An economist at First National Bank Botswana (FNBB) pointed out that allocating a larger portion of government spending to wages may result in an undiversified expenditure mix.
Gomolemo Basele was speaking at the annual FNBB Budget Review Seminar on Tuesday.
Basele drew a conclusion that a five percent increase in public servants’ salaries means that personal emoluments will continue to take up a large portion of government spending, coupled with increased contributions to pensions.
FNBB hosts the business community for deliberation on the national budget a day after its delivery.
In Parliament on Monday, Finance Minister Peggy Serame estimated the statutory expenditure for the current financial year to be P24.4 billion, a 16.3 percent increase compared to the previous financial year. The proposed statutory expenditure estimates will cater for public debt servicing, terminal benefits for Members of Parliament, the government’s contribution to the Botswana Public Officers Pension Fund (BPOPF), and other statutory commitments.
During the FNBB Budget Review Seminar, Basele highlighted that the rise in development expenditure reflects efforts aimed at establishing a sustainable economic environment.
“Given that manufacturing remains low, construction activity should improve Botswana’s operating environment, making it easier to attract Foreign Direct Investment (FDI) and for businesses operating locally to expand,” said Basele.
Basele observed an improvement in Botswana’s revenue mix. For the 2024/2025 financial year, total revenue and grants are projected at P93.6 billion.
Customs and excise receipts is the largest contribute estimated at P26.5 billion due to the increase in Botswana’s share of the Southern African Customs Union (SACU) revenues. This is followed by mineral revenue which is estimated at P25 billion, and non-mineral revenue tax and VAT projected at P22 billion and P15.3 billion respectively.
“During COVID-19, we saw over-calculations of Botswana’s expected SACU receipts,” said Basele.
“The two years that followed, there was a compression in terms of Botswana’s receipts levels as the country had to repay some of the money into the SACU pool.”
Basele stated their belief that while a significant portion of government revenues for this financial year will likely originate from SACU receipts rather than mineral revenue, they anticipate a resurgence in diamond demand during the second half of the year, aligning with global growth prospects.
In terms of the overall budget balance, Basele said FNBB expects Botswana to run deficits through to 2026 as the country pushes its development agenda.
“Given that it is the final year of the Transitional National Development Plan, there are a lot of projects that need to be pushed through as well as the increased spending at the commencement of NDP 12,” he said.
According to Dr. Keith Jefferis, Econsult Managing Director, over the last 15 years, there has been a long-term downward trend in terms of revenue and spending as a share of the GDP.
“But there has been a faster decline trend in revenues,” said Jefferis at the budget review.
“The result of that is that we have had the emergence of structural deficits.”
Jefferis said in the last few years, there has been a problem of containing expenditure at a level that is consistent with revenues.
“Interestingly there were balanced budgets in 2021, 2022, and 2023,” asserted Jefferis.
“But those were not planned balanced budgets but planned deficit budgets. But with significant underspending, particularly on the development budget meant at the end of the day, the budgets were balanced.”
Jefferis said this was good but stressed it would have been better if they were planned rather than accidental.
With revenue and spending projected to increase this year, Jefferis said it remains questionable whether those figures would be achieved this year.
“What we have seen with the continuation of budget deficits is that the balanced budget is being pushed further into the future,” he said.
According to Jefferis, the government spending patterns indicate that personal emoluments and pensions top the chart.
“That has been rising in trend and is projected to remain the largest share,” he said.
“Development budget is projected to jump sharply, in fact, it is expected to double in two years.”