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No conditionalities on IMF’s N$3.9 billion loan - Shiimi

2021-06-11  Edgar Brandt

No conditionalities on IMF’s N$3.9 billion loan - Shiimi
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Edgar Brandt

Finance minister Iipumbu Shiimi yesterday said he was concerned about the misrepresentation of national policy measures as conditionalities of the N$3.9 billion budget deficit financing loan arrangement Namibia secured from the International Monetary Fund (IMF) in March this year. Shiimi emphasised that the loan through the IMF’s Rapid Financing Instrument (RFI) did not come with any conditionalities. The national 2021/22 budget, presented in March this year, estimated revenue at N$52.1 billion, which is N$6.4 billion or 10.9% less than the pre-pandemic revenue collection in 2019/20. 

Shiimi explained through a statement that the five-year loan is to be repaid at a 1.1% interest rate. “The total size of the loan is equivalent to 100% of Namibia’s shareholding in IMF, which totals 191.1 Special Drawing Rights. At the centre of these public commentaries is a purported view that the loan comes with associated conditions, and that the government has acceded to the loan conditions which are unfavourable to the country,” he stated. 

Proceeds of the RFI are expected to enable government to fund budgeted programmes and development projects, particularly the elevated needs in the health sector, but also the developmental programmes to enable the country to cope with the adverse impacts of the pandemic. 

The finance minister noted that amongst others, it has been alleged in the public media that some of the conditionalities are that government should suspend public sector salary increases for a duration of five years, and implement a targeted early retirement scheme. It is further alleged that government acceded to such loan conditionalities without prior consultation with the representative labour unions, thus encroaching on employees’ rights and fundamental freedoms to collective bargaining and improved conditions of service. 

Said Shiimi: “In essence, this viewpoint asserts that the government has unilaterally suspended collective bargaining and de facto changed the conditions of service for employees. Notwithstanding the above, at least there is a noted common understanding that the current economic conditions, whose severity has been felt since 2016, do not allow for public expenditure increases without worsening the public debt beyond sustainable levels and that the public wage bill, which now stands at 15.7% of GDP and 55.7% of national revenue, is unsustainable”. 

The RFI is designed by the IMF as an instrument which provides rapid financial assistance to its member states facing urgent balance of payment needs or economic shocks. The loan is available to all IMF member states, Namibia included, and is intended for situations “where a fully-fledged economic programme is not necessary”. 

Shiimi also clarified that conditionality in IMF lending often arises when a country enters into a managed economic or financing programme with the Fund. 

“In the present circumstances and in response to most IMF member countries experiencing large and urgent funding needs arising from the negative impact of Covid-19, the IMF had availed funding from this facility, and even temporarily increased the access limits from 50% to 100% or even to 150% of the country quota holding to help member countries cope with the impact of Covid-19 on their economies,” the statement reads.  

He said RFI is not a financial programme or a normal loan operation, but rather an emergency funding arrangement. That is why, at a 1.1% interest rate, it is cheaper for Namibia as an Upper Middle-Income Country. 

The RFI arrangement is provided on the basis of the country’s existing and prospective policies for addressing economic shocks, and that a country is creditworthy if it has credible systems and policies in place to manage fiscal risks and runs its financial affairs prudently. 

Shiimi stated that since the onset of severe economic conditions in 2016, government instituted a number of policy responses to mitigate the macro-fiscal risks and revive economic recovery and growth, including the zero public salary adjustment policy that has been exercised since the 2017/18 financial year. 

However, Shiimi emphasised that these reforms are not conditionalities of the RFI loan, but rather homegrown policy response measures. 

“The RFI loan appraisal only recognises the reforms which the country is implementing, and encourages the country to continue implementing such home-grown reforms, as reiterated in the Letter of Intent by the government to the IMF. The commitments expressed in the Letter of Intent are a reaffirmation that the government will continue to implement the broad spectrum of national policy measures to manage fiscal risks and support economic recovery as well as inclusive growth, going forward.

Said Shiimi: “I should also hasten to add that the Letter of Intent which Namibia has signed for this arrangement is not a contract. If any, a contract binds the parties to particular terms and conditions. The Letter of Intent is a description of the country’s policies and measures, which are self-initiated and implemented to address particular circumstances. It does not constitute a binding contract with the Fund”. 

He noted that in respect of the public sector wage adjustments, the Letter of Intent has not contemplated the freezing of the public sector wage bill for five years, as alleged. Instead, it only makes reference to the 2021/22 financial year, for which the due process of stakeholder consultations has been undertaken. 

 “It is worth stating that Namibia is not the only country which has accessed and benefited from the IMF RFI facility. 

As at the last count, a total of 65 countries have applied for and received disbursements from the RFI and Rapid Credit facilities of the IMF to support their economies during these unprecedented times. These include the Seychelles, Tunisia, Nigeria, South Africa, Senegal, Jordan, Lesotho, Gabon, Eswatini, Rwanda, Egypt, Jamaica, Tajikistan, Montenegro, etc,” Shiimi stated.  

He also clarified that the proceeds of the RFI loan are part of the combined financing sources to enable government to fund the financing gap between revenue and expenditure as well as meet related borrowing requirements. 

Namibia’s financing gap increased significantly because of the devastating impact of Covid-19 on the economy and revenue. 

Overall government expenditure has been significantly reduced to N$67.9 billion, equivalent to 36.8% of GDP, from the peak of N$72.8 billion, or 41.2% of GDP in 2020/21. 

Shiimi stressed that public expenditure could not be further reduced in the short term without threatening the provision of essential services, especially in the health sector, during these unprecedented times. 

With this reduced level of public expenditure, the budget deficit, which needs to be financed through borrowing, stands at N$15.9 billion, and cannot be financed from a single source, but rather requires diversified sources of financing. 

2021-06-11  Edgar Brandt

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