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Home / Fiscal policy must increase expenditure efficiency – First Capital

Fiscal policy must increase expenditure efficiency – First Capital

2019-03-25  Edgar Brandt

Fiscal policy must increase expenditure efficiency – First Capital

WINDHOEK – As the Namibian economy gradually emerges from negative to positive growth this year, policy makers need to learn from the past to avoid being trapped in recreating the same mistakes and to avoid debt accumulation as well as falling further into a debt trap. 

This is according to a recent analysis by First Capital Namibia, a local financial services company specialising in providing treasury and asset (investment) management services, of Namibia’s fiscal policy. The analysis was compiled by Martin Mwinga (team leader), Milner Siboleka (research manager), Clarinda Kavezuva (statistician) and Frieda Amadhila (financial analyst). 

“As the economy starts to register positive real GDP growth rates, government revenue is equally expected to gradually increase. Revenue improvement that is expected at the back of improved economic activities would be a huge test for our fiscal policy management to maintain the current spending trend of fiscal consolidation. Rather than raising expenditure, efficiency should be increased on the current expenditure levels to increase the output with similar resource allocations,” reads the report. 

The analysis, released this month, notes that fiscal policy is the most effective policy instrument employed by the Namibian government over the past 29 years to influence and balance the economy, using taxes and spending. 

“To understand and appreciate fiscal policy in Namibia, one has to understand the economic challenges facing Namibia at the time of independence as these challenges shaped all new policies. Given the state of the economy at the time, policy makers in government agreed that the design and configuration of fiscal policy should incorporate both the fiscal stabilisation, economic growth and social spending objectives,” the report states. 

To analyse fiscal policy in Namibia, the First Capital report broke down their analysis into three periods, namely, Fiscal Policy under President Sam Nujoma (1990 to 2005), Fiscal Policy under President Hifikepunye Pohamba (2005 to 2015) and Fiscal Policy under President Hage Geingob (2015 to 2019). 

Based on data analysis, First Capital says core focus of fiscal policy in Namibia over the past 29 years by the three presidents has been to use government expenditure to achieve sustained and inclusive economic growth, reduce unemployment, poverty and income inequality while maintaining macroeconomic stability. 

“As things stand, Namibia’s fiscal policy stands at a crossroads. The country is at a difficult juncture when it comes to fiscal policy and the difficult task facing government is to strike the right balance between macroeconomic stabilisation through fiscal consolidation and stabilisation, stimulating aggregate demand to achieve economic growth objective while ensuring fiscal sustainability in the long-term,” reads the report. 

In addition, the authors are convinced the country’s fiscal policy is at a crossroads because of numerous factors, including: total government debts accumulated over the past 29 years are reaching critical levels at 50 percent of GDP; inelastic, non-progressive and volatile government tax revenue and narrow tax base; default risk is on the rise by local authorities, private sector, state owned enterprises (SOEs) and households and may need bailouts; the economy is fragile and weak while many people are calling for additional fiscal stimulus to grow the economy and alleviate poverty; and national savings levels are very low to support government while chances of foreign borrowings are diminishing. 

“At this juncture in Namibia’s history, tough and unpopular decisions and choices are required towards the nation’s redemption. In this report we present facts about Namibia’s fiscal position and whether we can learn something from the past as a nation and chart a better sustainable future,” the report states. 

2019-03-25  Edgar Brandt

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