On the 12th February, 1996 The Honourable Vice President and Minister of Finance and Development Planning, Festus Mogae tabled the Government of Botswana's budget proposals for the forthcoming year and delivered the traditional budget speech.

Expert re-action was "no surprises which is no surprise". 1996/7 is the last year of NDP7 (the governments seventh National Development Plan in 30 years of independence) and any radical policy shifts will presumably be included in NDP 8 and referred to in next year's budget. There were indications in the speech that NDP 8, which is in preparation, will adhere to the "well established and time tested planning system" Botswana has previously adopted but place even greater emphasis on "sustainable economic diversification" and the creation of a stable macroeconomic climate. As before, the Botswana Democratic Party, which has been in power since independence wants to resist the, politically attractive, temptation to short circuit the established planning system to achieve short-term gains at the expense of long-term growth.

Highlights of the budget speech were:

INTRODUCTION

1) The presentation for the first time of an Annual Economic Report in an attempt to better inform parliament and the public about the state of Botswana's economy and sectorial performance.

2) The very strong emphasis on the need for government to have not only sound policies but also "a strong and unwavering commitment to implement agreed policies and priorities". Implementation has indeed been a major problem in Botswana in recent years and the Vice President's remarks in this regard parallel recent speeches of President urging immediate and dramatic improvement in productivity at all levels of the economy. The Government also seems to have initiated an exercise to rid itself of "deadwood" in the last few months. Welcome news was "Lethargy and protracted inaction such as delayed processing of requests from prospective investors can no longer be tolerated and should be dealt with sternly and resolutely".

ECONOMIC REVIEW

1) The poor performance in the mining sector (due mainly to the ongoing problems of the diamond CSO) meant that the recovery of the domestic economy remained weak.

2) GDP is estimated to have grown overall at 3.1% despite a decline of the mining sector of 1.5%

3) The fact that GDP in Banks Insurance and Services grew by 7.6%, Hotels and Trade by 7.8% and Manufacturing by 4.3% seems to indicate that the substantial efforts by Government to diversify the economy away from its traditional mainstay, diamond mining, is are beginning to bear fruit.

4) Overall balance of external transactions during 1995 reflected a surplus of P758 million.

5) Foreign exchange reserves grew by 10.5% to P13,212 million and now represent 23 months imports.

6) Annual inflation has stabilised at 10-11%

7) Government intends maintaining positive real interest rates closely aligned to those of other international capital markets.

8) Formal sector employment increased by 1.4% to 234,500.

9) For the first time, an old age pension of P100 per month for persons over 65 years of age has been introduced. Whilst this may seem small, it will alleviate poverty for many and bring money back into the system.

10) The process of rationalisation and commercialisation of expensive parastatals will continue with greater emphasis on the pricing and quality of goods and services produced.


EXCHANGE CONTROLS

Following Botswana acceptance by the IMF as an Article 8 country in 1995, the policy of liberalisation of exchange controls continues. As from 15th February, 1996:

1) Limits on current account transactions for permanent residents have been removed - although some central bank supervision remains;

2) Resident companies can make external investments of up to BWP 1 million per annum and institutional investors can now invest up to 65% (an increase of 15%) of their assets outside Botswana;

3) Temporary residents (self employed ex-patriates or those in Botswana on contract) can remit 100% of their after tax earnings;

4) Authorised dealers (the commercial banks) can make foreign currency denominated loans to their customers in Botswana;

5) Within limits permanent residents can borrow externally without prior approval of the Bank of Botswana.

TAXATION

1) Company and individual rates of income tax are unchanged to allow the extensive, downward, changes of last year to take effect.

2) Capital Transfer Tax (an amalgamation of death duties and donations tax) payable by individuals will be substantially reduced with effect from 1 July, 1996.

3) The 10% sales tax was extended slightly to include a greater range of goods and services, the most controversial being newspapers and periodicals. Staple foods, medicines, books, construction materials and most services remain exempt.

The Vice President concluded by pointing out that "Botswana's revenue is narrow and vulnerable with only three major sources namely, mineral revenues, Bank of Botswana revenues and customs and excise receipts, accounting for 81.6% of total receipts. We must always remain prepared for unpredictable developments through contingency planning and the maintenance of prudent levels of reserves." A commitment of all Batswana to control the growth of the public sector and to work productively was called for. The government's own commitment was exemplified by civil service salaries being adjusted by only 5%, well below the official inflation rate of 10.8% in December, 1995. The private sector was called upon to emulate this policy.

The content of this article is intended to provide general information on the subject matter. It is not therefor a substitute for specialist advice.

Minchin & Kelly (Botswana) - Gaborone (267) 312734