Faced with the daunting task of ushering Namibia out of a prevailing recession coupled with significantly reduced revenue as a result of subdued economic activity brought about by a global pandemic, finance minister Iipumbu Shiimi yesterday tabled the 2021/22 national budget with a total proposed expenditure outlay of N$67.9 billion.
However, out of this aggregate expenditure, N$8.5 billion, or 16.3% of revenue, is reserved for debt servicing interest payments, meaning the national budget actually amounts to N$59.4 billion of which N$53.9 billion is operational and N$5.6 billion is developmental.
Budget revenue is expected to decline by 6.1% to N$52.1 billion, from an estimated N$55.5 billion in 2020/21.
“This budget reorients spending towards the next phase of the new normal and devotes a share of resources towards the Covid-19 vaccine acquisition and roll-out, without relaxing our guard on preventative measures,” Shiimi said while presenting the budget in the National Assembly.
“It redirects scarce resources to support the green shoots of economic recovery. The budget reaffirms fiscal consolidation to anchor long-term sustainability into a credible fiscal framework.
Implementing this framework requires timely and decisive structural policy reforms to enhance the impact of the fiscal pulse in the economy and enable automatic stabilisers to work.”
Of the N$53.9 billion operational budget, just over 53% of the non-interest expenditure, or N$31.6 billion, has been allocated to social sectors, reflecting the priority assigned to health and education sectors.
To tackle the pandemic, the health ministry has been allocated N$8.1 billion, of 13.6% of total non-interest expenditure to, amongst others, support Namibia’s response on Covid-19, the associated roll-out of the vaccination plan, acquisition of pharmaceuticals and continued provision of services countrywide.
According to Shiimi, the budget focusses resources on three main domains that he described as essential for the next level of the new normal, namely providing for vaccine acquisition and health distribution needs, supporting economic recovery objectives, and ensuring continued provision of essential public services.
“The budget is presented under the theme ‘Boosting Resilience and Recovery’. This theme is in resonance with the clarion call and the declaration by His Excellency the President for the year 2021 as the ‘Year of Resilience’, further summoning our resolve to insulate the capacity of the economy and the socio-economic structure, while supporting economic recovery from the fractures impacted by the pandemic,” Shiimi noted.
Going into more details, Shiimi revealed the education ministry received N$13.8 billion, or some 23.2% of total allocation while the higher education ministry was allocated N$3.1 billion or 5.3% of total allocation, of which N$851 million is for the University of Namibia, N$488 million for the Namibia University of Science and Technology and N$1.2 billion for Namibia Students Financial Assistance Fund.
Meanwhile, the gender equality, poverty eradication and social welfare ministry was allocated N$5.4 billion, or 9.2% of total allocation, mainly to fund social safety nets and to support the fight against gender-based violence.
The defence ministry allocation was reduced by N$800 million to N$5.4 billion, or 9.1% of total allocation to compensate for health defence during Covid-19.
Furthermore, the agriculture, water and land reform ministry was allocated N$1.7 billion for multi-pronged investment in the sector, of which N$465.3 million is for the water sub-sector.
“Further, in order to address the challenge of aging water infrastructure, the procurement process for the upgrading of Rundu and Oshakati water treatment plants has commenced with the support of AfDB financing. The government is also embarking upon implementing various projects in the water sector in the central and coastal areas in collaboration with the German government,” said Shiimi.
Moreover, the finance ministry was allocated N$4.7 billion, about 7.9% of total non-interest expenditure, of which N$2.6 billion is allocated for the Public Service Employee Medical Aid Scheme and N$484 million is ring-fenced under PSEMAS for the procurement and distribution of the Covid-19 vaccine.
The public enterprises ministry was allocated N$733.4 million or 1.2% to support strategic operations of some state-owned enterprises while the industrialisation and trade ministry was allocated N$159.8 million.
As a result of increasing financing requirements, Namibia’s public debt is projected to increase to about N$140.8 billion or 76.2% of GDP in 2021/22 and is expected to remain elevated over the Medium-Term Expenditure Framework (MTEF). Shiimi anticipates debt to stabilise at about 84.6% in 2025/26.
‘Unsustainable debt’
Commenting on yesterday’s tabling, local economist, Klaus Schade, is concerned that the budget deficit over the MTEF remains high and results in an increasing public debt ratio, saying, “There is no indication how government will reign in deficit.”
Schade also mentioned that although PSEMAS has been under the spotlight for a number of years, no steps have been taken to reform it and instead it has been delegated to a committee now.
“The VAT zero-rating is not at all targeted and will benefit all women for a short period of time until the potential price decrease is reversed by general cost increases. It also does not address accessibility. The increase in the tax-deductibility of pension fund contributions will only benefit the better off. Those in the highest income bracket will save more than N$40 000 per annum, more than most Namibians earn per year. Those who need the support, do not benefit at all since they earn below the income tax threshold or because they cannot afford to spend this amount on a retirement fund. It increases income inequality instead of contributing to reducing inequality,” Schade lamented.
Moreover, economic lecturer at the University of Namibia, Omu Kakujaha-Matundu, is worried about high and unsustainable levels of debt owing to sluggish economic growth.
“This was exacerbated by the Covid-19 pandemic during the 2020/21 financial year. The harsh economic times left the minister with no option, but to borrow more despite the high deficit and debt levels, during the current financial year. The projected deficit of 8.6% is the same difference as the 2020/21 9.7% deficit. The projected total debt of 76.2% of GDP surpasses our own targets and the SADC target by a very large margin. However, as long as the deficit or borrowed funds are spend on job creating activities that causes economic growth, it is not a great sin” he commented.
Kakujaha-Matundu continued: “Should the deficit finance consumption as it is the case in this current budget, it will cause moderate growth in the short-term but might not provide the much-needed jobs. So, I think Namibians are in for a long haul. I don’t foresee a relief in the hardship faced by both business firms and workers. Therefore, Namibians should brace themselves for the proverbial seven lean years.”
Economics lecturer and MD of Twilight Capital, Mally Likukela, also expressed anxiety on how the deteriorating budget aggregates will be improved. “The silence on the maturing debts and the IMF loans raises concerns. The retention of some strategies is also a concern as some of them have been regular features of the budget year-in, year-out, for example, the wage bill. Another concern is the lack of revenue diversification strategy- the over reliance on SACU is a serious fiscal weakness and makes Namibia very much susceptible to external shocks,” Likukela warned.