The 2007/08 National Budget Made Easy: Part 3

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By Martin Mwinga

I mentioned a week ago that the purpose of these articles is to help disseminate information on the national budget to the public, especially to those without access to the Minister of Finance’s budget speech and the budget itself.

Since the first article three weeks ago, I have received comments in appreciation of this valuable information, especially people in the regions.

Some people, including some political leaders who read these articles, however, feel that I am too lenient and have made a U-turn on my previous analysis of the budget, whatever this means. My message to those who feel me and other economists are over praising the Minster of Finance is that, unlike politicians who praise for the sake of praising, or criticise for the sake of scoring political votes, economists do not criticise Government budgets with the aim of building political support or pleasing a segment of the population as potential voters. Economists have the interest of the economy at heart, while politicians have the interest of their voters and supporters at heart. Why most economists welcomed this year’s budget and praise the current Minister of Finance and her team at Finance is because she and her team have delivered on the promises they made three years ago.

The formulation of the Government budget since 2003/04 fiscal years has been guided by two principles. The first guiding principle is the emphasis on macro-economic stability with the ultimate aim of reducing the level of Government debt to sustainable levels of 25 percent to GDP. To achieve this, the Government has to run small deficits and surpluses. Although this has always been the intention of the Government all the time, previous ministers of finance in Namibia moved in the opposite direction and failed to achieve the agreed upon goals. As I mentioned last week, the Minister of Finance did not only achieve these targets, but has also managed to reduce current expenditure from 90 percent to 78 percent, while personnel expenditure has been reduced from 50 percent of total to 38 percent.

This is what I and a number of economists in Namibia have been calling for over the past years, when it appeared we were criticising Government.

What Happens When SACU Revenues Come Down?

One might argue that the current Minister of Finance is very lucky with a windfall from SACU and the argument goes that once SACU receipts are exhausted there will be no surpluses and Government fiscal position will deteriorate.

While this is a valid concern, there is no need to panic, as the Minister of Finance seems to have taken care of this, firstly by using the SACU receipts to reduce Government debt and run a surplus, financing once-off development projects, bringing expenditure forward, for example allocation to NamPower was supposed to amount only to N$250 million in the 2007/08 budget, but this was increased to N$500 million this year. While Government expenditure growth was more than 16 percent during 2007/8 due to the SACU windfall, growth in Government expenditure in coming years will be in line with inflation below 6 percent. Containment in expenditure growth, cutting unproductive expenditures such as allocations to Air Namibia, and the increase in non-SACU revenue due to better tax revenue collections will compensate for the decline in SACU receipts.

The second principle that has guided the formulation of the national budgets since 2004 is the prioritisation of allocating limited available resources, in such a way that those activities that have a direct impact on poverty reduction should be allocated adequate resources. All development projects under implementation and those development projects in the pipeline are only accepted if they are pro-poor and self-sustaining, and conform to national economic growth and development priorities.

The Growth Strategy stemming from the current budget, which promotes pro-poor growth, aims to ensure that the poor are the key participants and beneficiaries of economic growth. By reducing current personnel expenditure and by reducing deficits and debts the minister has the flexibility to increase spending to pro-poor, pro-growth expenditures.

In my first article I showed that N$1.6 billion was allocated for this purpose doubling the allocation that was given two years ago. This is in line with what most economists and concerned Namibians were calling for and again the Minister of Finance therefore achieved her objective. While there are unnecessary expenditure pressure points such as allocations to unsustainable State-owned enterprises, the overall Government budget contributes to the goals of economic growth, economic stability, and redistribution of income and poverty alleviation.

Income Redistri-bution and Social Safety Nets
1. Social Pension Fund: Namibia is one of the few countries in Africa that provide for social safety nets to the elderly and disabled people. An amount of N$660 million is set aside for this purpose in the 2007/08 budgets, which represent an increase of 12 percent over the allocation of N$590 million in 2006/07. The 12 percent increase represents the increase in number of dependents, which increases from 141 527 beneficiaries in 2006/07 to 158 000 beneficiaries estimated in the 2007/08 budget. Because of many people entering the beneficiary list, it becomes difficult for government to annually adjust and increase the actual benefit, which stands at N$370.

2. Funeral Plan Programme: In addition to social pension fund, Government sets aside funds each year to cover for funeral costs of old people.

An amount of N$29 million is set aside in this year compared to an allocation of N$14 million in 2006/08. This represents an increase of 107 percent and is due to an increase in actual benefits to be received, which has been increased to N$2 200 per beneficiary from N$2 000 in 2006/07.

3. Child Welfare (orphans & vulnerable children): An amount of N$130 million is allocated for maintenance and foster care grants, compared to an allocation of N$100 million in 2006/07 an increase of 30 percent. To benefit from this allocation, you need to register all the orphans in your town or village.

4. War Veterans: An amount of N$22 million is set aside to administer and manage the social welfare benefits of ex-combatants.

Proclamation of new towns: Government plans to proclaim the following settlements as towns or local authorities: Omuthiya in Oshikoto, Bukalo in Caprivi, Otjinene, RoshPinah, Divundu, Oranjemund and Aussenkher. The above-mentioned areas offer potential for higher returns on investment, should you buy plots now and sell them in two/three years’ time when everyone becomes aware of these new towns. An amount of N$23 million will be spent in 2007/08 to develop infrastructure in these towns and help them develop capacity to generate their revenue. There are business opportunities presented by proclamation of towns such as construction of roads and other necessary infrastructure that can be provided by SMEs.

In part four next week I will focus on capital/development expenditure allocation per region and the type of projects that will be undertaken, as well as their potential to contribute to each region’s economy.

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