Download Budget trends - Econsult Botswana

Budget speech 2010
Economic outlook
Presentation to Debswana –
Jwaneng
February 24, 2010
Bogolo Kenewendo
Econsult Botswana


Global economy: growth & developments
Botswana Economy:
◦ Economic Output

◦ Sector Growth
Budget: responses and economic outlook
◦ Fiscal policy
◦ Other policy responses
◦ Botswana outlook
Outline

Four quarters of
negative growth,
with total decline
in GDP of:
◦ USA – 3.6%
◦ Euro zone –
5.1%
◦ Japan – 6.2%

Three year
growth (200810):
◦ USA +1.5%
◦ Euro zone –2.0%
◦ Japan – 4.0%
Global growth slowdown – worse
in advanced economies – but
recovery well under way
Botswana Economy




Identifying new
opportunities
Finding additional
sources of govt. rev
Programs
prioritization
Every project must
pay for itself: future
and current benefits



Restoring
sustainability in
public finances
Reduce risk of too
much debt
Exercise caution in
use of reserves &
borrowing
Budget Theme: Transforming our
economy post the global crisis
Value added (quarterly,
real Pmn)
3,500

3,000
2,500

2,000
1,500
1,000
500
0
02
03
04
05
06
07
08
09

Non-mining
Mining
Govt
Deep fall in
mining sector
Healthy
growth in
non-mining
sector driven by
govt
Some
diversification
Real Economic Output
Sectoral Real GDP Growth
Agriculture
Personal serv
Transp & comms
Fin. & bus. serv.
Construction
Government
Trade & tourism
Water & elec
Total
Manuf
Mining
-40
- 30
- 20
- 10
0
10
20
Year to Sept 2009
30
40
Sector growth: export sectors
hard hit
50
BUDGET
Policy Responses & Economic Outlook



Fiscal Policy
Budget
surpluses
between 04 till
o8 then deficit
Steady decline
in revenue
Managing
expenditure:
modest cut in
2010/11, more
to come
15,000
15%

10%
5,000
5%
0
0%
-5,000
-5%
% of GDP
P billion
10,000
-10,000
-10%
-15,000
-15%
-20,000
-20%


P million
Deficit
% of GDP
Deficit Rule of
thumb: 3% of
GDP
Deficit of 3-5%
of GDP is a
criteria for most
monetary union
convergence
e.g. SADC
Deficit of 12%
of GDP is
unsustainable
100%

90%
% of total expenditure
80%
70%
60%
50%

40%
30%
20%
10%
0%
Recurrent xp
Development xp
Expenditure

Sharp increase
in
development
spending in
recent years
But recurrent
spending
makes up
majority of
total
Both need to
be cut for
sustainability
Sources of revenue
2010/11
2008/09
2006/07
2004/05
2002/03
2000/01
1998/99
1996/97
1994/95
1992/93
1990/91
1988/89
Other
1986/87
1984/85
1982/83
16%
14%
12%
10%
8%
6%
4%
2%
0%
%of GDP
2010/11
2008/09
2006/07
2004/05
2002/03
2000/01
1998/99
1996/97
1994/95
1992/93
1990/91
1988/89
1986/87
1984/85
1982/83
1980/81
%of GDP
%of GDP
35%
30%
25%
20%
15%
10%
5%
0%
1980/81
2010/11
2008/09
2006/07
2004/05
2002/03
2000/01
1998/99
1996/97
1994/95
1992/93
1990/91
1988/89
1986/87
1984/85
1982/83
1980/81
%of GDP
Mineral revenues
Customs Pool
14%
12%
10%
8%
6%
4%
2%
0%
BoB revenues
12%
10%
8%
6%
4%
2%
0%
Fast growth in
net financial
assets (savings
minus debt)
between 06 &
09
 Deficit in 08/09
led to a decline
 Projected large
deficits in
2009/10 &
2010/11 will
consume much
of what is left
 Credit rating
downgrade is
direct result

Govt. Net Financial Position




2% VAT increase
VAT still low by
regional standards
Reflects govt’s need
for other sources of
revenue
But will cut real
household income,
depressed
consumer spending
Tax increase


Headline corporate
tax still the same;
effective rate
increased
Medium term
structural change –
more reliance on
taxes on
expenditure and
income



Deficit problem
reflects medium-term
structural change
Accentuated by
global crisis – but not
caused by it
Global recovery will
not remove need for
budget adjustment
Govt spending must
be cut in real terms,
following declining
revenue trends
 Otherwise debt will
become
unsustainable
 Greater economic
efficiency in spending
needed
 Improved planning
and budgeting

Key Budget Issues


Speed and stability of
diamond market
recovery:



prospecting/project
development now
recovering (China demand)
Non-mining export sector
(e.g. textiles, tourism)


Consumer spending
squeezed by tax increases,
debt & declining real
incomes
 Slowdown in government
spending
 But helped by lower
interest rates

Other
mining/commodities


promising but will take
several years with slow US
recovery
impact of global recession
still being felt
Economic recovery in SA
lagging global emerging
markets
Overall GDP growth likely
to bounce back as
diamond mining recovers
Non-mining growth likely
to decline:

Concern about
unemployment


No major redundancies
But few new jobs being
created
◦ not supportive for Botswana
Outlook - Botswana

[email protected]
 www.econsult.co.bw
 3900575
 72586591
THANK YOU!