As finance minister Iipumbu Shiimi is preparing to table the 2023/24 budget in the National Assembly on Wednesday, the country’s growing debt levels will weigh heavy on the mind of the former central bank governor.
Namibia is borrowing a sizeable amount of N$29 million daily, including weekends, for the last 12 years. In 2010, Namibia’s public debt was around N$11 billion,
which debt stock is now expected to increase to N$138.4 billion, equivalent to 69.6% of gross domestic product (GDP) in FY2022/23.
The shocking figures were shared by Theo Klein, an economist at stock brokerage Simonis Storm last week during a pre-budget discussion hosted by the High Economic Intelligence (HEI) entity, an independent research body specialising in economic and financial services.
He also highlighted the fact that Namibia’s development budget receives less money than the operational budget, which is dominated by public wages. According to him, the development budget can be a significant catalyst for economic growth and improved standards of living.
“Factors that led to lower economic growth rates, especially post-2015, include fiscal consolidation.
So, fiscal consolidation was announced in the budget speech of 2015, and that is government’s plan to cut back on expenditure and reduce budget allocations to various ministries to try and get its spending and debt under control.
Since then, our economy has suffered due to government being a very big player in our economy,” Klein observed.
He added that current poverty rates are exactly what they were in 2008.
All the poverty reduction gains that Namibia made in its economic boom, have been completely wiped out. “Since fiscal consolidation commenced, you see this key trend of rising poverty and rising disapproval amongst the Namibian nation”.
The World Bank indicated in its overview last year that some 1.6 million Namibians live in poverty.
In a 2021 report by the Namibia Statistics Agency (NSA), multidimensional poverty was determined to affect 43% of the population, 59% in rural and 25% in urban areas.
Expectations
Klein expects to see an improvement in tax revenue on the back of improved economic growth, and further clarity on when exactly the tax brackets will be adjusted for inflation as well as laying the new minimum taxable income threshold. Social grants are expected to improve while the personal income tax, value-added tax (VAT) and other taxes are anticipated to remain unchanged.
On expectations and recommendations, Salomo Hei, managing director at HEI, forecasts that the education and health
sectors will get a big chunk of the pie. But he urged accountability in education, as it has not delivered the most desired results with such big allocations.
“We need to have targets. We need to understand what it is that you want to see. There’s no way we are spending the sort of appropriation on education, and at the
same time we are putting our young people onto the streets. There needs to be some level of accountability,” he stressed.
The Ministry of Education, Arts and Culture was allocated N$14.1 billion, equivalent to 19.9% of the 2022/23 national budget, while the Ministry of Higher Education, Training and Innovation received N$3.3 billion.
Hei noted that there is a lot to be done in terms of service delivery. He thus urged for the prioritisation of investments in digital technologies and infrastructure, as well as improved governance, and enhancing debt transparency.
“We need direct support for small and medium enterprises (SMEs). The most important thing now is that we need to get to a percentage of the budget that should be allocated to development projects. Through that, we’ll be able to adopt value and have a ripple-effect on revenue, job-creation
and making sure our economy becomes inclusive,” he recommended.
Covid contraction
An economist at FNB Namibia, Ruusa Nandago, said countries which entered the Covid-19 pandemic period in weak or unhealthy positions are more likely to be severely impacted by the pandemic, and will also take a long time to recover.
This fits well for Namibia.
“We were already in a weak position, hence, we recorded the largest contraction of 8% as a result of the Covid-19 pandemic. The impact of Covid-19 has led to a lot of structural imbalances”.
She added that the Namibian economy is still not adequately diversified, which is another structural impediment the country is facing.
Namibia became increasingly reliant on mining commodity exports, which tend to be volatile, she added, also touching on the elevated levels of government debt, which are not sustainable over the long-term.
Nandago feels that last week’s pre-budget discussion was important for fiscal policymakers to understand what the economic landscape will look like not only in the short-term, but also in the long-term in order to efficiently and adequately allocate national resources.