Windhoek-When Finance Minister Calle Schlettwein tables the National Budget for the 2017/18 financial year tomorrow, analysts expect him to remain steadfast in commitments made towards the Medium-Term Expenditure Framework (MTEF) while some anticipate significant changes to tax policies to make up for the shortfall in government revenue. It is also expected that Schlettwein will put in place measures to restore economic confidence amidst reduced government spending.
“I expect the pace of fiscal consolidation to be accelerated. I also expect significant changes to tax policies to raise the shortfall in revenues. It will be prudent not to further increase our external borrowings, but to come up with specific measures to raise revenue rather than expenditure cuts, which are needed in any way. Expect tax increases and reduction in capital expenditure as main features of the budget,” commented Johannes Gawaxab, Executive Chairman of Eos Capital.
“We do not expect significant diversions from the policy directives of the MTEF such as fiscal consolidation. However, we expect the minister to make radical institutional measures to deal with the government revenue squeeze, inclusive growth and continued efforts to eradicate poverty through protecting the social safety nets as the cost of living increases. Measures on how to deal with the alleged corruption practices among SOEs and ministries, and unauthorised expenditure are also expected to take centre stage in the minister’s speech,” reads a budget preview by Simonis Storm Securities (SSS).
Also commenting on the budget expectations, Ngoni Bopoto, research analyst at Namibia Equity Brokers, said he expects a very fine balancing act characterised by revenue constraints and the need to propel economic growth.
“Tax will certainly be a key focus area with continued emphasis on broadening the base, improved collection and the regular ‘sin taxes’ while SACU receipts are expected to reflect some recovery. The expenditure side will remain contractionary which can be expected to have a dampening impact on the economy,” Bopoto said. He added that fiscal consolidation remains a key theme for ratings agencies and said he is keen to see how the minister will fund the fiscus while curbing growth in public debt to appease investor and ratings agencies’ concerns. “In this regard we hope to see innovative revenue generating proposals,” Bopoto continued.
During his medium term budget review for 2016/17, Schlettwein reiterated his stance that fiscal consolidation not only focuses on cutting expenditure but also on the improvement of domestic revenue sources by strengthening tax administration combined with the introduction of new (tax) revenue streams.
According to the SSS budget preview report, compiled by Purvance Heuer (SSS director of research and securities) and Frans Uusiku (SSS economist), this latest budget will be tabled within the context of intertwined forces of positive and negative developments. SSS believes that a positive development will be an estimated N$5 billion increase in Namibia’s share of Southern African Customs Union (SACU) revenue for 2017/18, which will then ease the fiscal strain on reducing the budget deficit within the 5 percent target.
“On the downside, there remains daunting challenges such as high operational expenditure and a slowing economy. Inefficiencies and alleged irregular practices amongst state owned enterprises (SOEs) (SME Bank is a case in point), high youth unemployment and rising cost of living, uncertainty about economic policies and laws.
Debt sustainability, given lacklustre growth, and the urge to safeguard Namibia’s investment grade. Declining government revenue and the dilemma faced with introducing new taxes in the midst of an economy that is trapped in a technical recession. Unauthorised expenditure, and last but not least, the longstanding issue of income inequality. Our sense is that, if these challenges are not tackled head on (which must require a coordinated effort from both the public and private sectors), it would lead to a prolonged recession,” warned the SSS report.
The SSS team also expects the minister to provide valuable insight into the state of the fiscus and their planned reforms. “More so, we suspect that particular focus will be placed on revenue optimisation as we believe that there is little leeway to further cut expenditure without compromising on the effective delivery of public services.
Notwithstanding the above, we expect the key focus areas of the budget to follow some of the policy directives of the MTEF. These include ensuring macroeconomic stability and a sustainable growth-friendly fiscal policy, promoting inclusive job creation, tax policy and a tax administration reform agenda, development and investment in priority public infrastructure programmes (water and electricity infrastructure are prime examples) and protecting expenditure in social sectors such as education, health and social grants (old-aged pension and disability grants),” the SSS report continued.
The current MTEF, which was presented in the 2015 budget, presents an outlay of costed activities to be funded over a period of three financial years, in this case from the 2015/16 to 2017/18 financial years. Over this MTEF period the government planned to spend N$196 billion, which averages N$65.3 billion each year. Sectorally, on average 38 percent of the allocation was directed toward social sector expenditure, followed by the economic and infrastructure sectors share with a combined proportion of 27 percent of total expenditure. A proportion of 21.8 percent was to be spent towards the public safety sector while the administrative sector on average was to take a share of 12.1 percent over the MTEF.
Budget balance as a percentage of GDP vs Mid-term revision: Following the downward revision of government revenue in September 2016 by N$6.2 billion for the FY2016/17, and a subsequent revision of the maximum budgetary ceiling for FY2017/18 from N$69.9 billion to N$59.9 billion, it is expected that the actual budget for FY2017/18 will remain within or equate to the set ceiling.
Source: Ministry of Finance/SS Research