Local economist Robert McGregor believes government is spending money in the wrong places that will never translate into driving the economy forward. During an economic outlook discussion last week, he stressed the importance of utilising the development budget to drive long-term growth.
“We are really not spending money in the right places. This is evident with what is earmarked for the development budget. Government is expecting to reduce its development expenditure, and it’s very concerning because that is where longer-term economic benefits are”, said McGregor.
“The biggest share of government expenditure is current expenditure, which is taken up by the civil service wage bill. Another large portion within government expenditure is interest payments, which is the cost of debt that has been going up for the last 11 to 12 years,” he added.
The economist noted that developmental expenditure has greater economic returns and can significantly improve government revenue in terms of the ability to conduct business in the domestic economy.
According to McGregor, government is spending around 16% of revenue on debt interest alone. He continued that Namibia is expected to remain in a structural deficit of about N$11.4 billion over the next three years, which is quite substantial. This also means the country is going to experience a large increase in debt.
Touching on economic rebound activities, McGregor stated that growth is expected to be driven by diamond mining, as it is anticipated to expand by 26.2% in 2022 and by 16.5% in 2023, largely driven by Debmarine’s new N$7 billion vessel, the AMV3.
The largest diamond recovery vessel in the world is expected to commence production during the second quarter of 2022, and is anticipated to operate for at least 30 years. AMV3 will use subsea crawling extraction techniques to retrieve diamonds from the seabed off the coast of Namibia.
Meanwhile, at the same occasion, economist Floris Bergh cautioned that Namibia can expect some stagflation, which is persistent high inflation combined with high unemployment, resulting in stagnant demand in a country’s economy.
“Consumers are in a tough time, experiencing high interest rates and high inflation. Consumers are also going to feel the pinch from the Ukraine and Russia tension as it will further increase fuel prices, which is an input factor for many commodities,” Bergh warned. -mndjavera@nepc.com.na