WINDHOEK - When Minister of Finance Calle Schlettwein on Wednesday tabled the mid-term budget for 2018/19, there were no adjustments in the projected overall expenditure but he cautioned that the country public’s finance face a triple threat, namely consolidation, lower economic growth and high unemployment.
“A prolonged consolidation period has reduced economic growth, leading to job losses, declining consumption related to public spending in real terms. To return to positive growth, the economy needs to be stimulated to enhance investment, consumption, exports and productive capacity. Ultimately, job creation with fair remuneration, the elimination of poverty and significantly improved equality must remain the main goals of economic and social development,” said Schlettwein while tabling the review.
However, local stock brokerage, Simonis Storm Securities (SSS) has cautioned that public debt is escalating to unsustainable levels. “The minister has highlighted that taking on more debt is unsustainable, yet we have observed an increase in the projected debt level,” reads SSS’s report on the mid-term budget review.
“Public debt to Gross Domestic Product (GDP) is projected to escalate to 44 percent in 2018/19, compared to an initial 40 percent expectation recorded in the annual budget.”
“We are estimating public debt to GDP at 47.7 percent in the current financial period. One would assume that the debt to GDP has increased due to declining economic activity, however, what is more concerning is the increase in the projected debt levels in value terms by 11.9 percent to N$82.6 billion in 2018/2019,” the brokerage said.
SSS warned that escalating debt levels for a small open economy with little revenue generation capacity is a recipe for disaster. “Coupled to this,” it said, “the rating agencies are also closely monitoring the debt levels. Note that the key measures for a positive rating are steady fiscal consolidation, public debt stabilisation objectives and the prospect of a return to a moderate growth outlook.”
While Namibia’s debt as a percent of GDP is lower than Brazil, India, SA and China, a 45 percent debt to GDP is excessive for a small economy with a population of 2.3 million and nominal GDP of N$178 billion. The SSS report added that foreign debt, as a percent of total debt, is at 35 percent, which is not a major concern but it does expose the country to external shocks.
“Our main concern remains the elevated debt level and the servicing thereof, which will continue to put pressure on the Fiscus. We expect debt to increase to N$107 billion and debt to GDP to 51.9 percent by the end of 2020/21. This is above the estimated peak of 48.7 percent in 2020/21 indicated in the MTEF,” the SSS report continued.
Also weighing in on the budget review was another stock brokerage, IJG, who noted that, as per the budget statement, the domestic capital market will largely fund governments budget deficit over the MTEF (Medium Term Expenditure Framework).
“Domestic debt is expected to increase at a slower pace over the MTEF, reaching 28.6 percent as a percentage of GDP in 2018/19 and edging up to 32.2 percent in 2021/22 with an outstanding balance of N$72.5 billion. Total debt is expected to rise to N$82.6 billion, or 43.9 percent of GDP in 2018/19 before peaking at 48.7 percent of GDP in 2020/21,” reads the IJG report compiled by the company’s Research Analysts, Eric van Zyl, Ceceil Goliath and Danie van Wyk.
The IJG team added that Schlettwein presented a mid-year budget that is very reflective of the trying economic times the country is facing at present.
“The revenue projections and revisions are more aligned and attest to the downward pressures on revenue that are at play. Government is only likely to achieve the projected contractions in the budget deficit through continued austerity measures,” IJG concluded.