The budget speech, presented to parliament in early February, demonstrated that the government remains committed to eliminating the budget deficit by fiscal year 2012/13 (April-March). However, unless revenue grows more rapidly than projected, deficit reduction by the end of the forecast period will require real spending cuts that may be implausibly high, despite the emphasis in the budget on doing more with less. Botswana's history of sound macroeconomic management should lend some credibility to the government's fiscal programme, and this will be buttressed by recent initiatives to improve the transparency of the budgeting process. How the government handles wage negotiations with civil servants will be closely monitored, as will the implementation of plans to outsource more non-core activities. Overall, the budget for 2011/12 projects total spending of P41.3bn (US$5.8bn) in 2011/12, falling sharply to P36.8bn in 2012/13, with development spending bearing the brunt of the cuts.

Revenue from value-added tax (VAT) is expected to continue to grow rapidly, reaching 12.5% in 2011/12, supported by improved collection procedures, and mineral-related receipts will continue to recover strongly as diamond production accelerates further over the next two years. However, non-mineral income tax will remain muted, growing by 3.3% in 2011/12. Despite falling sharply in 2010/11 to P6bn (which included a P1bn windfall payment) from P7.9bn in 2009/10, revenue from the Southern African Customs Union (SACU) is budgeted to rise by 41% to P8.5bn in 2011/12. The Economist Intelligence Unit forecasts that SACU revenue will rise by only 28% in 2011/12, and will then fall by 5% in 2012/13 as a new revenue-sharing formula takes effect.

Overall, we forecast that the deficit will fall to 6.3% of GDP in 2011/12 as the impact of new revenue efforts is fully realised and the development budget is reduced. Although the government is aiming to balance the budget by 2012/13, we forecast that it will remain in deficit, at 1.9% of GDP. Parliament has approved an additional P10bn of government borrowing, which will be more than sufficient to fund the projected deficit over the outlook period; however, the government is also expected to continue drawing on deposits at the Bank of Botswana (BoB, the central bank). Significant additional foreign borrowing is unlikely, as the government is expected soon to reach the statutory maximum level of 20% of GDP.