I will admit when the Finance Minister, Calle Schlettwein, quoted William Feather’s “A budget tells us what we can’t afford, but it doesn’t keep us from buying it”, I was ready to jeer and take to Twitter to rue yet another missed opportunity to significantly reduce expenditure. But Calle being Calle Schlettwein, that was just the precursor of what was to come. Schlettwein then proceeded to make a compelling case in mapping Namibia’s deteriorating fiscal space, and the accompanying cuts to expenditure and the tax increases would have to be endured. When Schlettwein presented the budget in February, I was one amongst a host of many who criticised the Minister’s commitment to fiscal consolidation, noting at the time that it “didn’t go far enough in addressing the realities of our fiscal position.” The Fitch outlook revision, which showed a significant widening of our budget deficit due to lower-than-expected revenue collection, was the straw that broke the camel’s back and jolted the Fiscus into action. What we saw from Schlettwein’s Mid-Year Budget Review last week, was government’s strongest indication yet, that they intend on reining in spending at a time of falling revenue. Namibia finds itself in the most precarious of positions, a position alluded to by the Minister in great detail in his speech. It is also a position exacerbated by downside risks to both the global and regional growth outlook. Reflecting the enormity of the downsides that our economy faces, the revenue forecast for the current MTEF was slashed by N$9.3 billion, from N$63.9 billion to N$54.6 billion. The cuts to expenditure went further than anyone had anticipated and they were, plainly put, brutal. Schlettwein announced his intention to “undertake cumulative expenditure reduction of about 6% of budgeted GDP” and to “reduce expenditure-to-GDP ratio from 40% of GDP to below 35% of GDP”, phased in over the MTEF. The indicative expenditure ceiling was also reduced by N$10 billion for the 2017/18 fiscal year, from N$69.9 billion to N$59.9 billion. That ceiling is expected to reach N$64.4 billion at the end of the MTEF, a significant reduction to the N$74.4 billion that was envisaged in February. For the current fiscal year, revenue shortfalls amounted to N$6.2 billion and given the very limited scope for debt, Schlettwein was forced into cutting expenditure by N$5.5 billion Of the N$5.50 billion, N$2.82 billion was sourced from the operational budget. This is significant because it marks the first time that we’ve seen any cuts to the operational side of the budget. The wage bill, which accounts for close to 40 percent of the total expenditure and the hardest part of expenditure to cut, was cut by N$633.39 million. A welcome move. The development budget also felt the might of the axe, with N$2.7 billion worth of cuts. The cuts, as the Minister noted, would be “concentrated on the construction of office building with a more bias towards the administrative sector”. Surely now talk of constructing vanity projects, like the Parliament and the PM’s ivory towers would be put to bed! Surely? But whether the cuts to expenditure would be enough to stave off a credit rating downgrade, remains to be seen. The budget review did show that the economy is on the brink and with these cuts it is hard to imagine the economy not slipping into recession. The alternative, however, is too ghastly to even ponder. However, what we saw last week is a government aware of the realities of the day, and addressing those realities. We saw a Fiscus capable of self-correcting and seriously intent on cutting the excess fat. For a government that has injected a litany of policy uncertainties that have constrained growth, the Mid-Year Budget Review was a welcome refresher. Calle Schlettwein’s task was an incredulous one, but absolutely necessary to ensure our long-term macroeconomic sustainability. We all owe him a vote of gratitude. * Suta Kavari is an independent research analyst based in Beirut, Lebanon.
2016-11-01 11:00:19 1 years ago