WINDHOEK – The president of the opposition party Rally for Democracy and Progress (RDP), Hidipo Hamutenya, says it is concerned with the state budget deficit of N$7.6 billion. The national total debt is set to increase to N$38.5 billion, and Hamutenya said the constant baling out of state-owned enterprises is not making the situation easier. However, an economist has said the deficit and debt level are manageable.
“We have a particular concern on the budget deficit and debt financing. It is painful to see taxpayers’ money being extended to some government institutions, when these institutions had not met the obligations of the State Finance Act to provide the Auditor General with audited financial statements,” he said.
The veteran parliamentarian is also worried that the state’s operational expenditure keeps escalating on an annual basis. Minister of Finance Saara Kuugongelwa-Amadhila had said government intends to finance the deficit mainly from borrowing from the domestic market.
Approached for comment, IJG Securities research analyst Rowland Brown said the current level of debt, and the projected increase in debt, is manageable, adding: “At around 27 percent of the projected Gross Domestic Product (GDP), Namibia’s debt is one of the smallest in the world.”
Brown opines that the projected growth in debt is less than the projected growth in nominal GDP, therefore, the projected debt-to-GDP ration is falling marginally.
As to whether government must shrink spending to cut the deficit, he said the size of government expenditure is slightly concerning, as this expenditure is no longer counter-cyclical, and may contribute to an overheating economy if not reined in over the Medium Term Expenditure Framework period.
Brown said the current level of government expenditure is extremely high, and the growth in expenditure from 2013/14 to 2014/15 is huge when compared to previous years.
“The current rate of taxation in Namibia is probably a bit on the high side, and it is possible that a reduction in tax rates may actually increase government revenue and reduce the budget deficit,” he said.
“Debt at the current level is not a major concern. However, one should caution against running perpetual deficits given the current state of the economy, which looks as good as it has done for many years,” he said.
He urged government to wind down expenditures and commence a process of rebuilding fiscal buffers through some budget surpluses.
When asked whether the increase in budget deficit and national debt pose repercussions on the country in future, Brown said: “At current levels, no. However if debt-to-GDP goes beyond 35 percent to 40 percent of GDP in the near future, it will definitely have a negative impact on Namibia’s international debt rating, and may trigger sustainability concerns.”
Brown also indicated that the increased debt would benefit the average Namibian and it should lead to more disposable income and more money circulating through the economy.
“However, in the long run the cost of servicing this debt may actually result in the opposite, and should the current pro-cyclical budget prevail for a number of years, the economy may overheat, resulting in inflation, which clearly affects the man on the street,” he said.
By Mathias Haufiku