
“This is indeed a marked reduction as it impairs the ability of the government to finance the budget and provide adequate buffer for the economy against unforeseen events and shocks in the future,” explained Serame.
Serame said the establishment of the COVID-19 Relief Fund with a capitilisation of P2 billion from government, contributed to the changes in levels of the GIA.
