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Home / The case for major economic reforms has never been stronger – IPPR

The case for major economic reforms has never been stronger – IPPR

2019-07-24  Edgar Brandt

The case for major economic reforms has never been stronger – IPPR

WINDHOEK – The case for major reforms on economic issues such as the size of the public sector, the civil service wage bill, support to loss-making public enterprises, and the questionable viability of capital projects, has never been stronger. This is according to the Institute for Public Policy Research (IPPR) who, in their second quarter economic review for 2019, noted that growth estimates for the short to medium-term are far lower than those experienced by Namibia since the last economic downturn in 2009.

“The monetary and fiscal firepower employed then (in 2009) to stimulate the economy out of a slump is no longer available. Interest rates remain low by historic standards and public debt has risen to record highs. Growth as low as even the (most) optimistic scenario will imply only very limited revenue growth and limit the ability to pay down debt without cutting expenditure elsewhere,” read the IPPR’s second quarter review. 

The institute noted that with limited growth and the stated objective of bringing debt levels down to sustainable levels, which government itself currently puts at around 35 percent of GDP and limited to 25 percent of GDP in its previous Debt Management Strategy of 2005, implies that Namibia will have to pay down around 15 percent of GDP in debt in net terms in the coming years. This in turn, stated IPPR, means that if Namibia is to avoid defaulting and meeting its domestic and foreign debt obligations in full, harsh budget decisions will have to be made.

Growth forecasts from entities such as the Ministry of Finance, Bank of Namibia, Namibia Statistics Agency and the International Monetary Fund indicate that Namibia faces several years of lacklustre growth. 

The Ministry of Finance envisages three scenarios in the National Budget, the most optimistic of which predicts a 2.2 growth rate by 2020 while the pessimistic outlook expects a -0.3 contraction by 2020. However, the optimistic scenario predicts 2.4 percent growth by 2022 while even the pessimistic outlook transcends into positive territory of at least 0.5 percent growth by 2022. 

The IPPR review further emphasised that total public debt has risen to an unprecedented 46.3 percent of estimated GDP and is due to breach the 50 percent mark within the current Medium-Term Expenditure Framework period. 

IPPR pointed out that this debt consists of domestic debt (Treasury Bills and Bonds) which make up 63 percent of total debt and external debt (bilateral and multilateral debt plus JSE-listed bonds and two Eurobonds) which makes up the remaining 37 percent of total debt.   

“One of the aims of government’s debt management operations is to create an environment of stability and certainty so that it becomes less dependent on short-term debt and is able to smooth debt repayment over a longer period and in the process reduce the cost of debt to the fiscus and the risk of default due to short-term cash flow considerations,” read the IPPR review. 

The publication notes that in order to repay debt, the Ministry of Finance has a Debt Redemption Strategy which aims to “ensure prudent credit risk management to avoid default events”. 

IPPR added that Namibia has so far never defaulted on public debt of any sort and explained that government maintains two sinking funds in two currencies, namely South African Rand for redeeming local and JSE-listed bonds and US Dollars for the Eurobonds, to which money is transferred on a quarterly basis. 

As of 31 March 2019, the Ministry of Finance stated that the balance on the Rand fund was N$858 million and on the US Dollar fund was US$350 million (or about N$4.9 billion). This, IPPR stated, compares with N$2.9 billion and US$1,250 million outstanding. 

2019-07-24  Edgar Brandt

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