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Budget deficit exerts undue pressure on debt containment

2021-03-24  Edgar Brandt

Budget deficit exerts undue pressure on debt containment
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The Agricultural Bank of Namibia (Agribank), like local economists, has expressed concern about Namibia’s debt trajectory, based on last week’s tabling in Parliament of the 2021/22 Appropriation Bill by the finance minister, Iipumbu Shiimi. An Agribank’s analysis of the national budget indicates the budget deficit remains a concern over the Medium-Term Expenditure Framework (MTEF) period, as it exerts undue pressure on debt containment. The country’s domestic debt to GDP is expected to increase to 77% at the end of the MTEF, mainly owing to high debt servicing costs of N$7.7 billion, which equates to 14% of revenue. 

A local economist, Klaus Schade, also said he is concerned that the budget deficit over the MTEF remains high, resulting in an increasing public debt ratio, saying, “there is no indication how government will reign in deficit”.

Moreover, economic lecturer at the University of Namibia, Omu Kakujaha-Matundu, said high and unsustainable levels of debt can be attributed to sluggish economic growth. “This was exacerbated by the Covid-19 pandemic during the 2020/21 financial year. The harsh economic times left the minister with no option, but to borrow more despite the high deficit and debt levels, during the current financial year. The projected deficit of 8.6% is the same difference as the 2020/21 9.7% deficit. The projected total debt of 76.2% of GDP surpasses our own targets and the SADC target by a very large margin. However, as long as the deficit or borrowed funds are spend on job creating activities that causes economic growth, it is not a great sin,” he commented.  

Despite these concerns, Agribank’s Research and Product Development team’s scrutiny of the figures shows this latest budget presents a credible response to emerging challenges considering the finance minister had to walk a tightrope between fiscal stability and protection of the socio-economic fabric.

“Given the huge fear that the country was moving towards a twin crisis of protracted low GDP growth and an unstable health system, the Minister of Finance Iipumbu Shiimi, tabled a hopeful and restoring budget for 2021/22. In the budget, under the theme “Boosting Resilience and Recovery”, the finance minister projected a gloomy growth outlook and insufficient interventions to make material and sustainable impact on jobs creation and poverty alleviation unless timely, supportive, and growth-friendly policies are embraced and implemented. Resilience and recovery conjured ‘ShiimiSpeak’, creating a warm fuzzy feeling after enduring a latitude of pain and hardship,” reads the Agribank report.  

Moreover, the Agribank team stated that a key surprise in the budget for 2020/21 financial year was the outturn of total revenue for February 2021, which was 7.9% better than expected to N$55.5 billion. 

“Although lower than FY2019/20, income, and company taxes, surprised on the upside compared to the decline initially expected during the mid-term budget 2020/21. Revenue is projected to remain low on the back of struggling SACU receipts and dwindling disposable income. However, it is expected to pick up from 2022/23 as the recovery takes hold,” the report states. 

The Agribank team added that the significant increase in expenditure during FY2020/21 was necessary to combat unintended consequences of the lockdown measures on capital project expenditure. “With already high debt and decreasing revenue, it’s comforting to witness that the budget offers a twin goal of fiscal consolidation and support for the economy,” the Agribank report stated.  - ebrandt@nepc.com.na


2021-03-24  Edgar Brandt

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