Josef Kefas Sheehama
The macroeconomic framework needs to be complemented by a range of reforms that are within government’s control. The foundations for economic growth include prudent and credible fiscal and monetary policy, reliable electricity supply, a well-functioning financial system and respect for the rule of law. Achieving this requires decisive steps to build confidence, promote investment and job creation, reduce economic inequality and eliminate regulatory blockages.
Gross revenue is estimated to grow at an average pace of 6.7% to reach N$61.8 billion in FY2023/24 and N$64.7 billion by FY2024/25, underpinned by the increase in receipts from the SACU Customs Revenue Pool and strengthening domestic revenues as the economy recovers. Expenditure is to be maintained at 45.9% or N$32.5 billion in the 2022/23 financial year. The fiscal deficit is expected to stay unchanged at 8.6% of GDP. Interest expenditure is to increase to N$9.2 billion in FY2022/23. Crucially, the primary to reduce about 5.6% of GDP in FY2022/23, reflecting continued commitment to fiscal consolidation and sustainability. Gross government debt (total debt stock) increases to N$140.2 billion, equivalent to 71.0% of GDP.
Therefore, the 2022/2023 budget speech by Hon. Minister Ipumbu Shiimi, is cautiously indicating government’s commitment to continued gradual fiscal consolidation, which provides much-needed fiscal policy certainty and sustainability. In my view, the extent to which government is able to achieve fiscal sustainability will be dependent on the implementation of expenditure curbs and accelerated growth-enhancing reforms. This is critical for supporting the ongoing fragile economic recovery, and should counteract the negative impact of several headwinds, ranging from higher energy and food prices to a relatively less accommodative interest rate environment. Government is determined to implement reforms aimed at stimulating demand through investment in infrastructure; employment programmes and tax incentives that should boost consumption; easing the skills’ constraints; and modernising network industries, which should ultimately lead to increased productive capacity. Furthermore, the minister indicates that a modified Electronic Filing Tax Relief Programme will be introduced for another period of 12 months to offer much-needed relief to taxpayers by writing off a percentage of the interest and penalties owed as tax arrears to NamRA, and to promote the online filing of tax returns and general usage of the Integrated Tax Administration System (ITAS).
Despite this being another market-friendly budget, implementation will again be key, particularly on the reform and expenditure fronts. Here, political will to drive growth and boost revenue, keeping expenses in check, will once again prove to be vital. Facilitating faster private sector involvement in the power sector will catalyse confidence and growth more broadly. Namibia’s low growth levels and high unemployment reinforce the desire to protect existing industries and jobs. To achieve higher living standards, Namibia needs to adjust to global market demands. Climate change is starting to shape the manner in which the largest markets regulate imported and domestic products. Climate challenges also represent opportunities to generate new economic activity. Jobs and investment can be created by drawing on private sector skills and capital, while demand for carbon-intensive products can be managed with incentives and penalties. Industrial policy should support businesses that can respond to these challenges. Future-focused policy that takes cognisance of climate change would support efforts to raise youth employment, as announced in the national budget, in sectors such as business-process outsourcing, tourism and technology.
Weak domestic demand continues to limit firms’ ability to pass higher prices on to consumers. There is a risk that higher administered prices and exchange rate depreciation could put upward pressure on inflation. In line with government’s commitment to fiscal sustainability, the 2022/2023 budget proposes a set of measures to reduce public spending as a share of GDP, improve the composition of spending by reducing growth in the wage bill, and maintain good budget execution. Although local economic development projects often focus on small areas, they usually require collaboration among stakeholders across government, the private sector and community organisations to succeed.
The financial performance of several large state-owned companies continued to deteriorate sharply over the past years, leading to an increasing drain on public resources. Unlike their private counterparts, most state-owned companies hold developmental rather than profit-driven mandates. Nonetheless, these entities need to be financially self-sustaining. In recent years, a pattern of mismanagement and poor governance at major state-owned companies has led to operational failures, financial distress and increased demands for taxpayer support through the national budget. This problem is compounded by broad, sometimes unfunded mandates, and in some cases, outdated business models. Increasingly, however, these entities rely on external funding, government-guaranteed debt and bailouts to sustain operations.
To resuscitate the Namibian economy would require massive investment in infrastructure, skills & training; enacting and enforcing enabling business incentives to stimulate the production of goods and services for local consumption and exports; and having a clear fiscal and monetary policy direction for the economy. Namibia must exercise caution as debts are paid by revenue rather than GDP, and also given the low tax to-GDP ratio. Furthermore, incurring more debt in the current year would mean adding pressure on future budgets due to debt servicing obligations. One of the biggest risks facing the budget is the poor implementation of capital projects, which is a major concern for stakeholders in the economy, and to a large extent influences the level of impact of the budget on the private sector and the economy. Whether the budget will meet up to the expectations of Namibians and deliver the promised change depends largely on the implementation of institutional and structural reforms targeted at improving the budget process.
Furthermore, it was evident that during the Covid 19 pandemic, people lost their means of earning and ability to access capital. Therefore, by allowing partial access to retirement savings, the government will be providing room for people to use some of their retirement savings in times of distress. *The opinions expressed in the article are that of the author alone, and are in no way linked to his employer or any affiliates.