A prolonged recession, depleted fiscal space, the devastating economic impact of the pandemic and inflationary pressure, coupled with its implications on basic commodities such as fuel, food and housing, makes today’s national budget one of the most anticipated policy directives in recent years.
Local economists, however, agree these
factors leave finance minister Iipumbu Shiimi with very little wiggle room when he tables the national budget today.
According to economics lecturer Mally Likukela, the finance minister will have to play a fine balancing act, never before seen, in managing the country’s finances mainly because of the almost entirely exhausted fiscal space.
“The deeply wounded revenue base against the ever-mounting expenditure priorities will make budgeting an even more complicated exercise,” Likukela told New Era yesterday.
He expects a number of key aspects to feature prominently in today’s budget speech, the first being a continuation of the Covid-19 responsive budget.
“To reinforce the gains made in the fight against the pandemic since it broke out, the minister is most likely going to sustain the flow of funds and maintain the Covid responsive budgetary allocation so as not to risk reversal in the gains made thus far. Allocations will be made to the health ministry for ensuring, amongst other things, vaccination roll out and maintenance of the health system - infrastructure and operations.”
He added that given the prominence of green hydrogen projects as well as the need for energy security needed to propel the economy and achieve the national logistic hub dream, the minister will most likely make allocations to government entities in the energy and logistics space in order to drive this national aspiration.
Touching on budget aggregates, such as budget balances, debt to GDP, debt service ratios as well as guarantees, Likukela said he expects these to worsen further or widen in reflection of the painful budget financing decisions taken by the government in the just ended financial year.
“This will not augur well with international rating agencies that are keeping a close eye on the country given its close proximity to a fiscal cliff,” he warned.
In terms of supporting the economy, Likukela believes stimulus packages, although not very much pronounced, are expected in the areas of training (to increase the employability of the youth and women) as well as in the micro small and medium enterprises (MSMEs) space to try and boost demand and productive capacities of the domestic economy.
In addition, he anticipates further stimulus in sectors hardest hit by the pandemic, including tourism and transport.
“Even in the eyes of the ever-increasing cost of living, there is very little room for civil service salary increments. This is made even more difficult and tough by the strong opinion of the IMF on the perceived bloated civil servants wage bill. However, certain non-cash benefits can go an extra mile in helping the civil servants whose salaries have no chance against inflation,” he said.
Then, given what Likukela calls “already overly taxed taxpayers, both individuals and corporates”, he believes the minister’s options relating to tax remains very limited. “If he will make any move at all, it will be a downward adjustment, but then this again will require careful manoeuvring because of the already narrow tax base. Reducing taxes puts a further strain on the already exhausted revenue. The SACU revenue stream remains an important stream although it has also come under heavy strain from the pandemic,” Likukela predicted.
Also weighing in on today’s budget expectations, economist Rowland Brown, an executive director at Cirrus Securities, expects more of the same in terms of fiscal consolidation but sounded the alarm bells on a very big budget deficit.
Brown forecasts government to again spend close to N$70 billion this year but also anticipates a lot less to be collected in terms of revenue. Brown forecasts around N$55 billion to be collected in terms of revenue, which would again leave government with a sizable deficit.
“The big questions remain where does all this money go?” asked Brown, and the answer is that by far, the largest recipient of State funds remains the wage bill, at over 50% of total expenditure.
Brown added: “Increasingly, we are seeing a sizable expenditure of debt servicing as well, which stands at about 17% of revenue and 12% of expenditure. This is due to the fact that during the last decade, there has been a huge increase in the country’s debt stock.”
Debt
He explained that in 2010, before the issuance
of Namibia’s Eurobond, total debt stood at about N$16 billion, compared to the current N$160 billion which represents a 10-fold increase during the last 12 years or so.
“A lot of the money we borrowed 10 years ago was roughly 10 years in duration. So now, we are getting to a point where we have to pay that money back or roll it over and the implication of that is the borrowing requirement is not just that (respective) year’s deficit but also rolling previous years’ borrowings. That is a big challenge for government and I think we are going to see a lot of pressure on government cash flow. In fact, we can already see it. There is concern that government finances are extremely tight at the moment and we don’t really see the light at the end of the tunnel, at least in the immediate future,” Brown stated.
He continued that over the last few years, the country has seen relatively little expenditure on meaningful development projects.
“There is a major disconnect in terms of development objectives of the country and the development projects. Often, we see development projects revolve around government offices or the like but there is very little money that goes into the kind of basic, critical factors that we need to ensure some degree of equality of access. This includes things like access to housing, sanitation, electricity, which is still very problematic in terms of the quantum of the allocation versus the rank of priority they should be in terms of the country’s development.”
Brown further cautioned the lack of material growth in the domestic economy for the last seven years or so, which he labelled as “quite abnormal”.
“We need to get growth back,” he said, proposing roping in non-governmental entities to contribute to overall economic growth.