Quo vadis with 2015/16 Budget?

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WINDHOEK – Opinions are polarised on whether or not Namibia can afford the spending of N$67.1 billion, with the number crunchers unequivocally saying this appears to be the case of “a country living well beyond its means and borrowing money to maintain its lifestyle.”

Another equally preoccupying question on the budget is on the aptitude, or ineptitude, of state-owned enterprises (SOEs) to use the more than N$10 billion they would receive through line ministries, and additional sovereign guarantee for debts, to stimulate economic growth and create employment.

Finance Minister Calle Schlettwein’s elaborate explanation to the private sector last Tuesday night and Wednesday morning is that the expansionary budget is a necessary evil in addressing social challenges and economic constraints.
“Addressing these challenges and constraints requires public expenditure geared towards social and economic development programmes,” he says.

He also countered that the borrowing is not too over the top, especially that government intends to finance approximately 90 percent of the deficit from the domestic market, which “has proven its strength, and I am confident that the domestic market will continue to accommodate government borrowing needs”.

The budget devotes considerable investments to refurbish the existing infrastructure and to expand it to generate a return on investments in future years and remain competitive within the region.

It is a fiscal outlook not shared by many analysts, chief among whom is First National Bank’s Namene Kalili, whose budget analysis PowerPoint presentation ends with a cartoon of a man pushing an infant’s pram over a steep cliff edge, while uttering ‘Forward!’ The cliff edge has a sign ‘National Debt.’

“My forecasts tell a different story, that of a country living well beyond its means and borrowing money to maintain its lifestyle. If we do not achieve these high economic growth rates and we grow at a normal pace, then all of a sudden the debt burden crosses the debt ceiling – and we run into trouble. Worst of all, government has no fiscal space to tackle obstacles that the global economy, the local economy and nature can throw at us,” says Kalili.

In terms of the projected revenue and expenditure proposals for the MTEF, the budget deficit is now projected at N$8.64 billion in the 2015/16 financial year, corresponding to about 5.3 percent of Gross Domestic Product (GDP).
Kalili has reservations about the deficit. “We have seen budget deficits accelerate from 2008 to 2014 to finance increased public safety and administration programmes and move sideways from 2014 onwards to finance economic and infrastructure developments after failing with Tipeeg,” he says.

However, the Treasury says the participation of investors, particularly those investing in government debt instruments, who share in carrying the burden of the budget deficit is crucial in enabling the pursuit of strategies presented in the budget.

“Financing the budget deficit from the domestic market does not only reduce the foreign exchange risk, but also contributes to the deepening of the domestic capital market,” commented Schlettwein.

In agreement is Standard Bank’s Mally Likukela who says the “persistency of these challenges dictated that the government adopt a pragmatic approach to address these challenges; it called for rigorous policy reform initiatives in order to align the budget with key priorities.”

Schlettwein does admit though that the pace of debt accumulation over the past three financial years has raised concerns about the long-term sustainability of central covernment financial operations.

“Therefore, under the current MTEF, as we continue to use the national budget as a catalyst for social and economic development, we are also mindful to retain fiscal sustainability. We are, therefore, trying to tackle the structural challenges that affect the development potential of our economy, unlocking opportunities for jobs and wealth creation, on the one hand, and, on the other, improving the welfare of Namibians in an inclusive and sustainable manner,” remarked Schlettwein.

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