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No budget allocation for Welwitschia Fund

2023-02-28  Maihapa Ndjavera

No budget allocation for Welwitschia Fund

In May 2022, Namibia launched its first sovereign wealth fund, known as the Welwitschia Fund – and currently, the fund remains with an initial seed capital of N$300 million.  Nothing was allocated for the fund from the recently announced 2023/24 national budget.

“Given the need to maintain fiscal sustainability, it is not possible at this point to further capitalise the fund from the current revenue streams without increasing debt,” said finance minister Iipumbu Shiimi last week during the budget statement in the National Assembly.

Government public debt stock is estimated to increase to N$150.9 billion or 70.1% of gross domestic product (GDP) before peaking in the coming financial year. 

“In nominal terms, the debt stock is still growing marginally above the growth in nominal GDP, and we aim to gradually close this gap towards the end of the medium-term expenditure framework (MTEF),” added the finance minister.  

The minister stated the fund’s technical team is finalising inputs into the draft bill from stakeholders, after which the approval processes will commence. 

He said the aim is to table the bill before Parliament in FY2024/25. 

Accordingly, the draft bill will include the necessary provisions and stop-gap measures to ensure the fund is capitalised in a fiscally sustainable manner.

The Welwitschia Fund was established with two objectives, namely saving for future generations, as well as fiscal and official reserve stabilisation.

The fund is envisaged to be a repository of the investment of a portion of defined proceeds from the present utilisation of natural resources and returns from divestiture in state assets. 

On the second objective, the fund aims to insulate and stabilise the economy, the national budget and the country’s stock of international reserves against excess volatility in commodity prices and shocks on the fiscal accounts as well as the balance of payments. Launching the fund last year, President Hage Geingob said a sovereign wealth fund could be a potent tool in achieving economic growth. 

Similarly, it can also act as an important fallback and stabiliser during times of extreme shocks. 

Since 2016, Namibia has faced tough economic times, with a decline in commodity prices, devastating droughts and recently the emergence of the Covid-19 pandemic, which Namibia is still reeling from.

Geingob affirmed there will be operational independence in the fund to make sure it serves its purpose. 

“Ownership of the fund is vested in the Namibian government, while the Bank of Namibia will be the fund’s primary custodian, responsible for its administrative function”.

Furthermore, for the remainder of the MTEF, overall debt stock is projected to rise to N$160 billion and N$161.8 billion for FY2024/25 and FY2025/26, respectively. 

According to the fiscal strategy report for 2023 to 2024 from the finance ministry, the interest payment for the FY2023/24 is estimated at N$10 billion as compared to N$9.3 billion recorded in FY2022/23. 

Of this amount, N$8.1 billion is earmarked for domestic investors, while N$1.9 billion is for foreign debt servicing. 

Moving forward, the report stated an amount of N$10.6 billion and N$11.3 billion worth of interest payment is projected for FY2024/25 and FY2025/26, respectively. 

“As a ratio of revenue, the interest payment is projected to account for 13.4% and 13.8% of revenue for FY2023/24 and FY2024/25, while for FY2025/26, it is projected at 14.2%. Although stabilising at this level, the ratio of interest payment is above the benchmark of 10% of revenue set out in the debt strategy,” it reads.

Many economists claim this escalating debt will be a burden for future generations, and government should be cognizant of this. They claim debt is good if spent on developmental projects that will yield proper returns for the country. 

- mndjavera@nepc.com.na


2023-02-28  Maihapa Ndjavera

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