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Economic recovery over the medium term remains uncertain – 2018/19 budget review

Economic recovery over the medium term remains uncertain – 2018/19 budget review

The Minister of Finance, Calle Schlettwein tabled the national budget for financial year 2018/19 this week and analysts expressed disappointment, saying that the budget did not give enough comfort that the economy will recover significantly over the medium term.

Investment research firm, Simonis Storms Securities (SSS) said that such comfort is important as the government continues to be a large contributor to economic activity and fiscal policy and therefore has a strong bearing on the outlook for the Namibian economy.

We hoped that the Minister would be more deliberate in implementing measures that would support the real economy, being individuals and SME’s to help them survive the current economic environment,” Indileni Nanghonga, Analyst at SSS said.

Nanghonga added that it is not clear where the sustainable fiscal consolidation plans are coming through in the budget. In the meantime, talks about the deficit being funded by the sale of MTC and other non-strategic assets were made in the prior year, however, the minister did not make mention of it in the budget speech.

The reduction in the tax bracket for lower income earners should provide some further respite. However, the increase in an increase in development expenditure is welcomed especially as it relates to the improvement in water and logistics hub infrastructure,” she added.

Meanwhile, IJG Securities stated that the ministry of finance continues to run expansionary budgets, albeit now at time when it is necessary as counter cyclical policy in order to stimulate economic growth.

The risk herein lies in the fact that the budget deficits are funded through debt issuance and revenue growth is expected to be muted over the MTEF. Debt to GDP is expected to average over 45% over the period making it imperative that the funds raised are spent in a transparent manner in order to increase the productive capacity of the country,” IJG stated in its Budget Review document.

For the financial year 2018/19, Schlettwein gave a budget amounting to N$65.0 billion. This budget represents a reduction of 2.3% from the FY2017/18 revised budget. The public safety sector receives the second largest share of the budget expenditure with N$12.7 billion allocated to this sector in 2018/19. Defence receives almost half of this allocation at N$6 billion, an increase of 4.9% on last year.

Furthermore, a 10% dividend tax for dividends paid to residents will be established. Additionally, the current practice of a conduit (flow through) principle in the taxation of trusts will be abolished.

According to the budget statement, residents will have to declare income earned from foreign sources on their annual tax returns, while Value Added Tax on income of listed asset managers will be introduced and tax on proceeds on the sale of shares or membership in a company owning commercial immovable property will be introduced.

About The Author

Donald Matthys

Donald Matthys has been part of the media fraternity since 2015. He has been working at the Namibia Economist for the past three years mainly covering business, tourism and agriculture. Donald occasionally refers to himself as a theatre maker and has staged two theatre plays so far. Follow him on twitter at @zuleitmatthys