Make hay while it shines – IMF
August 11, 2011 | In: Business opportunity
National savings, as reflected by the Pula Fund, declined from P51.6 billion at the end of 2008 to P43.5 billion by the end of 2009 as government drew down heavily to finance the budget deficit and support the economy through the recession.
The Fund reflects both savings from accumulated fiscal surpluses and inflows of additional government debt, together with broader accumulation of national savings in excess of the Bank of Botswana’s target of liquid reserves. The majority of the Pula Fund’s assets are invested in bonds, followed by equities, derivatives and currencies. By the end of 2010, the Pula Fund had recovered to P44.7 billion and was measured at P46.3 billion by May, reflecting improved inflows into public coffers, particularly from higher diamond exports this year. In a final report on their May discussions in Botswana, IMF researchers said the higher than projected revenues expected to flow into the public purse this year would need to rebuild the fiscal buffer.
At P16.6 billion, diamond exports in the first half of the year were 64 percent higher than the corresponding period last year, while under-spending in both the development and recurrent budgets for 2011/12 will also improve the treasury. “In the near term, it would be prudent to rebuild the fiscal buffers, especially while diamond prices are high,” the IMF said in the report released last Friday. “Thus the (IMF) staff supports the government’s policy of saving revenue over performance in 2011/12 as this would contribute towards the replenishing of the Pula Fund.” The IMF said the unfolding uncertainties regarding the global economy, mostly caused by events in the US and Europe, would require the building of healthy savings. “This highlights the need to rebuild fiscal buffers to further strengthen the economy’s resilience to future shocks,” the statement said.
The IMF and World Bank have previously praised Botswana for its “counter-cyclical” policies under which it maintained public spending in its 2009/10 budget, running a P13.5 billion deficit.
The support by government enabled the economy, particularly the non-mining sector, to keep ticking while other countries were facing sector-wide collapse due to the effects of the recession.
The Bretton Woods institute, however, is now emphasising a planned and well-coordinated reduction in this support, with government intent on balancing the budget next year. But there is concern that this strategy and the weaker national savings could be undone by the emerging crisis in major world economies.
Executive director of the Africa Group at the IMF, Moeketsi Majoro, equally impressed the need for fiscal rebuilding on Botswana. “Diamond production is expected to increase further in 2011 and 2012 as the mines reach full production,” Majoro said in a statement contained in the report. Additionally, higher mineral prices will bode well for export receipts.
“Botswana successfully accumulated significant reserves over the years; a consequence of sustained balance of payments surpluses, prudent fiscal management and investment guidelines. The authorities remain committed to a practical build-up of reserves in order to replenish the buffers that were reduced during the global crisis.”
The Ministry of Finance and Development Planning’s 2012/13 draft budget strategy stressed that any additional revenues in the 2011/12 budget will not be used to increase spending in the next budget. Instead, any additional inflows will go towards national savings. The draft is still circulating among various stakeholders, with its final adoption set to guide the ministry on next year’s budget estimates.