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Municipal Debt Write-off Proposal

Josef Sheehama. Photo File

By: Josef Kefas Sheehama

The Landless People’s Movement (LPM) has tabled a motion in the National Assembly requesting NamWater and NamPower to write off local authorities’ debts. The Local authorities owe about N$1 billion to NamWater and over N$807 million to NamPower.

The fundamental problem confronting Namibia’s local authorities, especially those managing big towns, is the widening gap between the availability of financial resources and municipal spending needs. One of the main reasons for this increasing fiscal gap is the rapid growth of urban populations, which creates an ever-increasing demand for public services, new public infrastructure, and maintenance. The local authorities have long been taken as just another office, thereby diminishing their true role. It is a common practice amongst most municipalities when preparing their annual budgets to overstate or inflate revenue projections, either to reflect a surplus or, on the surface, to show that excess expenditure requirements are adequately covered by revenues to be collected. Therefore, the revenue estimates are seldom underpinned by realistic or realisable revenue assumptions, resulting in municipalities not being able to collect this revenue and, as a result finding themselves in cash flow difficulties. Should such situations arise, municipalities must adjust expenditure downwards to ensure sufficient cash to meet these commitments. It will not happen. Local authorities should be viable without depending on the government. The anticipated write-offs will encourage municipalities and ratepayers not to pay bills, deepening the malaise in the respective SOEs already saddled with bad debt.

The elderly, unemployed and disabled people are among those who experience the greatest difficulties in their daily life. Many have low incomes and, consequently, low quality of life. They are often excluded from the labour pool, the market place and the city’s social networks because of their inability to traverse the towns. Indeed, the problems of elderly and disabled people are persistent because they suffer multiple deprivations, which do not respond well to single-issue policies. Therefore, local authorities should provide the figures to NamPower and NamWater to enable their debts to be cancelled. The advances in human rights and national goals for social equity have stressed the value of all human resources, including elderly, unemployed and disabled people. Therefore, it is important to develop strategies for improving living conditions for elderly, unemployed and disabled people. Disabled and elderly people face the risk of having a lower standard of life than their counterparts of equal social class living in similar neighbourhoods.

Moreover, workers should be allowed to withdraw a portion of their pension. The rises in energy prices hugely affect discretionary spending power after households have paid their rent or mortgages, food bills and utilities such as water. This rise in prices is considerably higher than the increase in average earnings. Inflation is something that bites people’s household income. I’m sure they’re already feeling that in terms of prices that are going up. Employers are unlikely to compensate their staff for this extra and might limit pay raises.

Additionally, as inflation rises, it erodes the spending power of your hard-earned cash. So, making sure your money is working hard for you is essential. But it’s almost impossible to find a savings account to beat inflation at the moment. Everyone will be hit, and it will feel like a big squeeze. It will feel like a catastrophe for lower-income households if nothing changes. The ruling, if left uncontested, will not only disrupt the country but will further suppress economic recovery, considering the current threat the country’s economy is facing.

That’s obviously where the political response ought to focus, but many middle-income people will also struggle quite a lot with the kind of rise in bills they’re going to see. The whole country will feel squeezed throughout 2022, and low-income households will struggle most to deal with that. Also, when inflation gets too hot, the government might shift toward a contractionary fiscal policy. These measures, such as hiking interest rates and increasing the cost of borrowing, could slow economic activity and depress standard prices.

In the case of local authorities, it purchases electricity and water to sell to its consumers. It also has to collect waste or outsource the service at a cost and render sanitation services such as purifying water and treating sewerage. It must generate sufficient revenue to close the gap between the allocation it receives from the fiscus and the budget it sets out for service delivery. If a municipality is like a business, then it must be run like one. Any company must have a revenue model to determine how its income is generated and to detail the makeup.

It is essential to understand this revenue is generated and the key levers of the revenue value chain that must be managed closely. Like any business, understanding the product lines and the sales thereof is crucial for ensuring that the sales plan is executed and that the revenue is generated accordingly. Local authorities need the capacity and political will to implement reforms. Additionally, they should generate political support among urban constituents to introduce the necessary legal and institutional changes to increase revenue.

Many people have taken advantage of the poorly managed indigent registers in municipalities, thus receiving free services meant for the poor, causing huge losses in revenue to municipalities. There are cost-effective ways of monitoring indigent registers through lifestyle audits using data from information from various sources. It is also important to monitor the level of consumption of free essential services by those approved as indigent so that they consume within the allowable threshold to avoid non-payment for rendered services. Local authorities need to keep open and warm relations with the public. When customers are kept close, they tend to empathise with the suppliers and develop an affinity with them. This affinity will stir the urgent need to pay the invoice or statement the moment it reaches the customers. The municipalities can build this relationship between itself and its customers by responding expediently to their service needs, resolving any queries, making it easy for customers to pay the municipality and, if necessary, reminding them to pay their bills.

To this end, local authorities also show little fiscal effort in raising their revenues from non-poor households and businesses and from charging for services. Consequently, these municipalities are increasingly becoming dependent on government bailouts by asking for a permanent write-off.

Therefore, given that effective fiscal decentralisation requires meaningful revenue autonomy, the country must first ask how much revenue autonomy is needed. The local authorities fully know people’s constitutional right to water and electricity access. Therefore, these motions must be addressed to the grassroots before debts are written off.

Julia Heita

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