D-day for budget – Minister has no room in which to manoeuvre
Since the artificial stimilus of the economy started in 2010, a favourite expression of a former Minister of Finance was “fiscal space.” At that point there was plenty with government debt an extremely modest 14% of GDP. Eight years later, that space has been exhausted with almost no fiscal room left. In the meantime, it is questionable how much bang we got for our buck.
Earlier this week, the International Monetary Fund released the country report for Namibia. As was apparent already at the end of last year, there is not much the IMF can tell us that we do not know. To me, the value of the country report lies in the projections for the next five years. It is here where the most obvious discrepancy is to be found between the assumptions and projections of the ministry and those of the IMF.
For the purpose of drawing up an economic road map for the short-term, I am ignoring the IMF’s projections for the fourth and fifth year. These are mostly academic and I am sure they will be adjusted many times before the end of 2020. It is however unsettling that the IMF predicts that our government debt will breach the 70% of GDP mark by 2022 if we carry on the same way we have since the end of 2015.
For next week’s tabling of the Appropriation Bill and the minister’s budget speech, I do not expect any surprises. There is nothing left to surprise us with. As was clear by the end of last year, the government is at the end of its available resources without any definitive plan to reduce the public sector wage bill, or to stop undermining the manufacturing sector with the continued hammering on the equitable economic empowerment framework, without thinking through either the strategy or the unintended consequences.
Whatever we will receive in the new budget, I believe has already been defined and quantified in the mid-year review of October last year. It is now merely a case of proceeding on the road we have chosen, extending the envisaged fiscal consolidation process, and being honest with all Namibians that it will take far longer than anticipated, to reduce the national debt to manageable levels.
On the expenditure side, the framework has been set. I believe that will not change since it has been addressed and adjusted, all that we can afford, in the mid-year review. The income side may see a bout of accounting gymnastics, but even here it seems reality has set in.
It is widely expected that the economy have emerged or is about to emerge from its slump. That we will not know for sure until we have received the 2017 fourth quarter GDP figures, which will probably happen only after the budget has been released. If, as I hope, the fourth quarter is marginally positive, you can bet there will be a substantial third quarter revision and that the contraction may be much less than previously published. There certainly are sufficient macro indicators that point to an improvement during last year’s second semester.
What this means in practical terms, is that we can not expect any additional stimilus from the budget. It is now on its bare bones, and it will take some time (years) for the private sector to catch up with government largesse.
Although the IMF’s country report was not exactly scathing, neither was it very uplifting. The underlying tone is one of caution and it is in this regard that I hope the message has sunk in. Not only do we need a national roadmap to get us out of the swamp, we also need a clear reinstatement of confidence in the private sector.
Ultimately, for the long haul, it is not government spending that will accelerate the economy, it is private enterprise. By this I do not mean the popular local notion that a business can only be successful if it supplies the government, or swindles the state’s coffers through fraudulent tendering. I am referring to the obvious crowding out by the government and by the fact that it has not produced any tangible results unless you still believe in the communist nirvana. The future economy must be private sector driven to be sustainable. There is no way around that self-evident statement.
Next Wednesday, is D-day for the Ministry of Finance. This week’s IMF report confirmed that. If we do not heed their caution, the 2018 Article IV consultations will not be pleasant.