The Namibian economy is being crippled from multiple facets, which include the effects of the Covid-19 pandemic, the presence of fiscal structures and rating agency economic downgrades.
Since August 2017, the economy was downgraded to a junk status, where it remains in junk status to date.
Several downgrade ratings have followed, with the recent ones in July 2021 by the Ficth Rating Agency, placing Namibia at (BB) outlook and the other by Moody investment service rating agency at (Ba3 negative) credit profile, sighting government’s reliance on short-term borrowings, the country’s debt burden potentially rising to 74% of GDP, the lack of a definite and clear position to address fiscal metrics.
Rating agencies operate on watertight, non-negotiable principles, but can also be quick to revise an outlook or even remove the junk status if government takes a clear fiscal policy direction to address the fiscal policy issues.
A diagnostic study of the Namibian economy was undertaken by the National Planning Commission covering a period from 15th May 2020 to 15th May 2021 to investigate the diagnostics of the Namibian economy.
If the study is to be viewed as having been exhaustive, it should have detected the presence of 26 fiscal structures, which consist of 4 master fiscal regimes, and 22 sub fiscal regimes, within the economy that is currently crippling the economy and communicated the findings to the Ministry of Finance for further policy considerations.
The presence of these fiscal structures in the economy and the inability to precisely respond to them is what the rating agencies refer to as fiscal metrics, or fiscal policy reform dilemma to address the 26 fiscal structures. It is precisely the reason why the economy is continuously attracting downgrades.
Namibia offers the best economic and stable political environment on the African continent sufficient to attract foreign investments. The geographic location of the country and solid infrastructures provide high investment leverage for the country.
The country’s participation in the Common Monetary Area, parity of the country’s currency to the South African Rand and a modern, advanced, well-regulated financial sector, managed inflation rate, provide monetary stability and value of the country’s currency.
The Ministry of Finance called for consultants to express interest in developing a post-Covid-19 socio-economic recovery and implementation plan, to address the economic crisis, an exercise, which is rather taking a narrow path and likely to frustrate the ministry even further after spending millions in consultancy fees.
The fitting approach, if one was to advise, is for the ministry to establish “a Fiscal Policy Reform and Economic Recovery Council”, which is wider, to which experts can then be called to express their interest to serve on the council.
This, alone, will begin to send confidence signals to the rating agencies that Namibia is now in the right direction to addressing the 26 fiscal structures crippling the economy.
The council experts can agree with the ministry for sitting allowances, but with a guarantee that fiscal reforms will be precise and achievable to address these economic crippling fiscal structures.
The continued downgrading of the economy by the rating agencies is a clear indication of the fact that, 4 years down the lane, since the economy was placed in junk status, there are no clear fiscal policy reforms directions to address these structures.
If there were any, the rating agencies would start revising the outlook, and conversely, if there is none, the economy will continue to be exposed to sustained downgrades.
Is it not ironic that the National Planning Commission diagnostic study ended on 15th May 2021, and exactly two months later – on the 15th July 2021, the rating agencies downgraded the economy further in the face of the same economic diagnostic report?
This reaction from the rating agencies after the release of the report is a clear indication that the study has fallen short of detecting and highlighting these fiscal structures and therefore rating agency confidence in the system to deal with the fiscal structures that are harming the economy is negative, warranting the recent downgrades.
The Namibian economy is functioning with generic fiscal policies which are not aligned to the functional model of the economy, hence attracting the presence of 26 active fiscal structures that are harming the economy and each of such structures require precise targeted fiscal policy responses if the economy is to recover and the rating agencies reconsidering to revise the outlook or even removing the junk status economic tag.
The secret to effective economic recovery and an end to sustained rating agency economic downgrades lies in the ability of government to respond to the 4 master fiscal regimes and the 22 sub regimes currently harming the economy.
Fiscal regimes are not only located to cripple economies but are used to achieve external foreign policy agendas, i.e. allow them to function as silent weapons to affect domestic political regime change, due to poverty generated public discontent, arising from a collapsed economy when these fiscal structures are left unattended, they expose the economy to sustained downgrades, and equally used as a tool to keep away foreign direct investment.
Namibia’s economy is easily recoverable, through the fiscal policy response to counter the active fiscal structures, which subsist in the economy.
*Philips Ndunda is a post-graduate candidate in international taxation at the banking and finance option member of the Chartered Institute of Public Finance and Accountancy (CIPFA).