The Namibian economy is continuing on a sluggish path, struggling to recover from a recession last year, mainly due to a reduction in capital expenditure that has mostly affected the construction industry. Also, the country’s budget deficit is starting to widen with a major factor being a huge public service wage bill. These were the views of Kevin Lings, the chief economist at asset management firm, Stanlib, and his colleague, economist Kganya Kgare, who yesterday highlighted key economic and political signs that are expected to drive the markets and investment landscape in 2018.
“Government is struggling because the budget deficit is starting to widen and this is mainly because of high salary expenditure. The salary wage bill is growing aggressively, which in turn is keeping the budget deficit wide,” warned Kgare during a breakfast presentation at the Windhoek Country Club.
He added that instead of the government being the main driver of economic growth, it should instead focus on creating a conducive environment for the private sector to be the main driver of economic growth. During his presentation, which focussed on the southern African region, Kgare also predicted at least two reductions in the repo rates in South Africa and Namibia, down to at least 6.25 percent, in order to stimulate economic growth.
Minister of Finance Calle Schlettwein recently said that the government wants to cut the ballooning public service wage bill by only filling essential posts. The public service wage bill for the 2018/2019 budget makes up 49 percent of the total budget, which translates to N$28.66 billion.
A recent International Monetary Fund (IMF) report stated that Namibia’s economic growth is projected to resume in 2018 as mining production increases, construction activity stabilises and manufacturing recovers before converging to a long-term growth rate of about 3.5 percent.
“An expansionary fiscal policy, the construction of large mines and buoyant credit supported growth and better living standards. However, robust growth masked rising macroeconomic vulnerabilities and deteriorating productivity performance. Moreover, structural impediments have contributed to keep unemployment and income inequality unacceptably high,” stated the IMF in its Namibia Country Report.
“GDP sharply decelerated in 2016 and contracted in 2017 as construction in the mining sector came to an end and the government began consolidating. With the economy contracting and Southern Africa Customs Union receipts temporarily increasing, the current account balance improved significantly. However, despite significant fiscal adjustment, the public debt ratio continued to increase and almost doubled over the last four years, exceeding in 2017 the median of the countries at the lowest tier of investment grade,” the IMF stated.
The IMF report further noted that as SACU revenues are expected to decline, in the absence of policy action, the fiscal deficit would remain large and public debt would continue rising and would approach 70 percent of GDP by 2022.
“On the positive side, the current account deficit is expected to narrow on average to around 6 percent of GDP on the back of larger mining exports, but international reserve coverage is projected to gradually decline,” read the report.