Who determines the equality of being poor?
After five years of aggressively expanding the budget as part of the so-called counter-cyclical budgeting provision, it has become time to revert to “cyclical” again. Whether this intention is feasible depends on one’s own definition of cyclical, and further afield, what cyclical means to the rest of the world.
It is now just over a month since the new finance minister enlightened us with his maiden budget statement. Once the hot air period blew over, it became the turn for serious analysts to take the budget apart in its nuts and bolts. Consequently, the budget analyses we have seen recently contain far more grid than what was presented to us in the first cloud of dust.
It seems “cyclical” in a Namibian context can be broken down to a rather simplistic picture of 9% nominal growth (more or less), a 4% deflator, and 5% real growth. The last two can easily switch positions, i.e. 5% deflator and only 4% real growth. This, of course, depends mostly what inflation will do. Over this, unfortunately, we have very little control due to our import bias.
Looking at the bigger picture, the obvious weakness in the macro side of the budget is the provisions in the Medium Term Expenditure Framework for aggregate expenditure. The finance ministry is hoping that it can grow expenses by only 5% year on year, for two years, and then by less than 1%. These figures bother me for I deem them unrealistic. The 2017 projection of only 0.26% annual growth in expenditure, still looks like an error although I still wait in trepidation for anybody who is familiar with the budgetary mechanism, to tell us so.
The budgeted expenditures for 2015 and 2016 may or may not stay close to the 5% growth projections but I am rather sceptical. Of course, when expenditures grow faster than forecast, and the economy as a whole (GDP) grows slower than projected, then obviously, we are facing a conundrum.
It is a relaxing exercise to take a few budget assumptions and throw them into a flexible model just to see what happens when things do not work out as anticipated. Playing around like this reveals some very interesting future eventualities to ponder. A mere one percent deviation lower from the projected growth coupled with a mere one percent higher expenditure over two years, comfortably catapults us over the statutory 35% debt to GDP ratio. If this actually happens, I doubt we shall see a rationalisation on the expenditure side. Instead I expect another hastily convened late-night meeting of the powers to be to magically increase the debt GDP ratio to 40% followed by some wicked explanation why our debt is nothing compared to the rest of the world. If this has happened in 2010 when the ratio was magically increased, overnight so to speak, from 30% to 35%, there is nothing that prevents it from being done again.
The trick for any developing country is always how to stimulate accelerated growth while maintaining low inflation. Faster growth is rather obsolete when it favours only a handful of well-connected individuals, while the poor majority see themselves getting poorer and poorer by the year. This sounds like a new form of redistribution, from the poor to the poor. Statistically it shows up after some time as a general reduction in poverty, even improving the lot of the desperately poor, but this is all nonsense. It ingeniously hides the skewed nature of the distribution of prosperity where a very few people become exceedingly rich while the rest, now nominally less poor, in absolute terms find that their dollar is buying less and less every month.
There are all sorts of studies spouting an impressive vocabulary of growth, inflation and poverty but few of them take into consideration that inequality can only be measured if the sampling pools on both ends of the income spectrum provide a statistically significant sample. To make this easy, take Zimbabwe as an example: most of the population is more or less equally poor, only in varying degrees. This part of the spectrum is a representative sample. The other end consists of a single entity, Uncle Bob. He is not a statistically significant sample so his distortion is excluded from any measure of inequality. The result is that the Zimbabwean society is much more equal than ours, everybody is more less equally poor, except one.
Let the SADC ministers discuss this one at their extra-ordinary summit.