China-US tension hurts Botswana’s economy - Finance Minister

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Mpho Tebele

Gaborone - Botswana has expressed concern that the continued diplomatic row between Beijing and Washington will have a negative impact on its economy.

Tabling the budget proposals for the Financial Year 2020/2021 in Parliament last week, Finance Minister, Dr Thapelo Matsheka, said the budget was presented against the backdrop of continued uncertainty in the global economy, with adverse implications on the domestic economy.

 

“As a small open economy, the continued tension between the United States of America and China, who are the two major markets for our diamond exports, continues, to undermine the country’s economic performance in general, and the fiscal position in particular,” he said.

Matsheka added that the tension between the two largest economies also heightens the need for measures to promote diversified exports to reduce the impact of external shocks on the domestic economy.

The minister said that Botswana’s economy continued to record positive growth rates, despite the challenges arising from a weak and uncertain global economic environment. The economy is estimated to have grown by 3.6 percent in 2019, and to reach 4.4 percent in 2020, driven by faster growth in the services sector.

Matsheka said the country’s negative external balance in recent years has undermined the growth of the country’s foreign exchange reserves. As at the end of November 2019, foreign exchange reserves amounted to P70.6 billion, a decrease from P74.5 billion in November 2018.

“The foreign exchange reserves are equivalent to 14 months of import cover of goods and services. Of the total amount of foreign exchange reserves recorded in November 2019, government investment account stood at P16.3 billion, compared to P26.7 billion in November 2018, indicating the impact of government spending on the foreign exchange reserves,” he said.  The remainder of the reserves are for the rest of the economy, being the private sector and individuals.

Matsheka said the transformation journey to higher-income status will commence with this 2020/2021 budget and continue to be perfected in the long run.

He said for the past four years, the economy has experienced a less favourable fiscal position.

“This is a priority for my ministry as well as the whole of government. It requires that we ensure that spending is as efficient as possible in order to return to a sustainable fiscal pathway,” said Matsheka. He said the proposed measures to be implemented include: improving appraisal, design, costing and implementation of public sector investment projects; careful scrutiny of subsidy schemes, and termination of those that do not address market failure or assist truly needy Batswana; and, clamping down on corruption and waste.

 

“It will also include re-prioritisation of approved projects and programmes to align them with emerging transformational needs. It cannot be business as usual.  The goal is to strike a balance between optimal funding of projects and programmes necessary for driving economic transformation, without setting the country into an unsustainable fiscal trajectory,” the minister said.

 

As a result, he said, the government would control the growth of the recurrent expenditure through, for instance, the adoption of appropriate technology, thereby releasing more funds for capital expenditure.

 

“My ministry will be undertaking measures to increase revenue and control expenditure during the coming financial year, in order to provide more resources to fund a robust and ambitious infrastructure programme to support the transition to high income status,” Matsheka said.

 

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