Balancing SADC’s books

By Magreth Nunuhe

WINDHOEK – Governments in the southern African region expect increased total revenue and reduced budget deficit this year, as predicted in their annual national budgets.

They also expect their economies to flourish this year driven by recovery in primary industries such as mining, manufacturing and the agricultural sector to grow due to the good rains received in most parts of the region over the past few months.

The Namibian government, which was the latest to present its national budget for 2017-18 on 8 March 2017, said it expected to do well this year with the large sectors projected to pick up momentum, while tourism could be the driver of the economy.

The good rains received this year could also bolster agricultural sector performance, which had contracted over the past two years.

Finance Minister, Calle Schlettwein, who presented the 2017/18 national budget in Parliament last week said he was confident that Namibia would see positive economic growth this year. This view was supported by many economists and financial institutions, who believe the country could move out of the precarious situation it is in and recover as long as macroeconomic policies, such as “maintaining a consistent fiscal consolidation policy to reduce the budget deficit, stabilise growth in public debt and rebuild fiscal space” are upheld.

Namibian tax payers were relieved this year that the general tax rate would not be increased and no new taxes would be introduced.

Another welcome relief is that the Public Procurement Reform Act, to be enforced on 1 April 2017, would change the Tender Board operations and processes in order to promote greater transparency and accountability. This, together with the landmark Public Private Partnership legislation, is expected to harness private sector funding.

Some of the other key priority areas for the Namibian budget and the Medium-Term Expenditure Framework (MTEF) are the strengthening of the macroeconomic fundamentals and rebuilding of fiscal buffers, supporting inclusive growth and economic diversification, contributing to the eradication of poverty, improvement of social welfare and reducing income inequality.

A quick look into some of the national budgets in the Southern African region and their predictions, reveals the following:

Economic performance

The fiscal and economic future of Angola will be highly dependent on the evolution of oil prices. If the recent rise in oil prices is sustained and translates into average oil prices above US$60 in 2017, the stability of the exchange rate is more likely, says Banco BPI Economic and Financial Research.

For the past three years, there has been a decline in economic activity of more than 60 percent – a phenomenon that persisted in 2016.

In South Africa, the Gross Domestic Product (GDP) is expected to grow from 0.5 percent last year to 1.3 percent this year. Mining continued to underperform while manufacturing output was supported by buoyant sales in petrochemicals, food and beverages and motor vehicles in 2016.

The same trend also persisted in Namibia. But to avoid credit rating jeopardy, Namibia, which still faces liquidity stress and subdued economic growth, forced Treasury to cut the 2015-16 budget to maintain debt servicing costs, the current account and other macroeconomic balances.

Swaziland’s economy is expected to contract, recording a growth of minus 0.6 percent in 2016 from 1.9 percent in 2015.

This forecast considers the adverse drought conditions that the country, and the region at large, faced, which heavily affected crop production. Maize production fell by as much as 60 percent. Average inflation in 2016 reached 7.8 percent largely due to the steep rise in food prices.

Growth is projected at 1.7 percent, from 0.6 percent estimated in 2016 in Zimbabwe. In 2017, agriculture is projected to grow by 12 percent driven by higher output from major crops such as maize, cotton and tobacco, as well as milk production.  Budget projects a modest mining growth of 0.9 percent in 2017.

Total revenue

Angola predicts oil revenues to increase by 10.2 percent for the first time in years, while there are also projections of a 22.4 percent increase in purchase of goods and services and higher public spending to be boosted by general elections taking place this year.

The revised budget projections for Botswana for the 2016/2017 financial year shows an increase in revenue by 15.6 percent, from P48.4 billion (R60.74 billion) in the original budget to P55.93 billion (R70.19 billion) – mainly due to an increase in mineral revenue. P28 billion (R35.16 billion) in additional tax revenue will be raised in 2017/18.

On the other hand, South Africa needs to reduce spending by R26 billion over the next two years to improve its fiscal position. Total tax revenue for 2016/17 will be R1.144 trillion.

Swaziland collected R14.1 billion in total revenue in 2015/16, of which 49 percent was SACU revenue. Their forecast for 2017/18 is R16.5 billion, indicating a 22 percent increase from the 2016/17 collection.

Zimbabwe’s total revenue is projected at US$3.7 billion; capital inflows are expected to reach US$692.4 million in 2016, against US$1.2 billion recorded in 2015.

Budget deficit

In the next financial year (2017-18), Namibia plans to further slash its budget deficit to 3.6 percent of GDP, down from 6.3 percent in 2016.

For the most part of 2016, Namibia was in a slump when its budget deficit almost reached an all-time high of 9.1 percent of GDP and debt escalated to approximately 46 percent of GDP.

This was exacerbated by poor growth, descending from 5.7 percent in 2015 to 1.3 percent in 2016, as a result of a decrease in commodity prices and drought distressing large sections of the economy, including agriculture and construction.

Angola also expects a budget deficit of 5.9 percent of GDP, which could trigger further devaluation of the Kwanza despite the substantial international reserves it holds.

Oil output, which accounts for the major share of Angolan exports, is still relatively modest and lower revenues continue to impact on the performance of the non-oil economy.

Botswana expects to record a budget deficit of about 1.43 percent of GDP in the next financial year. It recorded a budget deficit of 4.7 percent of GDP in 2015-16 compared to a surplus of 3.7 percent of GDP in 2014-15.

A budget deficit of 3.1 percent of GDP for South Africa is expected for 2017-18, narrowing to 2.6 percent in 2019-20, while for Swaziland, the budget deficit is projected at 8.2 percent of GDP for 2017-18, down from 12.3 percent of GDP for 2016-17.

Total expenditure

Angola expects its capital spending to increase by 3.8 percent this year due to general elections scheduled for this year, while Botswana’s projected total expenditure and net lending for 2016-17 is also predicted to increase by P2.59 billion (R3.25 billion), from the original budget of P54.44 billion (R68.34 billion) to P57.03 billion (R71.60 billion). This is due to supplementary funding to replenish the Agricultural Credit Guarantee Scheme (ACGS), and purchase of food for secondary school students under the recurrent budget, as well as provision of additional funding for water and energy projects under the development budget.

Swaziland’s total expenditure for 2017-18 is estimated at R21.8 billion, which includes R1.4 billion reserved for public debt payments and other statutory spending. Total expenditure for Zimbabwe is projected at US$4.1 billion. The economy’s relatively high import bill remains unsustainable at US$5.35 billion in 2016, against exports of US$3.365 billion.

Total budget

Angola’s total budget for 2017-18 is 7.3 trillion kwanza (Kz) (US$44.22 billion). Botswana’s proposed Ministerial Recurrent Budget for the 2017-18 financial year amounts to P39.66 billion (R49.79 billion), with the lion’s share of the budget allocated to the Ministry of Basic Education at P6.8 billion (17.2 percent), Health and Wellness (P6.59 billion or 16.6 percent), Local Government and Rural Development (P5.62 billion or 14.2 percent), Defence, Justice and Security (P5 billion or 12.6 percent) and Tertiary Education Research, Science and Technology (P4.25 billion or 10.7 percent).

South Africa’s Basic Education Ministry received the biggest piece of pie of R243 billion (17.5 percent), while health came in second with R187.5 billion, followed by defence, public order and safety at R198.7 billion.

Similarly, Namibia’s education sector got the lion’s share of the total expenditure budget at R11.98 billion, followed by the health sector (R6.51 billion) and defence (R5.68 billion).

The police received R5 billion, while the Ministry of Poverty Eradication and Social Welfare features prominently in the budget with R3.28 billion for the provision of safety nets and other anti-poverty intervention measures, such as the old-age pension, which increased to R1,200 per month.

Swaziland’s total allocation for the Ministry of Education and Training is R3.5 billion, while health gets R2.2 billion.

Zimbabwe’s health sector takes the biggest chunk of US$59.1 million for this financial, followed by education at US$43.3 million, social services US$28.8 million, agriculture US$320.8 million, energy US$5 million and institutional housing getting US$39.4 million.

SACU/customs and excise

It is anticipated that that there would be improvements in SACU receipts this year. For Namibia, in the medium-term, higher SACU receipts and earnings from increased exports from the mining sector are expected to improve the current account balance and improve the external position of Namibia.

Swaziland’s current transfers’ surplus for the six months ending June 2016 amounted to R3.1 billion benefiting largely from inflows of SACU receipts against a surplus of R8.9 billion in the full year 2015. A part of Government’s strategy to reduce dependence on SACU receipts, Swaziland established Special Economic Zones to help stimulate growth, increase employment opportunities and reduce poverty.

SACU has five members – Botswana, Lesotho, Namibia, South Africa and Swaziland.

Foreign exchange rate/foreign reserves

In Angola, the scarcity of foreign currency (which is partially caused by the maintenance of the exchange rate at artificially high levels) is posing challenges on the payment of imports.   

The South Africa exchange rate has recovered from its rapid depreciation last year, which bodes well for capital flows, inflation and business and consumer confidence.

Swaziland’s Gross Official Reserves declined by 9 percent over the 2016 calendar year to reach R7.7 billion, mainly attributed to a notable fall in SACU revenue while government expenditure accelerated during the 2016-17 fiscal year.

The Namibian Dollar has recovered well from its rapid depreciation last year, as the South African rand – to which it is pegged one-on-one – stabilised after losing about 30 percent value against the US Dollar.

Public debt

According to the IMF, Angola’s current level of public debt, will end 2016 above 75 percent of the GDP, while South Africa’s government debt is expected to stabilise at about 48 percent of GDP over the next three years. Government debt now stands at R2.2 trillion, or 50.7 percent of GDP.

Swaziland’s total public debt has increased by R3.5 billion and currently stands at 18.9 percent of GDP, while Zimbabwe’s public debt stood at US$11.2 billion or 79 percent of GDP, of which US$7.5 billion, 53 percent of GDP, is external debt.

Of the US$7.5 billion external debt, US$5.2 billion is in arrears, and this has resulted in deterioration of relations with major creditors, thereby inhibiting access to finance. Zimbabwe settled its overdue obligations to the International Monetary Fund (IMF) amounting to US$107.9 million on 20 October 2016.  This has seen the IMF board remove sanctions on Zimbabwe.

Namibia’s fiscal strategy for 2017-18 is aimed at stabilising public debt at around 42 percent of GDP in order to strengthen macroeconomic stability in this financial year, with the Mid-Year Review target to further slash its budget deficit 3.6 percent of GDP, down from 6.3 percent in 2016.

Surcharge tax on income of the wealthy

The Namibian government has proposed a new tax policy and tax administration reforms, such as increase on the fuel levy administered under the Customs and Excise Act and wealth based taxation to embody the principles of the Solidarity Wealth Tax be introduced. South Africa has also proposed a new top personal income tax rate of 45 percent for those with taxable incomes above R1.5 million.

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