Is there a rational exit strategy after TIPEEG?
We are in the final phase before the introduction of the new national budget by the Ministry of Finance. As is customary, this process starts with the official Budget Speech by the minister in parliament immediately after which an impressive set of documents are released. These documents are usually available on the Ministry of Finance’s website, some being posted on the same day as the speech while the more technical documents appear a week or so later.
To predict the economy is almost as difficult as predicting the weather. There is an inherent uncertainty principle of forecasting that many astute analysts have rediscovered over the past four years. Whereas the budget is a very concise document with more or less precise amounts allocated to votes and functions, reading the economy’s direction in twelve months from now, is a different kettle of fish. There are so many black swans which simply do not allow themselves to be captured in tables breaking down the expenditure framework for any given vote. And this is where the Medium Term Expenditure Framework becomes so enlightening. It is the most reliable documenting of divergence from one budget year to another. It is widely available to the public and those users of budget information who are not privy to the actual process as driven by the ministry.
In February last year, I said the results of the Targeted Intervention Programme for Employment and Economic Growth, the so-called TIPEEG, will disappoint in the first 12 months after it was announced in 2011. This turned out to be so mostly for practical reason such as implementation, and for the fact that many of the projects are so big, they do not show results within a year. But, at that same point a year ago I also argued that in another 12 months, we will probably get a pleasant surprise when we have the actual figures on the table. I am anxiously awaiting the new budget to see, and compare, just how far did we come with TIPEEG. I expect the results in general to be positive.
One needs to keep in mind that TIPEEG, although indicated and described as a strategic intervention, basically only constitutes a temporary policy change in the sense that the government employed the massive equity available in the capital market, to finance increased expenditure on the four targeted areas of Tourism, Agriculture, Transport, and Housing & Sanitation. And this is where the Medium Term Expenditure Framework provides a useful tool in comparing what was allocated to what eventually reached the intended projects.
For instance, Housing & Sanitation which got N$4.1 billion over the 3-year period, I assume must have some pennies left in the kitty as all the projects put together that I know of, will hardly exceed one billion dollars. But, as I said, the final verdict on how successful this budget allocation was, will be reflected in the Medium Term Expenditure Framework. Agriculture, I assume, will surprise on the positive side although, once one checks the implementation schedule, it may be hard to find projects totalling N$3.7 billion up to this time next year.
In total, N$14.7 billion was earmarked for TIPEEG from 2011 to the beginning of 2014. It means we must have spent roughly two thirds of the allocated amount come budget time, but again, we’ll only know when the actual figures are released. I am realistic about the fact that the roll-out and implementation of such a massive amount of money does not follow a linear line, and that it is normal to expect some areas to show results faster than others.
The jury is still out on the effectiveness of TIPEEG. Of course the government will put its own spin on it trying hard to convince us that every dollar spent helped to create another job somewhere, but I suspect in the end, the verdict will be subjective depending on who is analysing the figures, and what criteria are applied to measure success.
Perhaps the most interesting aspect which I hope will be addressed in more detail in the new budget, is the exit strategy. In previous budget speeches, the minister alluded more than once to sustainability. We can certainly carry one for several more years to use the leverage in the capital market and close our eyes to Public Debt exceeding 30% of GDP, but we cannot go on indefinitely.
I do not think capital market investors will turn against the sovereign, even in the wake of a ratings downgrade, but we’ll certainly see yields inch up a notch or two. Eventually, when TIPEEG has been forgotten in a few years, the only empirical values that will matter, are those in the bond summary published by the stock exchange.