What funding problem?

The Mid-Year Budget Review came to many as a mild shock. Politicians specifically had to stomach the unpleasant truth this week that not even the mystical Capital Market can indefinitely sustain a type of borrowing where Return on Investment is not considered.
The Minister of Finance has to be commended for Namibia’s very first Mid-Year Budget Review. The fact that the ministry is in a position to compile such a review, in itself says a lot about improved capacity in the army of advisors and analysts tasked to draft the national budget, prepare for the IMF Article IV consultations and compile the voluminous documentation that accompanies the Medium Term Expenditure Framework. Nevertheless, our maiden Mid-Year Budget Review has set a pure tone for future reviews.
As usual, since the minister spoke on Tuesday, huge volumes of hot air has been generated. But to cut through the fluff one needs only consider one paragraph, number 47.
“It is estimated that total revenue outturn for FY2015/16 would be adjusted down by 4.9 percent, from N$58.44 billion to N$55.57 billion. The mid-year collection rate as at the end of September 2015 stood at 42.3 percent of the revised estimate, compared to 46.0 percent collected during the previous corresponding period.”
The revenue shortfall at this point is roughly N$3 billion. As indicated by the minister, this equates to just under 5%. Earlier in his statement he alluded to re-allocation of funds saved on certain projects viewed as non-priority expense items. This will free up N$4 billion. So, it seems, in a nutshell, the shortfall has already been made good by own savings, re-prioritising certain expenditure items, and re-allocation of amounts between some large projects. Furthermore, it is now common knowledge that a week ago, a day before pay day, the government got hold of a fantastic windfall from the issue of a US$750 million Eurobond. Last week I remarked that this placement was scooped up in the London capital market after a roadshow of only three days. That says a whole lot about our credit worthiness and our credibility. When he announced the bond, the minister indicated that a part of these proceeds will be utilised to bolster our foreign reserves. That is a very wise move, because foreign reserves, in a sense, are a form of savings, on top of the obvious benefit of keeping international trade flowing.
With the many mega-projects under way, the deficit on the trade balance surely must be a grave concern for the ministry. Coupled with the currency weakness, about which we can do nothing, I am sure the minister had many sleepless nights in his short time in office.
What these two developments show me, is that there is much more punch in the Namibian economy than the average person realises. If one manages a budget that is flexible and deep enough to quickly free N$4 billion just by re-arranging the items, it indicates that there is built into the process, a small amount of “fat.” This is a Namibian expression to indicate that one must never rely too much on budgets. Reality always tends to overshoot or underperform.
Secondly, if a finance minister is able to raise US$750 million just by going to see a couple of investors during a three-day trip, it shows that there are many investors out there (in Europe) who have a very high regard for the way our ministry manages the local finances. In the minister’s own words, this bond roughly equals N$10 billion.
So voila, by tweaking the projections and by opening the door for foreign investors in more government paper, we raised a quick and comfortable N$14 billion. So, if the projected shortfall will come in below N$5 billion, where is the problem. I fail to see a major calamity.
But the weak point still remains the expected revenue income from SACU transfers. If the hiccup in the Chinese economy is impacting us as a commodity exporter, then surely it must have a ten times more detrimental effect on the South African economy. From this I take it the impact on SACU revenues may be more severe than what we expect.
And I have an inkling the minister knows this although he is far too polite to state it so explicitly. But he alluded to SACU shortfalls last week and again this week. So, ultimately I think that should be our only concern. This means that come February next year and we have to balance the books for this year, the uncertainties in the South African economy will have a far greater impact on our budget, than any of the things, both foolish and wise, that we do ourselves.