A fiscal consolidation budget to stimulate growth

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Staff Reporter

Windhoek-The recently tabled national budget is a good indicator of what can be expected in terms of the state of the Namibian economy.

Fiscal consolidation was high on the agenda due to a slight increase in expenditure relative to the previous year and increased revenue. However, government spending does not necessarily translate into economic growth and according to Tjivi Mbuende, Standard Bank’s head of public sector investment, only time will tell if the effort inspires growth.

In a budget commentary, Mbuende noted that following the midterm budget review expenditure was fairly stable and that a total expenditure of N$62.54 billion was budgeted for the 2017/18 financial year.

“Close to 50 percent of government expenses will be due to personnel cost. Whilst government’s role in the economy in terms of employment creation is important, allocating such a high wage bill will not be sustainable over the long-term.

“Government has recognised that and has taken measures, such as freezing the size of the civil service and reviewing the current costly medical aid coverage,” Mbeunde noted. He also observed that the social sectors received the lion’s share of the budget: N$27.44 billion.

The Ministry of Basic Education, Art & Culture is set to receive N$12 billion, which is higher than the midterm review. An additional N$3.1 billion was allocated to the Ministry of Higher Education, Training and Innovation.

Defense spending also remained high on the agenda, with the Ministry of Defense being set to receive N$6.5 billion. Although the allocation is significant, it represents a reduction relative to the previous year.

“Although our debt servicing costs are below the limit of 10 percent, there was an increase from 8.4 percent in 2016 to 8.8 percent in 2017. Should the debt burden not be contained, it would become more challenging for the nation to pay, which would imply additional measures would need to be taken in order to meet the large debt obligations,” Mbeunde noted.

He also pointed out that the budget aimed to decrease the budget deficit from 6.3 percent in 2016 to 3.6 percent in the 2017 financial year, which he says is a positive step in the right direction, but is still above the “BBB” category median which could continue to concern international rating agencies’ outlook.

Over the 2016 financial year, revenue was expected to be N$51.5 billion and was projected to increase to N$56.6 billion. The largest component of revenue was from taxes followed by SACU receipts. Income tax on individuals was the highest contributor to taxes as it has been over the last few years.

“2016 was a challenging year for the local economy, as commodity prices declined significantly and the severe drought had significant implications. It is against this backdrop that the recently tabled national budget for the 2017/2018 financial year was submitted with two main objectives.

“Primarily to reduce the underlying fiscal deficit by reining in high debt levels the government is currently experiencing. Further, the aim was to allocate scarce resources to stimulate growth following wide spending cuts in the 2016 mid-year review,” Mbeunde stated.

He continued that mining continues to be one of the top contributors to Namibia’s GDP. A low commodity price environment and a slowdown in diamond and zinc, which have the highest weighting in the local Namibian quarrying sector, added additional pressure on this sector.

Additionally, the agricultural sector’s was impacted by drought which resulted in a decline in marketing activities and food production. The GDP is expected to have slowed down to 1.3 percent in 2016.

“2016 was also a challenging year, as Fitch Ratings revised the nation’s outlook from stable to negative, whilst affirming a BBB- rating. Lower than expected revenues, increased debt and expenditure contributed towards the negative outlook,” he explained.

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