Publications

𝟭𝟮𝘁𝗵 𝗔𝘂𝗴𝘂𝘀𝘁 𝟮𝟬𝟮𝟰

𝟭. 𝗠𝗿. 𝗦𝗽𝗲𝗮𝗸𝗲𝗿, in line with Standing Order 41.2, I wish to make a statement on our public finances to this Honourable House. 𝗠𝗿. 𝗦𝗽𝗲𝗮𝗸𝗲𝗿, to provide some context in respect of the current Government financial situation, I will start with a background for Honourable Members’ appreciation. It is my hope that this will address misinformation and/or misleading statements that are circulating in the public domain.

𝟮. 𝗠𝗿. 𝗦𝗽𝗲𝗮𝗸𝗲𝗿, during the global and financial crisis of 2008/2009 the country’s economy was hard hit to the extent that we had to deep into our fiscal savings as well as to obtain substantial budget support financing from among others, the African Development Bank (AfDB) of (USD 1.5 billion or P20.31 billion) to help finance the Government programme.

𝟯. 𝗠𝗿. 𝗦𝗽𝗲𝗮𝗸𝗲𝗿, we may also recall the devastating effect that the outbreak and spread of COVID-19 had on the lives of Batswana and the economy in general. During the time, Government responded expeditiously to contain the scourge, save lives as well as stabilize and stimulate growth of the economy among the numerous interventions that were undertaken.

𝟰. As this was an extraordinary occurrence, Government had to again dig deep into our accumulated fiscal savings, which were supplemented by a number of budget support loans from the World Bank, AfDB, OPEC Fund and the Japan International Cooperation Agency (JICA) to finance the Government programme. This was in augmentation of our revenues and other domestic financing options in the form of issuance of Government securities.

𝟱. 𝗠𝗿. 𝗦𝗽𝗲𝗮𝗸𝗲𝗿, against the backdrop of all these, the GIA has been on a downward trajectory falling from P30.5 billion in 2008 to P21.8 billion in 2009 and further to P13.6 billion in 2010 (during the Global Financial Crisis). Due to the impact of COVID-19, the GIA declined from P23.9 billion in 2018 to 𝗣𝟮.𝟴 𝗯𝗶𝗹𝗹𝗶𝗼𝗻 in December 2020. It however recovered in 2021, increasing from P5.6 billion in December 2021 to P12.1 billion in December 2023, owing to the combined impact of the recovery in the diamond market and resumption of economic activity globally as most economies opened up. However, the recovery was short-lived, as the GIA fell to P5.1 billion in April 2024 from P18.5 billion in April 2023. As at the end of May 2024, the GIA was at P4.1 billion, compared to P19.1 billion in May 2023.

𝟲. This is indeed a marked reduction as it impairs the ability of Government to finance the budget and provide adequate buffer to the economy against unforeseen events and shocks in the future.

𝟳. 𝗠𝗿. 𝗦𝗽𝗲𝗮𝗸𝗲𝗿, first it is worth explaining to this House the dynamics of the GIA, which represents Government’s savings account held at the Bank of Botswana (BoB). It receives Government’s surplus cash balances derived from budget revenues and other financing operations (such as borrowing), net of spending and financing outflows. Historically, it has received inflows from budget surpluses and experienced outflows in the event of budget deficits.

𝟴. 𝗠𝗿. 𝗦𝗽𝗲𝗮𝗸𝗲𝗿, the GIA is more than just a simple savings account at a bank. Under the agreed arrangement between the Ministry and Bank of Botswana, the GIA also represents Government’s share of the Pula Fund portion of the foreign exchange reserves.

𝟵. 𝗠𝗿. 𝗦𝗽𝗲𝗮𝗸𝗲𝗿, the value of the GIA therefore depends on three main elements. First, it depends on flows of cash in and out of the account, representing the balance of Government’s revenue, spending and financing operations.4This balance can be positive (inflows greater than outflows) or negative (outflows greater than inflows) on an annual basis. Second, it depends on changes in the Pula-Special Drawing Rights (SDR) exchange rate. Because the GIA is tied to the SDR value of the Government’s portion of the Pula Fund, the Pula valuation of that portion varies with the exchange rate. Third, it includes a portion of the unrealized gains in the market value of Pula Fund assets.

𝟭𝟬. On the revenue side, collections have been lower than expected. As at June 2024, actual total revenue and grants was P18.2 billion against our expected collection of P23.4 billion.

𝟭𝟭. 𝗠𝗿. 𝗦𝗽𝗲𝗮𝗸𝗲𝗿, all of the above factors have contributed to changes in the levels of the GIA seen over the years. Specifically, since 2020 it is important to highlight the following:

(𝗮) Inflows to the GIA have declined owing to the weak performance in the diamond market, which fell significantly in 2020 due to the impact of the COVID-19 pandemic. In the first half of 2024, diamond sales were US$1, 949 million, when compared to US$ 2, 428 million in 2023, representing a decline by 46.1 percent.

(𝗯) Spending increased as Government implemented an economic response to the COVID-19 pandemic with a view to addressing issues related to provision of support to workers; stabilization of businesses; and establishment of a COVID-19 Pandemic Relief Fund with a capitalization of P2 billion from Government. These measures contributed to the reduction of available buffers at a time when there were no significant inflows into the GIA.

𝟭𝟮. 𝗠𝗿. 𝗦𝗽𝗲𝗮𝗸𝗲𝗿, currently the GIA is low on account of the commitment to increasing spending in order to stimulate economic growth and support recovery as well as poor performance of the mining sector. Government spending substantially increased due to, among others, payment of personal emoluments of P5.75 billion, expenditure on Botswana Public Officers Pension Fund (BPOPF) of P1.5 billion for pension augmentation, tariff subsidy to Botswana Power Corporation of P1.5 billion, payment for acquisition of land from Tati Limited Company of P939.3 million (which was a final instalment), P623.1 million for water projects, Chema Chema Funds of P200 million, Air Botswana (P123.5 million for purchase of additional fleet), Subvention to State-Owned Entities (SOEs) and Revenue Support Grant (RSG) to Local Authorities, amongst others. This has had a knock-on-effect on the budget with implications on the GIA.

𝟭𝟯. 𝗠𝗿. 𝗦𝗽𝗲𝗮𝗸𝗲𝗿, the economic landscape has substantially changed compared to the time when I delivered the 2024/2025 Budget Speech in February 2024. For an instance, during the year 2023, economic growth decelerated to 2.7 percent, lower than the 3.2 percent that was anticipated, indicating weaker-than-expected performance of the diamond industry.

𝟭𝟰. 𝗠𝗿. 𝗦𝗽𝗲𝗮𝗸𝗲𝗿, the weak performance in the diamond market experienced in 2023 continued into the second half of 2024. This weak performance is driven by various factors including:

𝗼 Competition from lab-grown diamonds (LGDs);

𝗼 Low demand from key markets (USA and China);

𝗼 Rising production costs;

𝗼 Disruption of supply chains due to the Russian/Ukraine conflicto Evolving consumer preferences; and

𝗼 Uncertainties emanating from measures imposed by G7 countries to enforce sanctions on Russian diamonds.

𝟭𝟱. 𝗠𝗿. 𝗦𝗽𝗲𝗮𝗸𝗲𝗿, the subdued economic activity is expected to have implications on the budget, particularly mineral revenue. Consequently, we are implementing necessary interventions to deal with current realities.

𝟭𝟲. Notwithstanding, the domestic economy is however anticipated to rebound in 2025, in line with global economic recovery, particularly in the major markets for diamonds, supported by a strong rebound in diamond market and growth in the non-mining sector.

𝟭𝟳. 𝗠𝗿. 𝗦𝗽𝗲𝗮𝗸𝗲𝗿, the Ministry therefore, wishes to allay any fear that Government spending is reckless. The reduction in GIA has been due to the financing of the imbalance between low revenues and high expenditure commitments much of which have been aimed at addressing the country’s pressing development needs and stimulating economic growth. Notwithstanding this, Government remains fully committed to its fiscal consolidation programme as well as rebuilding the relatively low fiscal buffers to sustainable levels.

𝟭𝟴. 𝗠𝗿. 𝗦𝗽𝗲𝗮𝗸𝗲𝗿, in conclusion I wish to assure this Honourable House that Government is committed to improving the efficiency in revenue collection as well as other fiscal measures to reverse the current fiscal situation. Once again, I would like to assure the public and all stakeholders that our economy, like others, is experiencing a slowdown and consequently a decline in our revenues but there is no need for any alarm or panic.

𝟭𝟵. I thank you 𝗠𝗿. 𝗦𝗽𝗲𝗮𝗸𝗲𝗿.