Economists expect a substantial increase in the resource allocation towards the social sectors and have even suggested another emergency income grant (EIG) to stimulate economic growth when finance minister Iipumbu Shiimi tables his first national budget next week.
Shiimi is expected to give notice in the National Assembly on Tuesday for the tabling of the Appropriation Bill the next day on 27 May 2020 amid the Covid-19 pandemic that has placed millions of people and livelihoods across the world under threat and has disproportionately impacted the poor and middle class.
According to local economist Mally Likukela, every responsible government ought to use its fiscal policy, namely the national budget to provide some relief for those most affected by the pandemic.
“A further EIG might be necessary for those who lost their source of income and who do not benefit from existing grants,” Likukela told New Era.
“I expect this is simply because capacitating ministries that are directly hosting, coordinating and implementing social protection programmes that focus on the poor and middle class can significantly contribute to achieving their resilience; for example, strengthen their capacity to resist, absorb, adapt to and recover from the crisis.”
He explained that amid a protracted economic slump and the unrelenting economic onslaught at the hands of Covid-19, it has become increasingly hard for Namibians to remain optimistic.
Therefore, he proposes that a pragmatic and unemotional approach to the economy and the fiscal resuscitation is essential at this juncture.
In this regard, he feels, the finance minister will have to present a credible plan to ensure Namibians don’t lose the last ounce of hope they are still holding on to about the future of the economy as well as the war against Covid-19. “The first challenge that the minister needs to address is low growth exacerbated by Covid-19, which affects the debt-to-GDP trajectory.”
Another economist, Klaus Schade, warned that revenue will come under pressure from almost all sources, including personal income tax due to job losses and pay cuts; company taxes due to a significant drop in business activities; value added tax because of less consumer spending and business activity and the Southern African Customs Union (SACU) transfers since imports are declining (even though the depreciation mitigates the impact slightly) and the ban on tobacco and alcohol products reduces income from excise duties.
“The decline in the SACU common revenue pool might only affect next year’s transfers. On the other hand, stimulus packages, including the EIG and additional resources for health could increase overall expenditure. However, we could see cuts in non-essential and non-productive expenditure including those already announced (no new vehicles; limits on fuel). The budget deficit, as well as overall public debt, will rise substantially during this financial year,” said Schade.
He concurred with Likukela that there might be a need for an additional stimulus package and support to those sectors that mainly rely on external demand as well as further support to vulnerable groups.
“Furthermore, further wage subsidies might be needed to ensure, employees remain employed. Any stimulus package must be targeted, in order to reduce leakages, and timely. Besides additional allocation to health, we need to address the well-known weaknesses such as provision of water and sanitation to all citizens, provision of adequate educational facilities (classrooms, electricity, water, sanitation and internet), expansion of ICT and e-Government in order to strengthen the resilience of service provision, etc. These sectors need to receive priority, while non-productive and non-essential expenditure need to be cut substantially. Government could defer tax payments in order to ease the cash-flow challenges of many businesses.”
He noted that if he were finance minister, he would strengthen health service provision to prevent the loss of life, prevent businesses to collapse and close and protect the vulnerable in society. He added that since government revenue will drop sharply, expenditure cuts are necessary and need to go beyond what has already been announced.
“Salary cuts for political office bearers, senior and middle management for the current financial year (while wages and salaries for lower-paid public servants remain at the current level) should not be a taboo in return for the job security,” Schade stated.
– ebrandt@nepc.com.na