WINDHOEK - Government, through the Ministry of Finance, is actively seeking options to reinvigorate the role of financial sectors in supporting long-term productive investment that can enhance the ability of trade, technology and transnational companies to work for inclusive growth and development.
Speaking at a United Nations Conference for Trade and Development (UNCTAD) debt management conference in Geneva, Switzerland, finance minister Calle Schlettwein said the domestic financial sector, whose size is about twice the size of GDP, holds potential to finance investment opportunities in both listed and unlisted space as part of domestic resources mobilisation. This year’s UNCTAD Conference is themed “Making debt work for development”.
During the keynote speech on Monday, Schlettwein noted that the leveraging of state assets through partial listing and divestiture as well as public, private partnerships are further important avenues being utilised through this reform and resource mobilisation initiative.
“As a relatively small open economy, Namibia has sought to put the Addis Ababa Action Agenda and its emphasis on domestic resources mobilisation and sustainable and inclusive development at the centre of our financial management for development. We are mindful always that our policy space can be impinged upon by the expectations of international financial markets and consequently the ability to sustainably finance our national development agenda. We too recognize that no country can sustainably depend on external resources for its own development. As such, our national budgets are funded from own revenue to the score of 98.5 percent, with external grants making up about 1.5 percent or so,” said Schlettwein.
He continued that during Namibia’s ongoing fiscal consolidation process, the country employed a loan facility from the African Development Bank, of which N$4 billion or US$272 million was earmarked for growth enhancing capital spending in logistics, educational infrastructure and agricultural mechanisation infrastructure, in addition to the development budget allocation of N$7.9 billion.
Said Schlettwein: “We have sought to increase economic growth and government revenue, mindful that there are real constraints as to how much domestic resource mobilisation is possible through increased taxation. Our prescribed tax-to-GDP ratio averages around 30 percent, appearing as very high. However, considering that no capital gains tax is asked and that the effective tax rate for corporates hovers around 21 percent, policy space is limited in both directions (tax relief to stimulate growth or higher tax income to reduce debt take-up). We have however commenced reforms aimed at better tax administration by the establishment of the Namibia Revenue Agency, an autonomous tax authority, which is due to open its doors in April 2020.”
However, he noted that commitments to the Addis Ababa Agenda remain a serious challenge within the global systemic realities of financial flows, illicit financial outflows, global economic fragilities, climate change, multilateral and governance failures, to name but a few.
Therefore, Schlettwein called on all nations to engage in reinvigorated debate that addresses some of the systemic issues which weaken the ability of developing countries to create policy space and effectively manage their macroeconomic frameworks for more stable, sustainable and inclusive outcomes.
The UNCTAD Debt Management Conference is the largest such conference on the global stage, bringing together academic experts, high-level policymakers and practitioners of debt management, civil society representatives and the private sector to discuss growing global indebtedness and how best to manage it. For developed and developing countries alike, the matter remains one of how debt can be used as a transformational financial instrument, so that growth rather than recession, and ultimately inclusive development, rather than crisis, eventuates.
The spectre of increasing global debt is haunting the global development agenda. Global debt is now at historic highs and according to the April 2018 stocktaking by the International Monetary Fund, global debt is now in excess of 225 percent of global GDP, which is a new record.
According to the UNCTAD Trade and Development Report 2019, the explosion of global private debt came about due to more than three decades of financial deregulation and heavily privatised credit creation and financial intermediation in developed economies. In developing economies debt also reached its highest level on record reflecting a massive increase in private indebtedness, from 79 percent in 2008 to 139 percent in 2017. Public indebtedness in 2017 in all economies picked up significantly as well and especially after the 2010 financial crisis, albeit not at comparable levels to private debt with over 100 percent of GDP in developed countries and about 51 percent in developing economies.
“Such meteoric rise in global debt threatens to stifle global economic expansion and derail global development agendas such as Agenda 2030 and the Paris Agreement through its strain on fiscal space in especially developing economies, and the resultant disability to remain countercyclical,” Schlettwein cautioned.
This year, the UNCTAD Conference aims to address important issues such as current trends in the unfolding developing country debt crisis, recent debt transparency initiatives, policies to support long-term debt sustainability, the role of debt and disaster relief in the context of increasing global climate change and the role of the international community in strengthening debt management.
“Globally, we are witnessing a steep rise in debt uptake, with the unhealthy dependence on debt for global growth reflected in the ever-greater levels of global debt stocks,” Schlettwein added.
The UNCTAD’s 2019 Trade and Development Report also shows how global debt stocks have expanded to their highest levels ever in 2017, even beyond the levels experienced at the time of the global financial crisis. Bloomberg recently reported that by the end of 2018, global debt stocks amounted to more than three times global GDP.
According to Schlettwein, these astronomical debt levels reflect a profound systemic instability of the global economy and its governance and regulatory structures.
“Of course, we know that debt is a necessary and sometimes most useful financial instrument, but the growing indebtedness in the context of a deregulated global financial sector has not, as the figures show, led to an increase in real investment. In developing countries in particular, we know that the rising indebtedness, borne of private capital inflows, has sadly more to do with the lack of return in the places they come from than a genuine interest and risk appetite for the countries they are coming to. Unabated illicit outflows further contribute to the precarious situation in many developing countries We are living in fragile times,” Schlettwein stated.
The finance minister continued that the growing share of private debt is a long-standing phenomenon in developed countries, where the share of private debt as a percent of developed country GDP has doubled over three decades (between 1980 and 2017).
However, for developing countries, the private sector share of debt, expressed as a per cent of GDP, has nearly doubled in only the last ten years. Private sector debt of all developing countries taken together now accounts for nearly 140 percent of developing country GDP. The indebtedness of high-income developing countries should perhaps raise the most alarm, with total debt-to-GDP at 215 percent, with the private sector accounting for over three quarters of this debt exposure, standing at approximately 165 percent of GDP. However, both middle-income and low-income developing countries have also increased their indebtedness, with middle-income country debt now surpassing the value of GDP, and in the case of low-income countries, external debt stocks have doubled since 2009, in many cases undoing the positive impact of debt relief programmes of the 1990s and early 2000s.
Schlettwein also warned that the growing global debt burden and its associated fragility comes at an unfortunate time for developing countries, and with global economic growth subdued, trade wars, climate emergencies and threats to multilateralism all contributing to uncertainty, the aspirational demands of the 2030 Sustainable Development Goals can appear unattainable.
“The high levels of indebtedness inevitably mean that there is reduced room to adjust and manoeuvre when external shocks do come. It will not take much for the most highly indebted countries to become financially distressed, and for smaller and poorer developing countries, with their fast-growing exposure to foreign capital and integration into international financial markets, to be teetering on the edge of crisis, should commodity price shocks or environmental disaster ensue. In fact, most of these downside risks have materialised and their impacts are felt in the growth matrix of these countries. Oil price is estimated to contract by 9.6 percent this year, while non-fuel commodity prices have decelerated to about 1 percentage point this year, compared to 6.4 year-on-year growth in 2017,” said Schlettwein.
“It bears pointing out that while Namibia’s per capita income categorisation along with other middle-income countries acknowledges the progress we have made in poverty reduction, we are not protected from economic stagnation or the effects of climate change. Middle-income countries remain highly vulnerable to external factors and environmental disasters, but our higher income status means we are often overlooked in the provision of concessional lending by the international community. Specifically, and in the case of an environmental disaster, middle-income countries are ineligible for immediate and efficient financial support from multilateral sources. Moreover, this income classification belies the development challenges that remain. Namibia for example, faces challenges of inequality, poverty and unemployment. Our Gini co-efficient remains one of the highest in the world, around 10 per cent of the population is affected by absolute poverty and a third of work force, in broad terms, is unemployed, with broad unemployment of the youth as high as 46 percent,” Schlettwein pointed out.