Economic experts opined that the national budget, including the growing budget deficit, were in line with expectations, but agreed that the current financial situation could not only be attributed to the Covid-19 health crisis. This is because the domestic economy had already contracted during three out of the past four years while policy frameworks to attract domestic and foreign direct investment has not been conducive.
This was the consensus during last week’s post-budget discussion hosted by Nedbank Namibia and Simonis Storm Securities shortly after the delivery of the budget statement by Finance Minister Iipumbu Shiimi. A crucial point of discussion during the debate was that Namibia’s debt is projected to increase to N$117 billion, or almost 69% of GDP, while revenue will be down 14.3% compared to estimates for 2020/21 financial year in the previous budget. In addition, corporate income tax alone is estimated to fall by approximately 25.5%.
Bruce Hansen, Managing Director of Simonis Storm, moderating the dialogue, underlined pre-existing domestic challenges such as unsustainable high expenditure levels, increase in the public deficit, increase in the public wage bill, slow implementation of reform to bolster growth, and drought. During his opening remarks, he emphasised the immense challenge faced by minister Shiimi amidst an economic and health crisis.
As Covid-19 has occasioned not only a healthcare crisis, the day of Shiimi’s speech coincided with the Namibia Statistics Agency’s announcement that 96.5% of businesses are adversely affected by the pandemic, forecasting that those businesses are expected to be further affected in the coming months.
Meanwhile, debt servicing and interest payments in the 2020/21 budget represent 16.4% of total government revenue, amounting to N$8.4 billion – 6.4 percentage points above the self-imposed benchmark of 10%. Despite the optimistic theme of the finance minister’s N$72.8-billion budget speech, ‘Together Defeating Covid-19, Together Thriving Again’, the domestic economy is projected to contract in 2020, contracting further in 2021 at a moderate rate of -1.1%, with the “new normal” average growth rates now being forecast at between 2.0% – 3.6% in 2022 and beyond.
Dr Jesse de Beer, UNAM economics lecturer, noted that a budget deficit would be expected during times of crisis, but that it is now quite concerning at N$20 billion vs N$7 billion in the previous budget. She too expressed concern about the enormous civil servants’ wage bill, echoing the urgency of finding a way to grow the gross domestic product (GDP) to service the increasing debt.
Hansen reiterated that whilst it was of utmost importance to address current realities, the bigger question would be “what would this look like post the health crisis?” urging that we need to build productive capacity and ensure infrastructure is in place to enable deficit financing from domestic sources.
Dr Eddie Turner, Head of Corporate and Investment Banking at Nedbank Namibia, who called this a Covid-budget, due to the understandable focus on health expenditure, mentioned that he was pleased consumers were not burdened with an extra tax liability. Turner said citizens need to look beyond the current scenario and therefore cannot be reactionary in respect of the overall economic outlook. Drawing a correlation between health and education, he shared his disappointment that there had not been a greater focus on education. “We need to create more entrepreneurs, and education is an avenue we need to look at.”
Turner also advised that the impact on tourism not be underestimated, as the lack of foreign tourists and prevailing regional trade uncertainties significantly affect economic activity. He expressed appreciation at the fact that the Southern Africa Customs Union (SACU) revenue did not dip too much, but said it will definitely dip next year due to the current lockdown. He said it is therefore important for the economy to recover, and suggested approaching the International Monetary Fund (IMF) for assistance.
The panel emphasised that Namibia will only be able to progress if Namibians innovate and collaborate, as the concept applies to all – government, businesses and individuals. They concluded that unity of purpose and fostering new methods would be crucial going forward.