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Finance Minister Peggy Serame has expressed concern about the state of the country’s public finances, particularly the sharp decline in the Government Investment Account (GIA). The statement issued on Monday was intended to clarify the fiscal situation and dispel what she called “misinformation circulating.”
Selame began by providing the historical context of the current financial situation, noting that the 2008/2009 global financial crisis was a major turning point. She told Parliament that during this period, Botswana’s economy was severely affected, causing the government to deplete its fiscal savings and seek significant budgetary support from institutions such as the African Development Bank (AfDB), which provided $1.5 billion (P20.31 billion) to help stabilize the economy.
Subsequently, the COVID-19 pandemic broke out and the country once again faced an economic crisis.
“The pandemic has forced the government to take urgent and extensive responses, including measures to save lives, stimulate the economy, and stabilize financial conditions. However, these interventions have come at a cost. The government has had to use its accumulated fiscal savings and obtain budget support loans from several international financial institutions, including the World Bank, the African Development Bank, the OPEC Fund, and the Japan International Cooperation Agency (JICA).”
Against this backdrop, she said, GIA experienced a downward trajectory that reflected the wider economic challenges. She said that in the wake of the global financial crisis, the account held on behalf of the government at the Bank of Botswana fell dramatically from P30.5 billion in 2008 to P13.6 billion in 2010. “The impact of COVID-19 was equally severe, with GIA plunging from P23.9 billion in 2018 to just P2.8 billion in December 2020. Although GIA experienced a temporary recovery in 2021, increasing to P12.1 billion by December 2023 due to the recovery of the global diamond market and resumption of economic activity, the improvement was short-lived. By April 2024, GIA had fallen to P5.1 billion, and by the end of May 2024, GIA was P4.1 billion, a sharp drop from P19.1 billion in May 2023.”
Such deep cuts undermine the government’s ability to finance the budget and provide adequate buffers for future unforeseen events and shocks, Selamei said.
She explained that GIA is more than just a simple savings account, it represents the government’s share of the Pula Fund’s share of foreign exchange reserves. “The value of GIA is affected by three main factors: the balance of government revenues, expenditures and financing operations; changes in the Pula-Special Drawing Rights (SDR) exchange rate; and unrealized gains on the market value of the Pula Fund’s assets.”
She said revenues were lower than expected, with actual total revenues and grants at P18.2 billion as of June 2024, compared to an expected P23.4 billion. This shortfall, coupled with increased government spending, led to GIA’s decline.
Serame cited several factors that have led to the change in GIA levels since 2020. Chief among them, she said, is the weak diamond market, which has been severely impacted by the COVID-19 pandemic. In the first half of 2024, diamond sales were $1.949 billion, down sharply from $2.428 billion in 2023, a drop of 46.1%, she said.
“In addition, government spending increased significantly as a result of the various economic response measures implemented by the government during the pandemic. These measures included supporting workers, stabilizing businesses, and establishing a COVID-19 Relief Fund capitalized at P2 billion. These interventions, while necessary, further reduced the available buffer in the GIA.”
Selamei told parliament that currently, the GIA remains low as the government pledges to increase spending to stimulate economic growth and support recovery. “Major expenditures include personal salaries of P5.75 billion, Botswana Public Servants Pension Fund (BPOPF) pension increase of P1.5 billion and Botswana Power Corporation electricity tariff subsidy of P1.5 billion, among others.”
She stressed that the economic situation has changed significantly since the 2024/2025 budget speech in February 2024. Economic growth slowed to 2.7% in 2023, lower than the expected 3.2%, mainly due to weaker-than-expected performance of the diamond industry. “Challenges in the diamond market, including competition from laboratory-grown diamonds, low demand in key markets, rising production costs and disruptions caused by the conflict in Russia and Ukraine, continue until the second half of 2024.”
However, the minister expressed confidence that the domestic economy is expected to rebound by 2025, in sync with the global economic recovery and the recovery of the diamond market. “The government remains committed to the fiscal consolidation plan and rebuilding GIA to sustainable levels.”
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