Windhoek-While government has literally halted its spending – leaving many companies in debt and with serious cash flow squeezes – some economists advise that the only way to rescue the economy might be for the government to open its purse and spend money.
“While we understand that everyone else needs to tighten their belts, we also believe that its time government loosens its belt a bit,” says managing director of Twilight Capital Consulting Mally Likukela.
Likukela also holds the opinion that government could have made “a terrible mistake by switching its attention from jobs and growth to deficit reduction, and the country is now suffering the consequences.”
He argues that it is becoming clear that consumer spending is bound to be flat for the next coming months, and the only hope for a speedy economic recovery “is for the government to increase spending in a way that averts layoffs, creates jobs and puts money in the pockets of ordinary people.”
“The current recession could be longer and deeper on account of austerity measures that depress demand. Unless government stimulates demand, there won’t be any demand for private sector products and services,” he says.
It has also become clear from the Namibia Statistics Agency’s (NSA) current figures that the private sector will not be able to hire enough workers to make a dent in unemployment.
Workers would be laid off and many were worried about their jobs, while households were strapped for cash as they continued to swim in massive debt.
“Pursuing fiscal consolidation while the economy is weak hurts the economy more. Instead of helping, it makes the deficit worse.
“As unemployment rises and corporate profits shrinks, so do tax revenues. What is needed right now is for government to start spending, but spending more wisely,” he says.
Likukela points to the latest Gross Domestic Product figures by the NSA, which indicate that Namibia sunk deeper into recession during the first quarter of 2017.
Quarterly GDP contracted by 2.7 percent in the 1st quarter of 2017 following a contraction of 1.4 % during the previous fourth quarter of 2016.
The dismal performance was largely because of austerity measures that saw a number of capital projects put on hold – eventually bringing the construction sector to its knees taking along with it the entire economy.
“The biggest question on everyone’s mind is the duration of this recession. It’s no longer so much about the impact of the recession, but how long before the economy recovers.
“Given the prevailing fiscal consolidation, all eyes are focused on private consumption to rescue the economy,” he says.
GDP growth contracted further from 1.4 percent in the fourth quarter of 2016 to 2.7 percent during the first quarter of 2017.
Consumer spending as measured by wholesale and retail further contracted from 3.2 percent to a negative 7.4 percent, while the pace of business investment weakened significantly along with a deteriorating construction sector.
Manufacturing contracted by 10.7 percent. Amid the assault on government spending, the unemployment rate rose to 34 percent and jobs in the construction sector suffered massive casualties.
“Given the continued further tightening, we expect the picture to remain the same or even worsen,” Likukela said.
He also points to the apprehensiveness in the private sector.
“There is no sign the private sector is about to rescue the sinking economy. In fact, companies are sitting on millions in profits, but they won’t use this money to create jobs because they don’t see increasing demand for their products and services,” he said.
“With the economy slowing and the Government focused on deficit reduction, it’s unlikely that these big corporations – not to mention still struggling SMEs – will invest more and increase spending locally.”