The domestic economy is projected to grow by 1.9% this year, which is a downward revision from 2.1% estimated earlier this year. According to finance minister Iipumbu Shiimi, the revision reflects low base effects and slightly lower production prospects, compounded by the rampant third wave of the pandemic and the subsequent restrictive measures introduced to contain the spread of the virus.
“From the sectors of industry point of view, growth will be anchored by output from primary industries and tertiary industries on the back of a strong recovery in mining, supported by minor growth in agriculture as well as strong activity in wholesale and retail, transport, and financial services. Secondary industries are projected to contract, largely due to expected declines in electricity and water production as well as the construction sector,” said Shiimi on Wednesday when he presented the Mid-Term Budget for the 2021/22 financial year. He further noted that while the domestic economy is estimated to return to a positive growth trajectory, this growth is still not strong enough to regain revenue prospects lost during the recession and pandemic periods.
The finance minister explained that as economic recovery gathers steam, import flows increased significantly relative to exports, resulting in deterioration in the current account. This resulted in a deficit of N$3.1 billion recorded on the current account during the second quarter of 2021, compared to a surplus of N$5.4 billion during the corresponding period of 2020. The considerable decline in SACU receipts also contributed to this development.
Shiimi stated that the finance ministry’s assessment indicates that thus far for 2021/22, the preliminary revenue outturn by September 2021 stood at N$27.2 billion, equivalent to 52% of the budgeted revenue and about 4% better than the average historical mid-year collection rate.
Moreover, the execution rate on total expenditure and commitments (excluding statutory spending), stood at N$32.2 billion at mid-year, equivalent to some 49% of the budget. Meanwhile, the half-year statutory expenditure execution stood at 43.8% while the development budget implementation rate, including expenditure commitments by the end of September 2021, stood at 39%.
At the half-year mark, Namibia’s total debt stock stood at N$126.1 billion, equivalent to 68.3% of GDP. This amount, Shiimi stated, is inclusive of US$500 million outstanding on the first Eurobond, which he announced was successfully redeemed on Wednesday, 3 November 2021. Said Shiimi: “The debt stock reflects that 57% of the budgeted financing requirements has been effectively met by the mid-year point”.
Reacting to this week’s budget review, local economist, Klaus Schade, said there is a need for a strong reallocation of expenditure in order to stimulate economic growth.
“Growth is envisaged at 3%, which is by far too low to return to per-capita income levels we have seen before we started consolidating the budget in 2016. The budget does not provide for the necessary adjustments and re-allocations. It is also silent on any additional social spending to cushion the impact of the low economic growth,” Schade stated.
He is also concerned about the country’s revenue base which he said is being eroded with the proposed increase in tax-deductibility of pension fund contribution as well as the proposed zero rating of VAT on sanitary pads that he feels will not benefit the low income earners and poor.
On the finance minister’s proposed tax amendments, Schade said: “The overwhelming majority of employees cannot afford to save N$150 000 annually as pension, most of them earn below the tax threshold and those in the informal sector do not pay income tax at all. These are the groups of society that need support. These tax amendments will not reduce income inequality but increase it”.
Also commenting on the mid-term budget review, Theo Klein, an economist at Simonis Storm Securities, warned that given the size of government in the domestic economy, it is very difficult to stimulate economic growth, whilst trying to strengthen the fiscus by implementing fiscal consolidation.
“The ministry itself pointed out that ‘scope for further expenditure consolidation has thinned significantly’. The nation, international financial organisations (e.g. the World Bank and International Monetary Fund) and credit rating agencies (e.g. Fitch and Moody’s) should be forgiving towards our government for increasing development expenditure and temporarily setting aside fiscal consolidation efforts. We argue that fiscal consolidation efforts be set aside temporarily until the economy shows signs of significant economic recovery from the lockdown induced economic depression…We remain concerned by government’s ongoing willingness to sacrifice developmental spending for the sake of paying public wages and other operational expenses,” Klein stated.