Nevertheless, there are indications that the lackluster performance of diamonds in the latter half of 2023 has had adverse effects on both export earnings and government revenue.
Econsult economic report for Q4 2023 says diamond sales through De Beers (which markets diamonds from Botswana, South Africa, and Namibia) totaled USD 416 million in the last three sights of the year. This reflects a stark decline of 70 percent compared to the USD 1.4 billion recorded in the corresponding period of 2022.
The report, compiled by economists, Keith Jefferis and Sethunya Kegakgametse, says GDP growth slowed to 3.6 percent over the 12-month to the end of September 2023.
“This was not unexpected and reflected slower growth in both the mining and non-mining sectors of the economy,” said the economists.
“It is expected that the poor performance of diamonds in the second half of the year will have an adverse impact on export earnings and government revenues.”
According to the most recent export data (up to October 2023), the second half exports (the four months from July to October) were 35 percent down on the same period in 2022, resulting in a trade (in goods) deficit of P8.8 billion over the four months.
“Government budget data is not yet available for this period – perhaps reflecting the problems facing the Government Accounting and Budgeting System (GABS) – but government balances at the Bank of Botswana fell by P3.9 billion between June and September 2023, indicating a substantial budget deficit.”
The Ministry of Finance could this week not respond to The Business Weekly & Review inquiries on whether, government will review its budget estimates downwards given the poor sales of rough diamonds last year.
The 2024/2025 budget will mark the end of the second Transitional National Development Plan (TNDP) which paves way for the implementation of the National Development Plan 12 (NDP 12).
The Budget Strategy Paper for the 2024/2025 financial year, which sets the tone for the next budget speech, indicated that this financial year, total revenue, and grants were projected at P83.7 billion, while total expenditure and net lending were expected to record P88.8 billion.
Of the P83.7 billion total revenue and grants, P28.4 billion was expected to come from mineral revenue, P21.4 billion from customs & excise revenue, P17.4 billion as non-mineral income tax, P13.1 billion as VAT, and P700 million from Bank of Botswana revenue.
According to the BSP, the Gross Financing Requirement for financial years 2023/2024 and 2024/2025 is forecast to be P10 billion (budget deficit).
It is anticipated that this shortfall will be financed through a combination of three options.
Net issuance of government securities in the form of bonds and Treasury Bills which are anticipated to provide P5.9 billion; net external financing from official multilateral and bilateral lenders, which is projected at P3.5 billion (should all the envisaged budget support loans be disbursed in the year); and lastly P1.6 billion expected to be drawn from the Government Investment Account (GIA) over these two financial years.
However, according to Econsult economists, 2024 promises to be a bumpy year for the Botswana economy, with a high level of uncertainty in the diamond sector.
“Rapaport Diamond estimates are for a further 20 percent decline in Botswana’s diamond exports in 2024, after a 37 percent decline in 2023,” states the report.
“This is likely to lead to lower economic growth as well as downward pressure on export earnings and government revenues.”
While more insights on the extent of this impact are expected to be provided in the Budget Speech on Monday, economists say there have already been hints that there will be an expanded development budget, providing more money for infrastructure and other projects.
However, for this to be effective, they stated that it needs to be accompanied by improvements in the process for preparing, selecting, and prioritising projects so that the additional spending is not wasted on low-return (or negative return) projects, as has so often been the case in recent years.
The likelihood is for a sizeable budget deficit, given an expanded development budget and constrained mineral revenues, which will require an increased government debt issuance programme.
Economist at First National Bank Botswana (FNBB), Gomolemo Basele, says he anticipates the budget deficit to be slightly wider (2.8 percent of GDP) than the government’s estimate (2.0 percent of GDP) in FY23/24 given the increased financial support to the agricultural sector, and the vulnerable portion of the population, necessitated by the drought.
“In FY24/25, we expect the deficit to narrow to 1.7 percent of GDP due to the likelihood of further salary increases for civil servants,” he said.
“From a ministerial allocation standpoint, we do not expect major changes over the FY23/24 budget allocation given that the national priorities remain largely unchanged.”