What to expect from the 2013 Budget

The 2013 Budget will be presented on February 4^th at a time of considerable economic uncertainty. International economic prospects are quite uncertain with the IMF having revised its 2013 global growth forecasts downwards in January. On the positive side, prospects of a resolution of sovereign debt problems in the Eurozone have risen, and the US managed to avoid the worst of the “fiscal cliff”. However, these issues have only been temporarily resolved, and there may well be further disruptive events during the early months of 2013. Economic weakness in the USA and Europe, combined with slower growth in India and China, have impacted on the global diamond market, with lower demand and weak prices throughout much of 2012. These conditions are expected to continue in the first half of 2013, although there are hopes of improvement later in the year.

These developments will have a major impact on projected fiscal revenues, with mineral revenues likely to have come in under-budget in 2012/13 and to show little growth in the new 2013/14 fiscal year. Recently the over-riding fiscal objective has been to achieve a balanced budget in 2012/13, and a key test will be to see how close the projected outturn will be to this. It remains very important to achieve a balanced budget and in due course to achieve budget surpluses so that the government’s savings can be re-built – fiscal buffers that served through country well during the global financial crisis have been drawn down, and now need to be restored as protection against the impact of possible future crises.

There will be many demands on the spending side of the budget in 2013/14, including an increase in public sector salaries, the completion of outstanding government projects (such as the SSKA terminal building) and new projects, especially given the election coming up in 2014. Not all of these demands can be met. After years of public sector pay restraint, there are strong arguments for giving public sector employees a meaningful pay rise this year – it serves no purpose to force continued reductions in real wages on government employees when they are required to deliver quality public services. However, it needs to be understood that given fiscal constraints, a salary increase for the public sector is dependent upon a reduction in employment in the public sector.

Finishing off outstanding projects should also be a priority. It is likely, however, that there will be limited scope to implement major new projects. In choosing projects, government should focus on those that will deliver maximum economic returns and will “crowd in” private sector investment. This also means the proposed projects will need to be subject to through appraisal beforehand and identification of costs and benefits, an essential practice that has been absent from government project selection in recent years.

Government should also aim to use the private sector to deliver projects and infrastructure wherever possible. The fiasco of BPC’s non-delivery of power from Morupule B and continued delays in commissioning, leading to widespread load shedding that has a negative impact on the economy and on business confidence more generally, shows that government should use the private sector to generate power (through IPPs, independent power producers), leaving BPC simply as a distribution company. More generally, the quality of public sector project management needs to be dramatically improved, so that the recent experience of poor budgeting, delays, cost-overruns and non-completion is brought to an end. 

Although not strictly a budget issue, much greater attention needs to be paid to improving the business climate – much has been said by government on this topic, but often this is just lip-service and real improvements on the ground are lacking; the private sector continues to be frustrated by pointless bureaucracy and anti-business attitudes in both central and local government. Botched reforms of immigration and trade licensing systems are a case in point.

There is a need for reform of revenue generation. The proliferation of “off budget” levies is imposing an increasing tax burden on the private sector, and as well the expenditure of funds raised through such levies is not subject to the normal scrutiny by parliament. There is also a need to make it easier to pay taxes by improving efficiency and competency at BURS and introducing electronic means of filing and paying taxes, so as to make the time-wasting queues at BURS a thing of the past. The quality of tax administration at BURS also needs to be improved, as the frequent mistakes both penalise taxpayers and lose revenue for government.

Finally, there is evidently a crisis in the country’s education system. This is not seemingly the result of a lack of resources, given that education continually gets the largest budget share and per capita spending on education in Botswana is relatively high by international standards. However, much of the money is spent on expensive “hardware” (buildings and equipment) while the all-important “software” (teachers, maintenance, management, curriculum development) is neglected. A rebalancing of the allocation of resources in education is sorely needed. More generally, the way in which our education system is designed, managed and implemented needs a complete overhaul. All of those involved – government, teachers and learners – have a responsibility to contribute to this.