In the wake of the civil servants’ mother of all strikes, and having received numerous questions on governments ability to extend a 16% pay increment and the reasonability of the unions’ demands; I found it fitting to write this piece as the first instalment of a 2 part series which hopefully will represent both sides of the strike at the end.
Though an economic overview is given with every Budget speech; usually people only wait for the salaries part and end up missing important pieces like the revenue stream and government expenditures. Most people know that Botswana suffered a low blow during the crisis and that it was during and after the crisis that government departments started cutting back on some projects. I did field research in December and during the whole trip, there was a phrase I heard often ‘Ga gona madi’! And yet the same people are asking for salary increments.
Government’s sources of revenue include mining revenues, tax revenue including customs and BoB revenues. The major contributor to government revenues is the mineral royalties and dividends which went down substantially during the crisis. There was about a 20 % decrease in mineral revenue in 2009 and a subsequent decline in total government revenues and in contrast there was a slight increment in non mineral tax revenue though not enough to compensate for the mining revenues loss. Currently 2011/12, we have higher estimated revenue based on expected recovery in the mining sector, while this may be; there is an expected decline in SACU revenues affecting total government revenues. As a whole, it will be a while before government revenue stream is back to its pre crisis level. The key point, therefore, is that Botswana has a fiscal revenue problem not just because of the recession, but because of adverse medium-term revenue trends.
Like other countries, Botswana’s Budget since 2009 entailed a substantial deficit; in order to provide a source of aggregate demand to compensate for the weakness of the global economy – Botswana’s own fiscal stimulus package, driven by a substantial increase in government spending. This represented short-term crisis management and the withdrawal of the economic stimulus in 2010 was inevitable and thus a shift of the balance away from increased spending towards a decreased deficit. The rule of thumb is that 3% of GDP is sustainable deficit; this is also backed up by the fact that one of the main criterions for monetary union convergence is between 3-5%, for example in SADC is a deficit of 3% of GDP. As it stands, Botswana sits on a 6% budget deficit which remains unsustainable.
The 2011/12 budget reiterated the 2010/11 budget objective of a budget balance by 2012/13 and this can only be achieved by dedication to reduced spending and a stronger revenue stream (which is highly reliant on recovery in the diamond market.).What still remains a challenge is much of the unnecessary govt infrastructure. The whole principle of infrastructural development has to change in terms of budget constraints and cost effectiveness. There is also a fundamental problem in that government is too big. Just as parastatals are being rationalised to remove overlaps and duplication, government needs do the same process. Government has been happy to add to the activities it undertakes, but has not been willing to cut back on others. Many government activities are no longer necessary or justified. This is at the core of the budget sustainability problem – and hence the longer-term challenge of reducing the size of the government workforce remains. And it is necessary for all of the good intentions laid out by the Minister of Finance in the previous 2 budget speeches to be translated into concrete actions, and quickly.
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