By: Nghiinomenwa Erastus
Considering the total extra request of N$7,1 billion from government offices, ministries and agencies (OMAs) during the mid-year re-allocation, the budget deficit could have been increased by 2,8%.
Finance ministry spokesperson Wilson Shikoto, told The Villager that had the request been agreed, it would have increased the national budget by N$7,1 billion.
Shikoto said their request would have pushed up the country budget deficit from 8,6% to 11,4% as a percentage of GDP.
Treasury would have to find other sources of income to match the extra expenditures- on top of the already N$30 billion funding gap, which got the central bank borrowing every second week.
As a result, Iipumbu Shiimi refused the N$7,1 billion request from OMAs and only re-allocated N$2,2 billion.
Shikoto explained that it should also be noted that the N$2,2 billion re-allocation was considered on the expenditure items that could not be postponed to the future financial years.
He said the consideration of N$2,2 billion was based on maintaining fiscal stability, thus maintaining budget deficit at 8,6% and keeping debt stock at a sustainable level.
TICKED ALL THE BAD BOXES
Namibia has historically exercised self-imposed but non-legislated fiscal rules, which have served the country well up to 2009/10.
It could be said Shiimi came at the wrong time in terms of fiscal matters, that his predecessor also struggled to control and tame.
One of the voluntary fiscal rules is to ensure that government consumption and investment expenditure should not go beyond 33% of GDP.
Even though not mandatory since 2016, government expenditure had been above the prescribed threshold, trending above 35%.
Last year, Covid-19 made it worse, reaching 40,4% under Shiimi, and is also projected to linger around 37,5% by March 2022.
Another is to keep the budget deficit-to-GDP ratio (the negative difference between revenue and plan expenditure) equal to or less than 3% over the Medium Term Expenditure Framework.
However, Tate Shiimi and the team could not resist or run away from the pandemic-induced expenditure need last year, and the budget deficit stood at 8% of GDP.
The budget gap increased from 5% from 2019 to 8% last year, s projected to be between 8,6% and 9% by the end of the financial year as revenue collection moves at a snail pace following the sluggish economic activities.
According to Shiimi’s promise early this month, he plans to reduce it to about 7,4% of GDP in FY2022/23 and average about 4,7% of GDP over the medium term.
The treasury team projects the budget deficit to reach about 3% of GDP by March 2025.
The government has also imposed that the amount of money it should owe from the market concerning the number of goods and services it produces should not exceed 35% (public debt-to-GDP ratio).
Despite this self-imposed limit, according to Shiimi’s mid-budget review, the country debt stood at N$110,6 billion, representing 62,1% of GDP.
He also indicated that at the half-year mark (2021), the total debt stock stood at N$126,1 billion, equivalent to 68,3% of GDP.
Looking at the government borrowing calendar and plan, the minister is not done borrowing, and the ratio is projected to reach 70% by the end of the financial year.
Shiimi said the government would keep borrowing, and as a result, debt to GDP will increase from 68,7% by the end of this year and peak at 74,2% in March 2024.
The government estimates that it will owe domestic investors N$144,2 billion or in FY2022/23 and reach N$160,8 billion or 73,1% of GDP in FY2024/25.
The debt to GDP could increase or reduce depending on whether the economy grows significantly at the same pace as Shiimi lead treasure accumulate debts.
The finance ministry has also imposed a debt servicing limit on itself that it should not spend more than 10% of revenue on interest payments.
According to Shiimi update, interest rate payments lingered at 12,8%t of revenue last year, significantly overshooting the 10% benchmark.
He said this is a reflection of the steadily increasing cost of high public debt stock.
The costs for debt servicing are projected to further increase from 12,8% of total revenue in last year to about 16,3% per cent in 2021/22 financial year.
This shows that more of what NamRa will be collecting will be diverted to interest payment as the government keeps borrowing more.
By the end of March 2025, debt servicing costs will take up around 17,1% by the end of the MTEF.
The minister of finance said the increase in interest payments is due to a significant increase in borrowing to fund the budget deficit resulting from the outbreak of Covid-19.
In his mid-term budget review, Shiimi said the critical premise of his medium-term fiscal framework is that in the absence of strong economic growth, revenue will remain subdued-without revenue growth, expenditure cannot be increased.
As a percentage of GDP, the estimated revenue collection (28,8%) for this financial year will be the worst in five years, while in absolute value second-worst collection after 2016 levels.
“At this pace of projected revenue growth coupled with elevated public debt levels, it is critical for total aggregate expenditure over the MTEF to remain aligned to the revenue,” said Shiimi.
Total revenue declined from N$58,4 billion in FY2019/20 to N$57,8 billion in 2020/21, while expenditure increased from N$67,3 billion and N$72 billion over the same period.
Shiimi updated that the government policy of fiscal consolidation resulted in expenditure reduction from 42,8% of GDP in 2015/16 to 37,6% of GDP in 2019/20.
However, due to some structural challenges in the economy, revenue declines, resulting in high deficit levels and debt stock.
On the other hand, total expenditure is estimated to remain the same as in the budget at N$67,9 billion.
The treasure indicated that the total expenditure ceiling is projected to reduce to N$68,3 billion by March 2023 and remain steady thereabout over the remainder of the MTEF.
He said the anticipated aggregate expenditure levels would serve as a guide in preparing the next MTEF, subject to fiscal sustainability and affordability evaluation pre-budget.
“If further adjustments are required to protect public finances, we will make the necessary amendments,” assured Shiimi.
He also cautioned his fellow National Parliament members, who wanted more money, that “it will be a difficult exercise for us to keep within these extremely constrained resource envelopes”.
He said he and his team would need support and cooperation from all policymakers as they balance to maintain fiscal sustainability in the near term.
Th3 minister said the fiscal consolidation exercise that the state pursued since 2016 had yielded some fruits, and the primary fiscal balance had almost been recovered.
However, “much of these gains had been undone by our interventions to combat the spread of the COVID-19 pandemic,” highlighted Shiimi.
As such, there is still imperative to maintain a growth-friendly fiscal consolidation process to restore fiscal and debt sustainability in the medium term.
Despite his hope to restore fiscal sustainability, Shiimi said the scope for further expenditure consolidation had thinned significantly.
He said the only option now is “a need to shift focus towards resuscitating sustainable economic growth greatly”.
According to Shiimi, the country’s growth prospects were hamstrung by the downturn in commodity prices, persistent droughts, compounded by low productivity outside the mining and service sectors.
Moreover, it is constrained diversification opportunities due to limited know-how and productive capacities in the economy.
Despite colossal government expenditure over the years, Shiimi did not attribute the sluggishness in economic activities to the lack of proper implementation of various government projects, bureaucracy, and allocative inefficiency, as multiple analysts have highlighted.
He, however, promises that the primary policy pillars over the Medium Term Expenditure Framework will centre on reversing the tide of low growth in the future.
Gradually, this exercise should increase the stock of know-how, allowing for higher productivity, export diversification, and job creation over the long term.
According to Shiimi and team assessment near-term outlook is clouded with significant macroeconomic risks that require urgent and coordinated policy responses.
He, however, believes they have an incredible HPP II.
Shiimi said the implementation of HPP II will propel Namibia to new growth frontiers and create jobs for the youth.
For 2021, however, he lowered his economic growth from a 2,1% initial projection to just a mere 1,9%. Email: erastus@thevillager.com.na
