When finance minister Iipumbu Shiimi tabled the 2022/23 national budget last week, he said the budget deficit is projected to reduce to about 5.6% of GDP in the coming financial year. Over the medium-term expenditure framework (MTEF), the deficit is projected to average about 5.5% of GDP, thereby necessitating a balanced fiscal consolidation policy stance over the medium-term.
“Given the outstanding debt stock, the projected budget deficit is still relatively high. Consequently, the public debt stock is expected to increase to N$140.2 billion, equivalent to 71% of GDP. The elevated public debt remains a primary concern in the medium-term,” he added.
To tackle this concern, Shiimi said government is committed to redirect much of the revenue increases in the coming years, as the economy recovers, towards debt redemption and reducing the borrowing requirement.
“At the same time, we recognise that the scope for further expenditure consolidation has thinned significantly, and we thus shift the policy focus towards entrenching sustainable economic growth,” he observed.
According to economics professor at the Namibia University of Science and Technology, Teresia Kaulihowa, the budget is ‘fair’ with regards to priority areas, the social and economic sectors, but she sought more clarity on how the budget would address youth unemployment, poverty, housing and much-needed growth. She added that the consolidation effort of reducing the budget deficit is a good sign, but warned that the high debt stock remains a concern.
“There is uncertainty with regards to key policies like the housing policy, the informal economy, and SOEs reform needed to address socio-economic challenges as well as how it will drive economic transformation, and how the allocation to the agricultural sector is sufficient to reap its full potential,” stated Kaulihowa.
Local economist Klaus Schade stated that the finance minister has the difficult task to balance income with expenditure, while trying to reduce the budget deficit to levels that could rein in public debt.
“The policy announcements regarding the outsourcing of green schemes to the private sector, the implementation of the State Asset Ownership Policy and Universal Health Coverage (UHC), for instance, are welcome. However, it is not clear how the reformed PSEMAS will be aligned to the UHC,” he said.
Schade continued that Shiimi emphasised the fight against unemployment, poverty and inequality towards the end of his statement, but said tax proposals are not aligned.
Said Schade: “Tax-deductible allowances do not address poverty, let alone income inequality, since the poor and marginalised are either unemployed, employed in the informal sector, or earn below the tax threshold of N$50 000 per annum. Hence, they do not benefit at all from tax-deductible allowances. There is no adjustment of tax brackets that would bring some relief to low-income earners and increase their disposable income”.
He added that additional revenue sources do exist that could support necessary investments in social infrastructure or reduce debt levels. “Besides reviewing the tax-deductible allowances and the zero rating of VAT for specific items that will also to a large extent only benefit the better off, other potential income sources are not explored,” said Schade.
Meanwhile, an economist at stock brokerage Simonis Storm, Theo Klein, noted that the budget speech centred on the country’s youth as they are “the most significant resource which could propel our economy onto a competitive and sustainable growth path”.
Klein stated that the minister’s growth strategy will attempt to capitalise on the youth population, which is expected to grow by 7.7% to one million individuals by 2027 (about 930 000 currently).
“One interesting note is that the budget speech had no mention of ‘fiscal consolidation’. Instead “fiscal consolidation” has been replaced by ‘fiscal sustainability’. We would welcome a slight ease on consolidation efforts and a more counter-cyclical fiscal policy stance, given government’s size in the economy,” he added.