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Botswana: Budget Deficit Projected to Widen in Tune with 5.4 % of GDP

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Botswana: Budget Deficit Projected to Widen in Tune with 5.4 % of GDP

(3 Minutes Read)

Business Monitor International (BMI), an international research firm projects Botswana’s budget deficit to widen from an estimated 2.7 percent of GDP in the FY 2023/2024 (April to March) to 5.4 percent in FY 2024/25. This increase will be driven primarily by subdued mineral receipts, leading to revenue falling short of government projections.

BMI highlights that a decline in mining output, particularly diamonds, will heavily impact government revenues. In the first half of 2024, diamond exports dropped by 33.3 per cent compared to the same period in 2023, due to weakened global demand. This slump in exports directly affects the government’s revenue from the state-owned Okavango Diamond Company, which is the primary source of Botswana’s mineral income. Mineral revenues have historically constituted about 38.0 per cent of total government revenues between FY 12/13 and FY 23/24, making them crucial for fiscal health.

BMI also forecasts that an economic contraction in 2024, with real GDP growth projected at -1.5 per cent, will further impact revenue collection. Lower economic activity is expected to reduce income and value-added tax receipts, with total revenue predicted to miss the FY24/25 target by 12.7 per cent, amounting to 29.2 per cent of GDP, down from an estimated 30.8 per cent in FY 23/24.

On the expenditure side, BMI expects that while total spending will fall short of the government’s budget projections, it will remain high. The firm notes that many government expenses, such as wages, are inflexible, preventing quick adjustments in response to revenue declines. Additionally, the government is unlikely to reduce development spending, which is expected to grow by 8.5 per cent in FY24/25 in line with the National Development Plan to diversify Botswana’s economy beyond mining.

However, BMI suggests this development target may be overly ambitious due to the revenue shortfall. They forecast total expenditure to reach P94.6 billion in FY24/25, up from an estimated P88.9 billion in FY 23/24, undershooting the budget by 5.5 per cent but still widening the revenue-expenditure gap.

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BMI warns that risks to this outlook lean toward an even larger budget deficit. While they anticipate diamond demand to start recovering from the second half of 2024, any delays could extend the mining sector’s rebound to 2025, exacerbating the shortfall in government mineral revenues and further widening the budget deficit.