Mally Likukela
Ministries that continue to spend less than what has been budgeted deprive Namibian citizens of essential public goods and services such as improved education, better healthcare and more roads and bridges, etc. – a situation that can damage public trust and erodes confidence further if not urgently addressed. At a time when public trust in government is at an “all time low”, spending less than what has been budgeted not only defeats the primary purpose of fiscal policy but it can also breed cynicism about the government and loss of public’s confidence thereof.
Underspending, if allowed to continue can be disastrous for Namibia – a country that is trying to reduce joblessness, poverty, and hunger. Over the past five years – statistics show that the number of votes/ministries that have underspent their respective budgets have increased, jumping from nine votes in 2017/18 to 19 votes in 2019/20 before it slightly dropped to seven votes in 2020/21 and rose again to 10 in 2021/22 FY.
This increase emanated mainly from votes/ministries that have critically underspent their development/capital budgets. The number of votes/ministries that have
underspend development/capital budgets is awful higher and what is more concerning is the fact that these ministries are the ones charged with implementing critical national
projects. What is more worrying is the fact that this lower execution rates are from ministries that hold the answer to Namibia’s challenge of unemployment, poverty and i
nequality.
In Namibia, the national budget has two main components, namely development budget and operational budget. The operational budget mainly covers the salaries, fuel and other operating expenditures and as such, spending this portion of the budget has not been a point of concern – as execution rate is in most cases within the approved threshold (+-2% of the approved budget). The development budget, on the other hand – which is used to finance development interventions, is the most worrying component. When it comes to execution, the operational budget is better executed than the development budget. In a country like Namibia, where human capital, economic pillars and physical infrastructure have been and remain in tatters, the development budget which is a means to fill these development gaps should be the one better executed than the operational budget.
The sectoral analysis reveals a much frightening picture. Overall, the sector that reported the highest number of votes/ministries that have consistently underspend is the economic sector. This consists of ministries that oversee and have mandate over the country’s rich natural resources such minerals, marines, agriculture, etc.
Underspending by these ministries means that citizens are deprived of the economic empowerment and opportunities that emanate from fully developing such resources. Second in line is the administration sector, which comprises of administrative arms of government. Underspending in this sector translates to a deprivation of the much needed administrative governance services.
The dream of “bringing government closer to the people” is critically compromised. Although it is the third least executor of the budget, it’s the most critical sector because it holds the key to Namibia’s twin challenges – unemployment and poverty. The infrastructure sector comprises of the ministries of Works and Transport and Information and Communication Technology – these ministries receive the budget to implement projects of national interest and through that, government can provide public works and infrastructure that can attract investments. The social sector and public safety sector both reported few votes/ministries that underspent their operational budgets, but nonetheless these sectors have also critically underspent their development budgets as well.
Implications of budget execution (underspending)
The opportunity cost of not adhering to budget is enormous and the social and economic costs associated with it are massive and continue to linger longer. In order to avert these costs, government must adhere to the spending targets, strategies, policies, and programs as outlined in the annual budget. Thus, adherence to planned (spending) budgets is not only an important indicator of the overall capacity of the government to deliver on the programs to which they have committed, but it is also an important instrument to anchor public trust and confidence. Each year, ministries return millions of money back to State, leading to poor development outcomes. 2019/20 FY was an exceptional year – where about N$12.1 billion was not spend despite problems and challenges the money was supposed to address remaining.
Slow down economic development in the country
Underspending or poor execution of capital project is detrimental to the economic development of Namibia. Capital spending in physical infrastructure or development project creates an important and often positive influence on the business environment and economic development of any country that aspires to achieve high level of economic growth. Therefore, in the country, such unanticipated delays in projects depict the uncertainty that persists in it, which erodes predictability in the economy and makes it apparently unfavourable for long-term investments. Namibia, for its economic growth requires high level of domestic as well as foreign investment and further negligence on capital budget execution can dampen the opportunity to acquire these investments.
Debt accumulation
The government, in order to meet higher financing requirements of a nation, raises internal and external debts, with liability of repaying back with interest. Inability to spend this money can cause delay in projects, which will further defer the process of capital gain and freeze capital. This frozen amount will compound the interest liability, which will predominately contribute to debt accumulation.
Contradiction with the commitments to national development agenda (Vision 2030)
The underspending of the approved budget – particularly the development budget is in contradiction with the commitments that government has made with its citizens. The Namibian government has committed in various strategic documents i.e. National Development Plans (NDPs), HPPs, etc. that it would increase the development budget expenditures as part of fiscal strategy to alleviate poverty and inequality for the country. Here it is important to understand that adherence to the spending targets is key if this commitment is to be achieved and return the citizens’ trust and confidence in the government.
*Mally Likukela is an economics lecturer and the MD of Twilight Capital.