Windhoek
Minister of Finance Calle Schletwein will this afternoon present the Mid-term Budget Review, in line with his maiden statement earlier this year when he had said he would introduce a Mid-Year Budget Review in early November.
The review will serve three primary objectives. That is, to improve the quality of spending by identifying internal savings in the current fiscal year and reallocating a significant part of the savings to other priority programmes where value can still be realised.
Secondly, the review would allow government to align the expenditure priorities to the updated macroeconomic and revenue outlook, and thirdly, to afford the legislature unfettered opportunity to interrogate the budget policy and expenditure priorities for the ensuring Medium Term Economic Framework (MTEF).
NAMIBIA’S FINANCIAL POSITION
The review will also provide specific details of the government’s financial position and medium-term outlook. Schlettwein will update parliament and the public on the status of the government’s financial position, the funding plans for the budget and some of the policy responses that government is pursuing to mitigate the fiscal risks in the medium-term.
As the custodian of public finance management, the minister would reassure parliament and the public that government will continue to execute the national budget, as planned, with optimum prudence and without compromising macroeconomic stability and sustainability of fiscal operations.
When Schlettwein gave notice on October 15 that he would table the mid-year review budget tomorrow, he said: “There are five main areas of macro-fiscal risks which government is giving priority attention, as highlighted in the recent IMF Article IV Consultation for Namibia.
“These pertain to the potential impacts of the global economic turn of events, the medium-term revenue outlook on taxes on international trade under SACU (Southern African Customs Union), domestic financial market liquidity conditions and the financing of the budget deficit, the stock of international reserves and the fiscal policy stance in the presence of global uncertainties.”
GLOBAL SLOWDOWN
“With respect to the global turn of events, the global economy as recently assessed by the International Monetary Fund and the World Bank is estimated to slow down to 3.1 percent in 2015, significantly down from 3.4 percent growth rate in 2014.”
“This is due to the sharp slowdown in emerging markets and developing economies, particularly the BRICS economies of Brazil, Russia, China and South Africa. Sub-Saharan African economy has not escaped from this particularly challenging environment,” the finance minister further stated.
He added that “global financial markets are undergoing fundamental shifts, triggered by improving conditions in advanced economies, the normalisation of monetary policy, especially the exit from quantitative easing in the United States of America, and the consequent outflow of capital from emerging markets.”
Capital flows to emerging markets have weakened sharply, with some projections estimating that net capital flows to emerging markets and developing economies will be negative for the first time since 1988.
The commodity price super-cycle has ended, with prices for both fuel and non-fuel commodities on the downward spiral due to falling demand, especially in light of the slowdown of the Chinese economy.
In regard to the South African economy, which is intimately linked to the Namibian economy through trade and SACU links, IMF projects a meagre growth of 1.3 percent for 2015, significantly down from 2.0 percent estimated in the 2015 Budget.
The minister pointed out that for Namibia, as a small open economy, the country aims to pursue domestic demand-driven and export-led inclusive growth by improving local productive capacity and diversifying the economy, while protecting budgetary allocations to social sectors.
SACU REVENUES
While Namibia anticipates pressure on revenue and this will increase sharply next year due to a significant reduction in revenue from SACU, which accounts for about 34 percent of Namibia’s revenue, the minister earlier told parliament that the adjustments in SACU revenue meant that Namibia will have to be contend with a negative adjustment in the next two financial years, given the weak prospects for the South African economy.
However, the minister stated that it was not the first time that volatility in SACU revenue has occurred. Namibia has been able to navigate through the effects of such volatility before.
“It is our plan to do so going forward, through expanding and deepening the domestic revenue base, accelerating the tax administration reform agenda and adjusting expenditure levels in line with the changing revenue and macroeconomic environment,” he stressed.
The government’s expansionary fiscal policy over the past six years has supported the growth of the economy, provision of increased services to more Namibians and creation of jobs, especially in the public infrastructure development and construction sector.
Government is, however, aware that prolonged fiscal expansion has exerted pressure on the stock of official international reserves held at the Bank of Namibia and also, to some extent, on the liquidity position in the domestic market. In practical terms, however, the foreign reserves situation should not be overstated.