By Magreth Nunuhe
Windhoek – The Namibian government says that it can now maintain its debt levels and does not anticipate any further budget cuts during 2017, while looking forward to prospects of growth with renewed confidence in the economy this year.
Finance Minister Calle Schlettwein on Monday met the leaders of all State Owned Enterprises on the budget and Medium Term Expenditure Framework for the 2017/2018 financial year. During the consultation, he once again assured Namibians that the revised budget for 2016/17 was fully-funded, with funding smoothly spread out over the financial year.
“The expenditure execution to date of 75 percent, suggests that we are well on course to fully execute the budget for FY2016/17,” he said.
“We have managed to reduce the budget deficit from what would be 9.1 percent to 6.3 percent in the current year, with the Mid-Year Review target to further reduce the budget deficit to close to 3 percent in the next financial year as a measure. Our fiscal space is already at top ceiling threshold. We were squeezed to raise 6 percent deficit to stabilise and eventually reduce growth in public debt,” he said.
“Although our debt levels have increased and we put measures in place to bring it down to 35 percent of GDP, it is noteworthy to emphasise that relative to some other economies in the region, for instance South Africa, its indebtedness is estimated at 51.4 percent to GDP for 2016, and Angola around 72 percent to GDP,” said Schlettwein.
He noted that one of the worst case scenario was Mozambique with a debt ratio of over 100 percent to GDP, which has lost fiscal sovereignty and is now financed by the International Monetary Fund (IMF).
Angola, Malawi, Zambia and Zimbabwe were facing the same cash flow problems, while South Africa’s economy was growing very slowly at 0.3 percent and there were no predictions for it to grow any faster than 1 percent, according to the IMF.
“If you look at our largest trade partners – Angola and South Africa; Angola has a cash flow problem directly impacting on our economy. There are economic difficulties in Angola. Trade at Oshikango (the northern border of Namibia with southern Angola) came to a standstill. Impact on trade arrangement has shrunk revenues,” he said.
He cautioned that growth in South Africa was also clouded in political risks and the continued political volatility would make investors not very confident with the southern neighbour’s economy.
“We are a defacto single bloc economy because if the big economies do not function, we are severely affected,” he said.
Global rating agency Moody’s Investors Services downgraded many countries in Sub-Saharan Africa to negative growth at the beginning of this year, which reflected the liquidity stress facing commodity-dependant countries, subdued economic growth, and persistent political risk.
Moody’s predicts that Sub-Saharan Africa’s economies will continue to face commodity-induced liquidity stress in 2017, with recurring fiscal deficits amid challenging financing conditions.
The Namibian economy was no exception and also experienced a tough 2016, with growth descending from 5.7 percent in 2015 to 1.3 percent, affected by commodity prices and drought distressing large sections of the economy, including agriculture and construction.
Moody’s changed the outlook of Namibia from stable to negative (Baa3 Negative) to reflect the risks of fiscal slippage, raising government debt levels and servicing costs.
Currently, Namibia is battling a liquidity crisis, which has forced Treasury to cut the 2016/17 budget.
Total expenditure for the current financial year was revised downward by R4.5 billion to R61.49 billion as a measure to align the budget to the revised economic and revenue outlook.
As a result, some service providers, State-Owned Enterprises and government agencies moaned that they were not paid in time “because government ran out of funds”.
The finance minister has defended the budget cuts saying had they not done so, government would have had difficulty raising money to fund the budget this year.
And contrary to criticism, the government continued to honour its obligations despite administrative glitches experienced.
“This is contrary to perceptions and unsubstantiated reports that the government is unable to meet its current expenditure obligations. Of course, monthly spending is aligned to cash flow conditions and, in this regard, a Treasury Authorisation Warrant (TAW) is used as a tool to ensure that monthly expenditure for Ministries is aligned to available income,” he hit back.
He maintained that payment of salaries enjoyed priority and in no instance did the government lose its ability to meet salary payment obligations for its employees.
“To put this into perspectives, the TAW approved for November and December 2016, amounted to R8.2 billion, while the actual payments made by the government totaled R10.1 billion,” he said.
GOVERNMENT SLOW TO ACT
But critics carped at government’s expenditure and borrowing tendencies to finance unproductive capital projects, which they say led to the country being downgraded in July 2016 from BBB to BBB- by Fitch Ratings, while in September 2016, Namibia’s Outlook was revised from stable to negative.
Herbert Jauch, a distinguished researcher and prominent expert on labour issues, also expressed his scepticism about government spending, saying that until 2010, the national budget was intact while under the watchful eye of then Finance Minister, Sarah Kuugongwela-Amadhila.
But when TIPEEG (Targeted Intervention Programme for Employment and Economic Growth) was introduced in 2010, where about R14 billion was spent on several projects to create jobs, government basically went on an expenditure spree on several other big infrastructure projects.
Namibia at one point got over 30 percent of its income from SACU, but that declined year-on-year parallel with expansion of government expenditure.
“Till last year (2016) government managed to raise most of its internal debt locally – basically selling government bonds, but then they moved towards Euro-based bonds and the cash crisis started hitting.
“What made this also worse was that the civil service had grown to about a 100,000 (employees), and 42 percent of the national budget went into just maintaining the civil service,” reckoned Jauch.
On top of that, Parliament was enlarged, new ministries were created; there were double appointments of deputy ministers and appointments of advisors within ministries and State House, said the researcher.
Jauch stated that the ratio of having salaries gobble up 42 percent of the government budget was unsustainable as the ratio was initially at around 30 percent.
“But this has been a long process – the expansion of the public sector in terms of employment has happened ever since independence. First it was around 40,000 civil servants, then grew to 70,000 because the colonial civil service was of course totally skewed and not representative of Namibia at all. Then we moved to 70,000 after independence, basically bringing in people who were kept out in the past including those from exile, and over time it grew over to a 100,000,” he said.
Jauch pointed out that the problem was not that no one foresaw this anomaly, but that government did not act, given that government expenditure was expanding while income from SACU was decreasing.
“These were no surprises. It was not like disaster striking or some unexpected events. It was something that happened gradually. But we let it run like there was no problem at all till now. And now we see the crisis. The big danger that we find ourselves in now is that government can’t raise the budget deficit locally,” he argued.
Jauch said Namibia might be tempted to run to the International Monetary Fund (IMF) and then we will be faced with structural adjustments, further cuts, and likely retrenchments in the civil service.
To turn its fortunes around, he suggested that government should reconsider solidarity tax that should be worked in as a principle into income tax.
“There is absolutely nothing wrong with saying the privileged in society must contribute to the alleviation of poverty. And of course the more you earn, the more you should contribute.
“Now, government had the right idea here, but the way they went about it was unfortunate because you can do that very elegantly through the income tax.
“You don’t need to talk of a new tax, like solidarity tax. But you say the very high income earners pay substantially more in taxes, which is then built into solidarity tax,” he explained.
Government proposed the introduction of solidarity tax for those who earn an income above a certain threshold to make a contribution towards a fund that would be earmarked for poverty eradication, but the proposition was widely rejected.
Jauch said that the Namibian state loses massively and can improve through better taxation, such as introducing taxes on inter-generational wealth or inheritance tax.
“For example, if my father or grandfather benefitted from colonial setting and became a multi-millionaire, now I am inheriting based on that exploitation and I am not even taxed on it – that perpetuates this inequality to the next generation,” he reckoned.
He also proposed that government tax all of those who benefit from minerals, fisheries, who got tenders, shareholding, to pay substantially more tax and then to work a principle that will hit the really wealthy.
“Let us look at where the wealth in this country is and how can we make sure that the State receives substantial revenue from that,” he added.