Hon Minister of Finance and Development Planning, Dr T Matsheka delivered his second budget against the background of the Covid-19 pandemic (and its resultant impact on the domestic economy) together with the recently completed mid-term review of National Development Plan (NDP) 11. Government previously approved P14.5bn towards the Economic Recovery and Transformation Plan (ERTP) in response to the impact of the global pandemic, of which P7bn is earmarked for the 2021/22 financial year.
Following sustained budget deficits in recent years, the 2021/22 budgeted deficit will, for the first time, be financed 100% through domestic and external borrowings.
General Highlights:
- Actual budget deficit for 2019/20 was P11.1 bn (5.6% of GDP)
- Revised forecast budget deficit for 2020/21 is P21.03 bn (11.61% of GDP)
- Budgeted deficit for 2021/22 is planned to be P6.03 bn
- Domestic economy projected to contract by 7.7% overall in 2020, followed by expected growth of 8.8% in 2021
- Bank rate reduced from 4.75% to 3.75% during 2020
- Inflation for the year to December 2020 was 2.2% and is expected to remain within the Bank of Botswana target range of 3-6% in the medium term
- Government Investment Account balances held at Bank of Botswana deteriorated from P17.8bn in December 2019 to P5.6bn in December 2020 to finance budget deficit
- Foreign exchange reserves were P58.7 bn (10.9 months import cover) at the end of 2020 compared to P65.2 bn in 2019
- Exchange rate basket of currencies utilized to determine the Pula exchange rate to remain constant in 2021/22 with the South African Rand making up 45% and the Special Drawing Rights unit at 55%. The downward rate of crawl of the Pula exchange to remain at 2.87% p.a. following significant adjustment in 2020 from 1.51%
- The review of state-owned enterprises has been concluded and identified a number of duplications, those that are to be privatized and those that are to be liquidated
The Minister announced a number of “fiscal balance restoration measures” to help eliminate the persistent deficits experienced in recent years, and to replenish depleted Government reserves. The primary focus will be to reduce the public sector wage bill from its current and unsustainable level of 15% of GDP to 10% in the short / medium term.
These measures include:
- 50% of all vacant positions by value will be abolished by 1 April 2021;
- Use of digital platforms to deliver services will be enhanced to reduce number of personnel required;
- Domestic contribution to government revenues to be enhanced through previously announced tax changes such as:
- VAT will be increased from 12% to 14% with effect 1 April 2021;
- The fuel levy will be increased by P1.00 / litre with effect 1 April 2021;
- Withholding Tax (WHT) on company dividends will be increased from 7.5% to 10%;
- Sugar Tax will be introduced on beverages at the rate of P0.02 / gram on all beverages with a sugar content greater than 4g/100ml;
- Plastic bag levy collection process to be implemented;
- Ministerial fees and surcharges review has been completed for a further six ministries and new tariffs will be introduced from 1 April 2021;
- The import of secondhand vehicles will attract a separate levy;
h. Rateable property base to be expanded beyond urban areas; - Use of Public Private Partnerships (PPP) to be expanded.
- Other tax changes announced include:
- The personal tax-free threshold for taxable income for individuals will be increased from P36,000 to P48,000 per annum from 1 July 2021;
- A tax amnesty involving the waiver of interest and penalties on outstanding taxes will be provided to those taxpayers who settle their tax debts timely within the next tax year.