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Smit warns of impending financial crisis …says time needed to overcome the economic implosion of 2020

2021-11-17  Edgar Brandt

Smit warns of impending financial crisis …says time needed to overcome the economic implosion of 2020
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Popular Democratic Movement (PDM) parliamentarian Nico Smit yesterday warned that Namibia is on the cusp of a major financial crisis but said the country’s leaders blithely continue to ignore the writing on the wall. 

Smit was commenting on the recent tabling of the Appropriation Amendment Bill, also known as the Mid-Term Budget. 

“We choose to continue in our ways, thinking there will always be money to borrow. This is ignorance in the extreme – and in my opinion, it can only lead us further into the wilderness,” he said, adding that “our debt is unsustainable, our interest payments are unsustainable, and our entire budget and accounting process is unsustainable.” 

Speaking in Parliament, Smit said the mid-year budget policy speech by finance minister Iipumbu Shiimi tries to present to the country an improving picture of an economy on the mend and better prospects over the medium-term expenditure framework.

“I can assure you now that this is not a true picture of the real situation. The only reason why it is possible to stir some hope in us is that the carnage was so big that even the slightest improvement looks like a new future. It is out of pure desperation that the additional budget looks attractive. In reality, it only confirms how severe the economic damage is,” Smit cautioned. 

He explained the additional budget condemns its methodology, saying it is impossible to hide the financial engineering across the entire budgetary spectrum of a government and all its operational units. 

“The familiar pattern of pilfering the development budget to finance operations continues unabated. The figures reveal the real horror that is the Namibian fiscal house. When N$280 million can be taken from the development budget, which is already a fraction of the operational budget and less than one-tenth what it should be in a healthy economy, then it clearly shows that there are no other options available. There is simply no more money available,” Smit warned. 

He asked his fellow parliamentarians to compare the N$280 million to the “meagre” N$41 million from the operation budget re-allocated between votes, noting this immediately paints a clear picture of how skewed the budget has become as a tool to manage the economy.

Said Smit: “The distortions in the full-year budget become more visible when I consider that an upward revision in revenue of N$1.5 billion is already incorporated in the new budget allocations following the mid-year budget review. You have to keep in mind that the projected increase in revenues is based on execution rates at the half-year mark, which in themselves are not accurate indicators of how both expense items and revenue will develop over the second half of the fiscal year”.

He further pointed out that after 2020, which he called the country’s worst year on record with the biggest economic contraction in 31 years as an independent nation, execution rates for the first year immediately after that are very unreliable. 

“It must be obvious that after Gross Domestic Product lost 8.5% of its value in 2020, any growth below this benchmark is still a far way off from where we were before 2020. This reality is further underlined by the ministry’s projections for this year, which reduce expected economic growth from 2.1% to 1.9%. It is not a difficult calculation to see that we are digging ourselves out of a hole and that it will take a very long time to overcome the economic implosion of 2020,” Smit cautioned. 

The PDM parliamentarian also questioned the official 2020 budget deficit of 8% when, saying, in fact, a deficit of 12.5% was more realistic. 

This, he stated, was due to a combination of improved GDP, improved revenue collection and under-spending, which he said are suspect elements liable to considerable adjustment in the second fiscal semester.

“This is clear from the Hon Minister’s own words telling us that government debt last year already exceeded 62% of GDP – and that this year, we are fast approaching the 75% mark… Hon Speaker, if the budget was as solid as we are being asked to believe, it would not have been necessary to continue borrowing by the billions,” said Smit. 

“Do not be fooled,” said Smith. 

“Whether a budget deficit is 12% or 8%, it is still massive. Middle-income countries in our peer group start getting uncomfortable when budget deficits go above 4.5% of GDP and view any deficit above 6% as disastrous. Where do we then get the audacity to pacify uninformed people by telling them: ‘Don’t worry; the deficit is only 8%!’, ” he questioned. 

2021-11-17  Edgar Brandt

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