Sick economy reacts well to consolidation medicine

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WINDHOEK, 07 March 2016 - John Steytler, the economic advisor to President Hage Geingob, speaks during the local media houses editors/representatives meeting with President Hage Geingob at State House. (Photo by: Joseph Nekaya) NAMPA

Edgar Brandt

Windhoek-Finance Minister Calle Schlettwein is reasonably optimistic that the country’s economic activity will pick up pace this year, relative to the slowdown in 2016. However, he expects the recovery to be gradual, given the localised recessionary pressures since the third quarter of 2016.

“The year 2017 started off on a cautionary note of weak domestic demand conditions, a relatively flat investment function, slackness in exports and slowing government spending against the backdrop of the short-run effects of fiscal correction in the last quarter of the 2016/17 fiscal year.

“There is general price stability, with stable or even falling inflationary levels, while monetary policy has assumed a generally neutral stance,” Schlettwein said yesterday during a conference organised by the Economic Association of Namibia.

The finance minister noted that output in the primary industries, particularly mining and agriculture, have rebounded but that the recovery of commodity prices in the mining sector remains slow, although a natural hedge for uranium prices in respect of Swakop Uranium Mine promises increased exports, supported by activity in the offshore diamond sub-sector.

“We see the momentum on exports and other inflows relative to imports already contributing to the narrowing of the Current Account deficit. This is further reinforced by the effects of the fiscal consolidation programme.

“No doubt, the fiscal policy consolidation stance has allowed us to rebalance the budget and align expenditure to a more realistic macroeconomic and revenue outlook. The preliminary outturn for 2016/17, where revenue collection is in excess of 99 percent of the revised estimates, testifies to the effectiveness of this internal rebalancing,” Schlettwein said.

Speaking at a separate event yesterday morning, Dr John Steytler, economic advisor to President Hage Geingob, compared government’s fiscal consolidation stance to medicine being administered to a critically ill patient.

“Our economy has been suffering from lifestyle diseases that have been building up. If government did not act last year, then the economy would have suffered a heart attack.

“However, now the patient is stable and the heart attack was avoided,” said Steytler during an outlook analysis of the Namibian economy organised by Nedbank Namibia in conjunction with Namibia Equity Brokers and EY Namibia.

Steytler cautioned that now the ‘medicine’ has to be balanced to ensure the patient does not overdose. “The patient is weak but is now more resilient and better poised for a long and prosperous life. However, we have to ensure that the patient does not relapse and revert to old bad habits,” Steytler said.

The early gains of this “medicine”, or more specifically the fiscal consolidatory policy stance and the medium-term positive outlook has not go unnoticed by the credit rating agencies.
Fitch Ratings has upgraded Namibia’s national rating from AA+ to AAA, in a rating action which clearly distinguished Namibia from South Africa’s national ratings, South Africa being the benchmark market for Namibian bonds. In June, Fitch reaffirmed Namibia’s sovereign credit rating at the historical BBB- investment grade.

“We are conscious that fiscal adjustment is not painless in its effect on operational activities of offices, ministries and agencies and the feedback effects on the economy in the short-run. Thus, in this environment of fiscal and monetary policy neutrality, efforts to enhance the growth-friendliness of policy interventions are necessary to lift the growth potential of the economy,” Schlettwein noted.

Government has sourced about 40 percent of the financing requirements for this year from the African Development Bank to compliment domestic market liquidity in supporting its bond programme.

Based on budget revenue and proceeds from borrowing, government has frontloaded the settling of outstanding payment obligations, which are expected to be finalised during the remainder of this quarter.

Releasing such a vast amount of money, estimated at about N$ 3.5 billion in short span of time, while continuing to implement the budget is a significant boost for the economy and a much-needed shot in the arm for the construction sector.

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