• September 21st, 2020

Namibia's fiscal policy to pass through phases over HPP2

At the recent formulation meeting of the economic advancement chapter for phase two of the Harambee Prosperity Plan (HPP), it was proposed that Namibia’s fiscal policy stance should pass through three phases over HPP2, namely from 2020 to 2025. Fiscal policy is considered by economists as very effective during economic downturns and in monetary unions.  Martin Mwinga, one of the presenters at the formulation meeting, said the economic recovery plan journey will be very challenging and each of these phases require a different set of policies. 
Phase one is considered to be for the years 2020 and 2021, during which there was the immediate Covid-19 crisis, which demanded fiscal stimulus as a response. Mwinga said expansionary monetary policy would minimise the negative impact of the pandemic on the economy with a projection of 68% debt-to-GDP for the first phase.  Through phase one, the government, as a response to Covid-19 in health support, added health workers and equipment. Income support was provided in the form of grants and wage subsidies and finally direct and indirect subsidies for business support. “Fiscal expansion will have averted economic crisis deepening and laid the foundation for economic recovery,” said Mwinga, adding that government revenue for the first phase will decline substantially, and deficit to GDP would hover at 12%.  The second phase (2021 to 2023), was described as a period for economic recovery. Mwinga said the fiscal expansion is to support economic recovery with the assumption that the pandemic will be under control and borders would reopen, resulting in the free movement of people and goods.  
The tourism, wholesale, and retail food sectors are expected to recover quickly during phase two as the agriculture sector production was predicted to rise, coupled with business confidence and investment in the economy. Mwinga further projected that the mining and fishing sector output would also rise due to global economic recovery with government revenue expected to recover from 2022 onwards and the deficit to GDP reducing to 10%. 

During the third and final phase (2023 to 2025) and beyond, Mwinga said the country needs to adjust the fiscal policy with a new growth formula producing high economic growth pushing debt to GDP in a downward trajectory. He, therefore, predicted brighter days with strong government revenue inflows for phase three and a further reduction of the deficit to GDP projected at 5%.
 Mwinga added that the Namibian economy responds positively to government spending and there is a strong correlation between government spending and GDP. 

 During the HPP2, some of the proposed interventions include solving the land servicing problem, solving affordable mortgage financing, solving home loan borrowers issues, solving access funding and collateral challenges faced by SMEs, solving access to finance by village farmers and entrepreneurs as well as solving governance challenges such as eradication of informal settlements, government restructuring. Also present at the formulation meeting, local economist, Klaus Schade, said slightly better conditions are expected for 2020.  “Construction and retail trade sectors expected more headwinds, while mining and cosmetics are relatively optimistic. The four central-north regions remain most concerned, while businesses from //Kharas and Zambezi regions are rather optimistic,” said Schade. - mndjavera@nepc.com.na

Mavis Braga Elias
2020-08-13 11:53:22 | 1 months ago

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