• July 14th, 2020

Covid-19 has moved fiscal policy

The outbreak of the Covid-19 pandemic has changed the direction of government’s fiscal policy from fiscal consolidation to mitigation of the spread and impacts of the virus in the country. Additional expenditure has been considered to provide for the fight against Covid-19, increasing the already high government spending, while revenue is expected to fall to the lowest level. 

“The emergence of Covid-19 has significant impacts on macro-economic and fiscal projections. Government is faced with projected decreasing revenues and constrained access to financial markets while the need for government spending to curb the spread of the virus increased,” said finance minister Iipumbu Shiimi when he tabled the national budget on Wednesday.   
He added that with the prevalence of Covid-19, downside risks to the economy have been elevated which will dampen effects on fiscal indicators, and completely change the path of the fiscal policy stance.  

However, Shiimi stated that while the 2020/2021 budget does retain the continuation of measures and partnerships suggested in last year’s Mid-Year-Budget review, such as supporting the fragile economy and mainstream economic activity towards long-term recovery, the key focus of the policy now is to counteract the impact of Covid-19.  
Said Shiimi: “There is still uncertainty on the duration and the extent of the effects of Covid-19 on the Namibian economy and society. The current fiscal projections present an unsustainable outlook that requires an in-depth analysis of the current policy with the view to reversing this trend.”  

Due to the current extraordinary circumstances surrounding the pandemic, government found it fit to consider a special single financial year budget for 2020/2021 for consideration by the National Assembly as opposed to the usual Medium-Term Expenditure Framework (MTEF) budget documents. 

“The single financial year budget offers an opportunity for proper assessment of the duration of the pandemic, its impacts and the magnitude of required resources to avoid commitments that might be unaffordable for the remaining two year of the MTEF,” Shiimi explained.    
He continued that the post Covid-19 era and the rest of MTEF would require vigorous situational analysis to guide policy interventions, which would include a blend of public-private partnerships (PPPs) and private sector investments to promote growth, generate job opportunities, and promote domestic demand to enhanced revenue generation over the medium-term and provide support to the economy. 

Revenue outlook 
In the meantime, the role of government’s fiscal policy has been elevated to an unprecedented level to provide for resources to contain the spread of the virus, to save lives and prevent excessive economic disruption as well as to ensure a smooth return to business after the state of emergency.  

Total revenue and grants are estimated at N$51.4 billion in 2020/2021, reflecting a decline of about N$7.2 billion or 12.3% compared to the total collection in 2019/2020. 
“While the extent of overall effects of Covid-19 on revenue remains uncertain, it is expected to remain almost flat in the next two years,” Shiimi cautioned, adding that declining economic activity in South Africa and the prolonged recovery of the global economy as a result of the pandemic will still significantly effect revenue outlook.
“Revenue forecasts are endogenously estimated on the basis of the underlying revenue base. In the baseline scenario, the outlook for various tax streams follows the related aggregate macroeconomic growth projections and takes into account the impact of discretionary policy and administrative intervention measures in the reform scenario,” Shiimi stated. 
Furthermore, he confirmed that the pandemic raised the need for fiscal policy action to a record high level, halting the fiscal consolidation policy. 

“The fight against the spread of Covid-19 necessitated the need for government to avail additional resources, and therefore expenditure is estimated to increase by about N$4.9 billion or 9.4% to about N$72.8 billion in 2020/2021, to provide for social protection and an economic stimulus package. The budget priorities will be accorded to expenditure needed to reduce the impact of the Covid-19 pandemic, which will result in an increase in the budget deficit from 4.5% of GDP in the 2019/20 financial year to an estimate of 12.1% of GDP in the 2020/21 financial year.” 

 This is expected to result in total debt stock to increase from N$96.7 billion at the end of 2019/20 to about N$119.1 billion by the 2022/23 financial year. As a proportion of GDP, central government debt stock is estimated to increase from 54.8% from the last financial year to 69.2% in 2020/2021.  

Edgar Brandt
2020-05-29 09:46:27 | 1 months ago

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