Finance Minister Calle Schlettwein has said the finalisation of capital projects last year spurred the reduction in the import bill as Namibia registered an improvement in its trade deficit.
The trade deficit in the second quarter of this year improved by 29.3 percent compared to last year from $6,194 to N$8,759 due to a -16.9 percentage points decrease in imports.
With the economy having entered the red with a slump in construction, the sentiment is that the general meltdown in the economy could have impacted on expenditure on imports.
Although Schlettwein could not dispute this, he said a melting pot of factors also played their part which involved a deliberate attempt by the government to reign in on expenditure.
“I think it’s a mix. We had massive infrastructure development projects in the last two years. These large projects resulted in the massive importation of expensive equipment in the mining sector but also in the roads and rail and ports sector. So these projects have come to an end, and therefore the importation of these infrastructure projects ceased bringing about a slowdown in imports,” he told The Villager.
The last two years have seen government committing to the port development, the building of a fuel storage, setting up of the Husab Mine, the Nerkartal dam and some other projects.
“The consolidation, of course, had an impact on consumption, and therefore there was less cash in the pocket that decreasing the import of consumables,” Schlettwein also added.
However, UNAM base economic analyst Roman Grynberg affirms that GRN was pushed to the corner on its spending by weak economic growth more than anything to the contrary.
“The reduction in imports is due to the general slowdown in the economy, and the failure of exports to expand is of considerable concern,” he said.
With Uranium spot market prices still stifled, he believes that “The Husab mine will eventually turn our exports around because it is amongst one of the biggest uranium mines in the world.”
Grynberg has also reiterated that less expenditure despite having positive knock-on effects on the trade balances, domestically it is spurring lower incomes, thus pinching public and private employees.
He added that the 51.9 percentage points contraction in construction is “serious and means that until government finances are in order, we will continue to face a depressed economic environment.”
To save construction from plummeting into the abyss, Schlettwein this week broke the news to members of the fourth estate that intervention policies have been put in place to give a remedial shot to the arm of the depressed sector.
“We have engaged with the public and private sector to establish an Infrastructure Fund at the Development Bank of Namibia (DBN) which will be ring-fenced for funding current and future priority economic infrastructure,” he said.
The fund, said Schlettwein, will be operational by the end of October of this year while it will “draw capitalisation from the domestic and financial capital markets.”
Grynberg has said the minister is right on course and should have the support of government and the citizenry to save the economy from the doldrums in the consolidation process as well as the short to long-term interventions.
“The minister is doing what none of his cabinet colleagues like- cutting. He needs the support of the nation to continue this harrowing process because the alternative is far worse. The lesson that we need to learn is not repeated the folly of just spending more, even if it is for a good reason such as increasing poverty alleviation, without any consideration of where the money is coming from.”
Research analyst at IJG Securities Dylan van Wyk sees Calle not wavering in tightening the budget while construction continues on fire and dragging the economy along with it.
“We do not believe there will be massive increases in the developmental budget anytime soon. The fiscal consolidation plan has just recently started, and we will need to minimise the budget deficit, to contain our borrowing, over the medium term expenditure framework (MTEF) period (at the very minimum) to have any real effect on our debt to GDP level.
Meanwhile, the economy has registered negative growth in the first two quarters, but Schlettwein said it is welcoming as it is shallower.
The economy is projected to grow by 2.1 percent in 2017, but with the latest statistics released by the Namibia Statistics Agency, chances of revising the growth forecast down remain on the table.
“This economic projection will be reviewed in the next update for November 2017. The direction of the revision will depend on the economic developments and data gathered since the last economic outlook that was released in July 2017,” said Emma Haiyambo, Director of Strategic Communications and Financial Sector Development at the Bank of Namibia.