WINDHOEK – Namibia’s classification as an upper middle income country is partially to blame for the accumulation of current public debt of 43.3 percent, as the country lost borrowing privileges accorded to low income countries.
This is according to Dr John Steytler, economic advisor to President Hage Geingob, who in an interview with New Era yesterday said the country had to go to the capitalist international market to fulfil its obligations to the citizenry.
As of April this year, public debt stood at N$74.5 billion, or 43.3 percent of the GDP. The finance ministry says that in this financial year Namibia would have to cough up N$5.8 billion in interest payments to service the domestic and foreign interest payments, as well as in borrowing-related charges.
President Geingob has used many international fora to lament the country’s classification as upper middle class, saying this position was superficial and did not reflect the true state of the economy, whose wealth lies in the hands of a minority cabal but is mathematically applied to all citizens.
“When you are classified as upper middle income,” Steytler said, “you lose benefits such as access to grants and concessional loans. Namibia lost such benefits after the current classification was imposed on us.”
Namibia is still battling the indelible legacy of apartheid which ushered socio-economic benefits on the doorsteps of white citizens, while blacks, for the most part, were left to fend for themselves.
After independence, a small population of black elites – many of whom benefited from government’s black economic empowerment schemes – emerged but has not shared much of its wealth with the rest of the populace.
Steytler, formerly a senior official at the International Monetary Fund (IMF), yesterday said Namibia remains steadfast in her conviction that the household income, as opposed to GDP per capita, is the fairest tool to measure the country’s classification.
“What worries us, especially the President, about the GDP per capita being used on Namibia, is that it is based on the income of firms. They [World Bank] look at how much revenues these firms made, knock off the costs, and theoretically divide the collective remaining revenues of these firms among the population,” he said.
“But we know that GDP doesn’t reach all of us equally. The main issue for us is the distribution of the GDP. If you go to the Namibia Household Income and Expenditure Survey, where we measure income at household level, you’ll get a realistic picture.”
“The World Bank’s formula does not reflect the actual distribution of income and this affects our development status,” he added.
‘Not dying to beg’
At home, government has often been criticised for its position on the classification issue, with critics saying the country was begging to borrow.
“There are people who believe we want to beg or borrow. When your GDP per capita is above US$1250, or round about there, you are classified as a middle income country – essentially meaning you are rich. But our actual household income is so low that we cannot achieve our development objectives adequately.”
“Namibia’s per capita income currently stands at US$4500, making us a middle income country – but like I said, this is derived from the wealth of a few people which hardly reach the greater masses,” Steytler told New Era.
“Although this figure seems high, in reality there are households whose actual income is US$300 or less.”
Such families, he said, face challenges such as infant mortality and short life expectancy as a result of lack of resources to mitigate these realities.
“Our infant mortality is about 37 out of a 1000 babies, whereas in Japan and Singapore, only two babies die out of 1000 on average. Our babies here die mostly because their immune systems are so weak they can die from cold, diarrhoea or undernourishment.”
“This happens in households where income is low, but the situation is normal in high-income households where they have better sanitation, better nutrition and better conditions to help their children progress in life.”
With Namibia’s classification, government is forced, when the need arises, to borrow at normal market rates of generally about 10 percent.
“If I borrow at zero cost or at two percent as a low-income country, it becomes affordable.”
“For example, if you get a loan of N$10 billion over a period of 20 years at two percent as a low-income country, you’ll pay back N$12 billion. But borrowing the same amount at a market rate of 10 percent as an upper middle income country, you’ll pay back N$22 billion. This will trap you into debt,” he noted.
This is the example of how Namibia’s public debt increased exponentially in the past three years, as government could not borrow at no or low interest rates.
At 43.3 percent, public debt has shot past the self-imposed national target of 35 percent of the GDP.