Windhoek
After a thorough analysis of Minister of Finance Calle Schlettwein’s first contractionary budget last week, economic analysts have welcomed his aggressive cost-cutting measures on operational and developmental expenditure and said it shows government’s commitment to fiscal conservatism, given the projected revenue shortfall.
“This was in line with our expectations, which demonstrates a careful consideration of a prudent fiscal position. The budget modalities and principles were very much anchored in the Mid-Term Expenditure Framework (MTEF) for 2015/16-2018/19, with minor adjustments made to the revenue streams (tax proposals),” said Frans Uusiku, an economist at Simonis Storm Securities (SSS).
Suta Kavari, investment strategist at Capricorn Asset Management, noted that Schlettwein emphasised government’s fiscal consolidation path by announcing cuts to non-essential operational expenditure items, such as materials and supplies, travel allowance, overtime, furniture and vehicles. He also pointed out that the minister went further and announced ‘postponement’ of non-productive capital spending on construction of office buildings.
“The budget was underpinned by the need to reassert a sustainable path for public finances, maintaining macro-economic stability and to re-direct scarce financial resources to priority areas,” said Kavari. He further noted that due to the sharp reduction in SACU revenue receipts, revenue for the 2016/17 budget is projected at N$ 57.84 billion. While it represents a two percent increase over the previous year, the figure is relatively lower than the estimate of N$ 63,05 billion contained in last year’s budget.
“Though questions remain regarding the underlying growth assumptions, which are rather optimistic, the budget did meet the mark. And while not going far enough, government’s fiscal consolidation stance should be applauded,” Kavari concluded.
Meanwhile, Uusiku said he was concerned about the drastic growth in public debt from N$35.95 billion in 2014/15 to an estimated N$59.79 billion by 2015/16, translating into 37 percent of GDP, which is slightly beyond the national benchmark of 35 percent.
“Although the minister did not announce any move to raise additional debt, the sluggish growth prospects for Namibia are likely to drag this figure closer to 40 percent.
“This would put the country into a precarious situation as Namibia’s sovereign rating peer group of BBB- is 40 percent. Furthermore, the devaluation of the Rand has had a bearing on the debt servicing cost, increasing from N$2.52 billion in 2014/15 to N$3.13 billion.
However, the budget fell short of indicating how this debt servicing cost (of the foreign portfolio) will be financed. This is more important as public debt is expected to increase further to N$68.22 billion over the medium term,” Uusiku noted.
Uusiku added that wage increases to be capped to a maximum of the annual inflation rate and no net increase in the current size of the civil service for the mid-term literally means that new graduates would have limited employment opportunities in the public sector, which he said is likely to increase the youth unemployment rate.