WINDHOEK - Lower than expected Gross Domestic Product (GDP) during the last three years has resulted in higher public debt. In the Ministry of Finance’s Fiscal Strategy 2015 the public debt, excluding guarantees, for the 2017/18 financial year was projected to be 26.4 percent of GDP but in fact reached 43.3 percent of GDP in 2018, representing an increase of 16.9 percent.
In its Fiscal Risk Statement for 2018, the Ministry of Finance noted that a weaker economy led to a biased effect on the national budget with government revenue reduced by N$28.8 billion or 16.1 percent of actual GDP and expenditures cut only by N$12.6 billion or seven percent of GDP.
Other valuation factors, particularly exchange rate depreciation, estimated for 3.5 percent of GDP which culminated in public debt for the 2017/18 financial year of N$22.4 billion, which was noticeably higher than the projected level.
The Fiscal Risk Statement confirmed once again that Namibia’s economy is facing a challenging recovery. For the first time since 1994, the economy contracted in 2018 and public debt has doubled during the last four years.
Medium-term projections in the Mid-Year Budget Review for the 2018/19 financial year suggests a slow economic recovery with government revenues remaining below their long-term trend, from an average of 32.9 percent of GDP during the 2012 to 2017/18 financial years to the current 28.5 percent.
“Conditioned by expenditure rigidities, the public debt, including guarantees, is projected to stabilise at about 55 percent of GDP. Both, the expected low medium-term economic growth and a higher public debt pose potential risks for public finances,” read the latest Fiscal Risk Statement.
The statement emphasised that with the recession having started in the middle of 2016, the fiscal deficit has been widening and public debt has been rising.
“This is the first recession hitting Namibia in the last 15 years, which coincides with a low economic growth in the region and a tightened global financial market. The outlook is expected to turn, with baseline projections gradually improving but still with a growth below the long-term trend. However, several fiscal risks remain. The expected low economic growth, the deterioration of fiscal space in the last three years, and a weak external demand requires a different approach to manage public finances. Assessing their effects in the Namibian economy is critical for the formulation of the fiscal policy,” read the finance ministry’s statement.
Fiscal risks are defined as factors that may cause fiscal outcomes to differ from expectations. These risks emanate from many sources and they are significant and highly correlated. “For example, the large state-owned enterprises (SOE) sector is characterised by weak financial performance with debt liabilities being concentrated in relatively few high-risk SOEs. Direct and indirect government support to SOEs, including on-lending and guarantees, is endemic and have been increasing in recent years,” the publication stated.
A Fiscal Risk Statement can help policymakers better understand their underlying fiscal position and risks to the economic outlook. Identification and disclosure of fiscal risks ensures that policymakers, the public, and legislature understand the risk exposures and their potential impact to public finances. It also provides the basis for development of appropriate risk mitigation strategies and can help underpin credibility and market confidence by signaling that the government is aware of its risks and has strategies in place to mitigate them.
2019-01-15 09:38:41 9 months ago