Namibia is scheduled to pay domestic and international creditors some N$9.2 billion in interest, not including the value of the bonds due for redemption.
This interest constitutes about 15.4% of all domestic revenue.
In his contribution in the National Assembly last week on the 2022/23 appropriation bill tabled by the finance minister Iipumbu Shiimi last month, Popular Democratic Movement (PDM) parliamentarian Nico Smit said Namibia is robbing the future of the youth through overspending and over-borrowing.
The 15% of revenue that Namibia intends to spend on debt servicing is some 5% higher than the International Monetary Fund’s benchmark of 10% for low and middle-income countries.
“In real terms, this means that the government’s total debt for operational expenditure must not exceed 10% of its revenue. We already breached this benchmark in 2016 when it went up to 11% and since then, it has increased every year,” Smit explained.
The PDM parliamentarian also touched on the debt ceiling as a percentage of gross domestic product, which Namibia surpassed. “Eventually, it became a non-issue and now we blindly accept the fact that we are on our way to 75%. In the process, we ignore the extensive literature on sovereign debt which clearly shows that a budget balance becomes less and less likely above the 75% threshold and almost unfinanceable when we approach 90%.”
He added that Namibia completely ignores the fact that at some point, the country will default on its debt if it continues to borrow at such an alarming rate, particularly without a commensurate increase in overall economic activity.
“We are certainly not going to reimagine the youth’s future prospects if we continue to pilfer our future resources which were supposed to make provision for a better future for our youth,” stressed Smit.
According to him, the future looks less promising year-by-year and the only way government can attempt to whitewash the gross neglect of youth investment, he said, is by inventing a bogus budget theme and then trying to convince the youth that they are acting in their best interest.
Furthermore, Smit said Namibia is long beyond the point of fiscal sustainability, noting the country has erased all fiscal space it had as recently as 2015 and it is a mathematical certainty the country is on its way to default.
“When that painful juncture arrives, we will have to accept emergency borrowing from the IMF and we will gradually lose control over our own finances. If you want local examples of what happens to organisations when they have come to the end of their credit, just think of the inglorious shutdown of Air Namibia,” warned PDM finance shadow minister.
He believes for as long as Namibia does not fix the obvious shortcomings in the governance structure, there is no way the country will be able to turn the debt ship around, let alone contain the fallout from excessive debt.
On what he termed another fallacy, Smit said the Development Bank of Namibia is availing funds to small and medium enterprises that is taxed with a hefty 15% interest on loans.
“How can any small business survive at such a punitive interest rate if often these small businesses battle to meet even the most basic payments, at least for the first few years of their existence. It is no surprise that SME owners have shunned this funding window,” he stated.
Meanwhile, when Shiimi tabled the 2022/23 national budget last month he said the budget deficit is projected to reduce to about 5.6% of GDP in the coming financial year. Over the medium-term expenditure framework (MTEF), the deficit is projected to average about 5.5% of GDP, thereby necessitating a balanced fiscal consolidation policy stance over the medium-term.
“Given the outstanding debt stock, the projected budget deficit is still relatively high. Consequently, the public debt stock is expected to increase to N$140.2 billion, equivalent to 71% of GDP. The elevated public debt remains a primary concern in the medium term,” Shiimi cautioned.
To tackle this concern, the finance minister said government is committed to redirecting much of the revenue increases in the coming years, as the economy recovers, towards debt redemption and reducing the borrowing requirement.
“At the same time, we recognise that the scope for further expenditure consolidation has thinned significantly, and we thus shift the policy focus towards entrenching sustainable economic growth,” Shiimi added.
Also, during a recent State House courtesy call with the Black Business Leadership Network of Namibia (BBLNN), Shiimi said government has rolled out many relief programmes to help SMEs during this time of financial stress but added there was low or no uptake of the provided loans.