By: Mathias Hangala and Nghiinomenwa-vali Hangala
Economic researcher Josef Sheehama has urged the government to establish a sinking fund, suggesting that royalties generated from the mining sector could be channelled into it to reduce borrowing for debt repayment.
Speaking to Eagle FM last week, Sheehama said that the absence of such a fund forces the government to rely heavily on debt financing, particularly when tax revenues fall short of funding key sectors such as agriculture and infrastructure.
At the same time, cautioning that this approach often leads to loans being used for operational costs rather than productive investments, ultimately affecting job creation.
Sheehama’s concerns were also raised by various Parliamentarians, prompting the finance minister to respond.
According to the country treasurer, Ericah Shafudah, concerns raised about the growing debt and interest payments have been noted, as have the suggestions, and are being considered as the central government implements Debt Sustainability Strategies.
“Indeed, debt servicing or interest payments are consuming a growing share of the budget, approximately N$14.4 billion for FY2025/26, about 15% of revenue,” she said.
Shafudah also consented that borrowing for consumption is a risk, while assuring that domestic collections are adequate to fund the operational budget.
“I wish to reiterate that our domestic revenue collection is sufficient to cover operational expenditures. As a nation, we should acknowledge and appreciate the significant progress made in revenue mobilisation, particularly when compared to our peers who continue to face challenges in generating adequate domestic resources,” she stated, while urging the strengthening of domestic revenue collection efforts to increase fiscal space.
Researcher Sheehama emphasised the need for diversification, encouraging the government to invest more in agriculture and other industries to strengthen the economy.
According to the Corporate Finance Institute (CFI), a sinking fund is a financial tool created specifically to repay debt. It allows an entity to set aside money regularly for a particular purpose – often to buy back bonds or repay loans before they mature. This mechanism helps reduce default risk and increases investor confidence.
Explaining the concept further, Sheehama shared that Namibia initially borrowed through Eurobonds to cover budget deficits and fund sectors such as health and agriculture.
However, a large portion of these borrowed funds has been spent on operational costs, which he described as counterproductive.
“If we spend a huge chunk of borrowed money on operational costs, the country will not benefit in terms of employment creation or new projects. That is why we see government debt being higher than the funds allocated for project development,” he explained.
Sheehama stressed that meaningful job creation can only happen if borrowed funds are invested in development projects. Otherwise, unemployment will keep increasing.
Recent reports indicate that Namibia’s fiscal fundamentals remain strong, with preliminary data showing total revenue collections of N$84.4 billion by the end of February 2025.
This represents a collection rate of over 90 percent for the first 11 months of the 2024/2025 financial year. Sheehama noted that this reflects a strong link between employment levels and tax revenues:
“The more people are employed, the higher the government’s tax collection,” Sheehama noted.
Currently, Namibia continues to borrow to finance its debts, with the government indicating plans to borrow more domestically.
Sheehama welcomed this shift, noting that local borrowing carries lower interest rates and boosts confidence in the domestic banking system.
With the redemption of the Eurobond on the 29th of October 2025, the ratio of foreign to domestic debt now stands at 85:15. While about 90 percent of the foreign debt is ZAR-denominated, which makes up the overall government debt portfolio of 99 percent exchange rate-free.
“This is positive; however, excessive borrowing can crowd out private investment. When the government borrows too much, private institutions have less access to credit, which can raise domestic interest rates and drive inflation,” he warned.
He also indicated that while Namibia’s current public debt stands at approximately N$176 billion, the country’s foreign reserves – reported at around N$47 billion – remain insufficient, potentially necessitating further borrowing.
Furthermore, Sheehama underlined the importance of exiting the Financial Action Task Force (FATF) grey list, arguing that Namibia’s inclusion hinders foreign investment.
“Being on the grey list affects domestic transactions. Foreign companies charge higher interest rates and demand excessive paperwork when doing business with Namibian firms. Exiting the list and reviewing trade policies will make Namibia more attractive to investors, especially given our small population,” he explained.
Namibia was placed on the FATF grey list in February 2024, following concerns about vulnerabilities in its financial systems that could be exploited for money laundering, proliferation financing, and terrorism financing.
