September 4, 2017 4:00 PM / BMI
BMI View: Botswana's fiscal account will remain in negative territory over the next five years owing to robust spending growth and weak revenues from the regional customs union and the mining sector. We do not believe, however, that Botswana faces the risk of a fiscal crisis thanks to small deficits, increasingly diversified revenues sources and a low public debt load.
Botswana's fiscal account is set to remain in deficit for the next five years as the government increases spending in a bid to diversify the economy away from the mining sector while growth in fiscal revenues will be weighed down by lower disbursements from the Southern African Customs Union (SACU) and weak mineral revenue growth. However, we believe that the risks of a fiscal crisis remain very low as the shortfalls will be relatively small as a proportion of GDP.
We also note that fiscal revenues will be increasingly comprised of domestically-generated non-mineral revenues, which will be less susceptible to external shocks. Furthermore, a low debt load and capacity to increase borrowing from the domestic banking sector means that the government will have few problems covering the shortfalls.
Deficit On Higher Spending, Lower SACU Revenues
In 2016, the government announced its 11th National Development Plan, which will see increased expenditure aimed at alleviating poverty, unemployment and inequality over the next five years, during which time spending will increase by an average of 6.5% according to our forecasts. Recurrent spending will focus on health and education while capital expenditure will target power and water infrastructure.
We are forecasting average revenue growth of 5.5%, with the headline number weighed down by slow growth for SACU disbursements and the mining sector, the two most important sources of government revenue. SACU redistributes customs and excise duty collected in the five member countries (South Africa, Lesotho, Swaziland, Namibia and Botswana).
A poor growth outlook and a weak currency in South Africa, which is the largest economy in the union, means that we expect the aggregate amount allocated (and therefore the proportion disbursed to Botswana) to remain below 2010-2015 levels. Relatively slow output growth in the crucial diamond sector means that we expect revenue from mining to increase very slowly over the next five years.
Fiscal Crisis Is Unlikely
The chances of Botswana facing a fiscal crisis are small. We believe that the fiscal deficit will remain below 2.0% of GDP, which is low by Sub-Saharan African standards and hardly consistent with fiscal dangers. Furthermore, the government's diversification efforts will start to pay off and the share of revenues made up by the non-mining sector will slowly increase, led by services sectors such as freight transport, telecommunications and finance.
With SACU revenues set to see weak growth, non-SACU, non-mining sector revenues will remain above 40% of total revenues during the next five years, far higher than the average of 34% during the 2000-2016 period. The increase in the share of non-mining, non-SACU revenues will mean that the fiscal accounts will be less susceptible to external shocks over the coming five years. At an estimated 16.8% of GDP in 2016, Botswana has a relatively small debt load and capacity to borrow substantially more before debt reaches concerning levels.
This is particularly the case with respect to the local market – domestic debt totalled only 5.6% of GDP in 2016 while in February 2017, only 3.1% of total commercial bank assets were taken up by lending to the government. This suggests that the Botswanan authorities could borrow significantly from the domestic banking sector, if necessary, without crowding out the private sector.
9. Kenya - Ongoing Drought Will Result In Growth Slowdown In 2017
10. Tanzania - Development Expenditure To Widen After Downturn
11. Uganda - Shilling Set For Long-Term Depreciatory Trend
12. Sub Saharan Africa – Regional Favourites Facing Headwinds
13. Frontier Markets Growth Slowed in 2016 but Trade Now Picking Up
14. FSB Reports To G20 Leaders On Progress In Financial Regulatory Reforms
15. Pressure Builds on Eurozone Banks to Tackle High NPLs
16. Nigeria: Is The Recovery For Real? - LBS EBS – July 2017
17. Project Changes in Mozambique Prompt Construction Forecast Revision
18. Tentative Recovery in Zimbabwe Will Face Destabilizing Headwinds
19. Slow Growth in Egypt Until Structural Adjustment Bears Fruit
20. Egypt – Emergency Powers Will Help Push Through Reforms