Budget speech 2010 Budget speech 2010 Economic outlookEconomic outlook

Presentation to Debswana – Presentation to Debswana – JwanengJwaneng

February 24, 2010February 24, 2010Bogolo Kenewendo Bogolo Kenewendo Econsult BotswanaEconsult Botswana

OutlineOutline

Global economy: growth & developments Botswana Economy:

◦ Economic Output

◦ Sector Growth Budget: responses and economic outlook

◦ Fiscal policy◦ Other policy responses◦ Botswana outlook

Global growth slowdown – worse Global growth slowdown – worse in advanced economies – but in advanced economies – but recovery well under wayrecovery well under way

Four quarters of negative growth, with total decline in GDP of:◦ USA – 3.6%◦ Euro zone – 5.1%◦ Japan – 6.2%

Three year growth (2008-10):◦ USA +1.5%◦ Euro zone –2.0%◦ Japan – 4.0%

Botswana EconomyBotswana Economy

Budget Theme: Transforming our Budget Theme: Transforming our economy post the global crisiseconomy post the global crisis

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

Real Economic OutputReal Economic Output

Deep fall in mining sector

Healthy growth in non-mining sector - driven by govt

Some diversification

Sector growth: export sectors Sector growth: export sectors hard hithard hit

BUDGETBUDGETPolicy Responses & Economic Outlook

Fiscal PolicyFiscal Policy

Budget surpluses between 04 till o8 then deficit

Steady decline in revenue

Managing expenditure: modest cut in 2010/11, more to come

DeficitDeficit

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

ExpenditureExpenditure

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 revenueSources of revenue

Govt. Net Financial PositionGovt. Net Financial Position

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

Tax increaseTax increase

2% VAT increaseVAT still low by

regional standardsReflects govt’s need

for other sources of revenue

But will cut real household income, depressed consumer spending

Headline corporate tax still the same; effective rate increased

Medium term structural change – more reliance on taxes on expenditure and income

Key Budget IssuesKey Budget Issues

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

Outlook - BotswanaOutlook - Botswana

Speed and stability of diamond market recovery: promising but will take

several years with slow US recovery

Other mining/commodities prospecting/project

development now recovering (China demand)

Non-mining export sector (e.g. textiles, tourism) impact of global recession

still being felt Economic recovery in SA

lagging global emerging markets◦ not supportive for Botswana

Overall GDP growth likely to bounce back as diamond mining recovers

Non-mining growth likely to decline: Consumer spending

squeezed by tax increases, debt & declining real incomes

Slowdown in government spending

But helped by lower interest rates

Concern about unemployment No major redundancies But few new jobs being

created

THANK YOU!THANK YOU!

bogolo@econsult.co.bwwww.econsult.co.bw

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