Faced with high foreign debt financing costs due to currency depreciation, mounting debt levels and a slugging economy, which, as it stands produced less revenue than anticipated in the previous financial year, the Treasury yesterday produced a national budget that for the next three years freezes increases in public sector wages and halts construction of office blocks for government and parastatals.
The aim, Finance Minister Calle Schlettwein told parliament yesterday during the tabling of the national budget, is to stabilise public debt levels over the course of the next three years.
Overall the budget has reduced the operational expenditures by N$109.9 million and reduced the development budget by N$1,99 billion, which for this financial year is set at N$9.06 billion.
The cuts are aimed at the non-interest expenditures in the operational budget and non-productive investments in the development budget. This means for the next three years the Treasury will not channel funds to invest in construction of office blocks for government ministries and state-owned enterprises. Treasury has also proposed that for the next three years public sector wages be capped at a maximum of the annual inflation rate, and that there should be no net increase in the current size of the civil service.
“Both of these proposals should remain in place for the Medium Term Expenditure Framework,” Schlettwein said.
Projected revenues for the 2016/17 financial year are estimated to increase by a mere 2 percent to N$57.84 billion, mainly because of the sharp reduction in receipts from the Southern Africa Customs Union (SACU), coupled with the impacts of an adverse external economic environment.
This is against the tabled budget expenditure of N$66 billion which – although it represents a 1.6 percent reduction from the previous year’s budget and a 7.3 percent cut from the indicative ceiling for 2016/17 proposed in the previous three-year rolling budget – still gives a deficit of 4.3 percent of GDP in the budget year.
The budget deficit is expected to average around three percent over the next three years.
Schlettwein said in addition to the development budget allocation, the Treasury made budgetary allocations under the operational budget for targeted transfers to public enterprises for investment in strategic infrastructure projects, such as railway works, the rehabilitation of several national roads, as well as energy and water infrastructure.
Preliminary figures show that the year 2015/2016 was not a good year for Namibia, with estimated revenues at N$56,76 billion, 4.6 percent below the budgeted estimates of N$58.44 billion, due to lower than anticipated economic activities.
Total revenue for 2014/15 stands at N$49,93 billion, 4.8 percent lower than the projected revenue, but 19.1 percent higher than revenues in 2013/14.
Going forward, even though Namibia’s economy is poised for growth, projected at 4.3 percent in 2016 and improving to 5.9 percent by 2017, while averaging about 4.9 percent for the next three years, the country is in for a turbulent ride with subdued regional economic growth, weak commodity prices and subdued trade environment.
The major drag and significant risk for revenue growth is the projected reduction of SACU revenues on account of a lower growth outlook for the South African economy, Schlettwein said.
“In the coming financial year, Namibia has to repay a total of N$2.96 billion to the SACU Common Revenue Pool due to the deficit experienced in the SACU revenue pool,” he said.
Compounding Namibia’s fiscal woes is the fact that currency depreciation has increased debt-servicing costs for the foreign debt portfolio.
Total interest payments have risen to N$3.13 billion in 2015/16, up from N$2.52 billion in 2014/15. As a result of increasing financing needs, the total debt stock rose from N$35.95 billion in 2014/15, to a current estimated level of N$59.79 billion, or 37 percent of GDP, well above the national cap of 35 percent.
In nominal terms, total debt is projected to increase to N$63.73 billion in 2016/17, from N$61.32 billion in 2015/16, and to average at around N$68.22 billion over the next three years. However, Minister Schlettwein said the projected annual growth in public debt “is offset by a relatively healthy year-on-year growth in nominal GDP”.
“Government intends to finance the substantial component of the deficit from domestic and regional capital markets.
“Contingent liabilities are projected to increase to an average of around nine percent over the MTEF (Medium Term Expenditure Framework), as government extends support to SOEs (State-Owned Enterprises) for project financing on the strength of their balance sheets,” he said.