Yes, the country has less money available to support government borrowing, but that does not mean the country is going broke, an exasperated Minister of Finance Calle Schlettwein and the Bank of Namibia have confirmed.
And again yes, the country will have to contend with negative adjustments in the next two financial years, because of a significant reduction in income from the Southern Africa Customs Union (SACU), which generally constitutes more than 30 percent of the country’s annual revenue, but this is not the first time there has been volatility in SACU revenues, they say.
“Namibia has been able to do so going forward, through expanding and deepening the domestic base, accelerating the tax administration reform agenda and adjusting expenditure levels in line with the changing revenue and macroeconomic environment,” Schlettwein said.
Bank of Namibia (BoN) spokesperson, Ndangi Katoma, speaking exclusively to New Era, admitted there is a weak demand for short-to-medium borrowing, but was at pains to explain that “so far the government has funded close to 70 percent of its needs in a period of only few months. Also, the government has a dynamic and diversified funding strategy.”
“In recognition of the low demand in some instruments in the domestic markets, the borrowing plan has been adjusted accordingly, starting in October to minimise the shortfall without compromising the sustainability of the debt portfolio,” he said.
Yesterday Schlettwein informed parliament – repeating his appeal for calm three weeks ago – that the “effects of a fast increase in the supply of credit to finance household and government borrowing during the past few years meant that there are, to some extent, less liquid assets available to support increased borrowing activities. This, however, does not take away the fact that substantial domestic capital continues to flow out of the country.”
Katoma further elaborated: “Like in the past, Namibia continues to be an exporter of capital” and noted that “the country is faced with a high and rising import bill,” at N$21.3 billion during the second quarter of this year, compared to N$19.4 billion same time last year.
“As a result, the country’s trade balance widened on the back of imports rising at a faster pace relative to the level of exports,” he further explained. Schlettwein, nevertheless, assured parliament that government has “already successfully funded 61 percent of its budget deficit halfway through the budget implementation calendar.” It raised N$4.17 billion from the domestic market and N$1.5 billion on the Johannesburg bourse.
Schlettwein says even with the challenge of fewer liquid assets government is on course with funding the budget through revenue collection, domestic borrowing and diversifying its borrowing requirements with foreign borrowing. Other domestic policy options would be pursued and there would be leveraging of alternative innovative funding sources to alleviate pressure on budgets in future, Schlettwein said.
“We will proceed to raise additional financing from the international market, which would be used to partly boost the country’s foreign reserve position and fund the budget, in line with the budget financing plan, [and] government will persist in its prudent execution of the financial plan to address the remaining needs,” he said.
Both the Bank of Namibia and the minister continue to express concern over the rate of capital outflow. The minister noted that a total cumulative amount of N$61.9 billion financial assets from institutional investors is currently invested abroad on account of better financial returns.
“If the capital can still flow out of the country in substantial amounts, the claim of liquidity drying up needs to be fully substantiated,” he said. According to the Bank of Namibia part of the reason for the capital outflows is on account of portfolio investment seeking profitable opportunities, particularly in South Africa.
“In this regard, net portfolio investment flows abroad moved from a net inflow of N$932 million during the first quarter of 2015 to a net outflow of N$1.7 billion during the second quarter,” Katoma said.