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Finance minister – Fiscal consolidation has brought along unintended consequences on economic activity

Finance minister – Fiscal consolidation has brought along unintended consequences on economic activity

The government’s efforts to improve fiscal space by reducing and capping unnecessary expenditure through fiscal consolidation has contributed to low domestic demand conditions and growth pressures on industries, which are overly dependent on public sector spending programs, the Minister of Finance Calle Schlettwein said this week.

This comes after the Namibia Statistics Agency last week announced that the country’s Gross Domestic Product (GDP) recorded a contraction of 0.8% in the third quarter of 2018, keeping the economy suppressed for the 10th consecutive quarter since 2016.

Schlettwein argues that the fiscal policy position also resonates well with best practice assessments by the International Monetary Fund and independent rating agencies, adding that the long-term benefits of this policy outweighs the short-term pains.

There is no contention that fiscal consolidation has brought along unintended consequences on economic activity. At the same time one must acknowledge that consolidation has reined in consumptive and unproductive spending and placed public finances on a firmer and more sustainable path over the long-term,” the minister said.

He further said that external factors, and to a lesser effect also domestic factors caused the economy to slide into an unsustainable fiscal balance resulting into sharp debt increases.

The fact is that private sector investment has itself been in a contractionary phase since 2016 after the steady inflow of foreign direct investment in the mining sector subsided. The prevailing dichotomy whereby foreign direct investment finds investible opportunities in the domestic economy on the one hand, while domestic savings perpetually flow out of the country, should be addressed in the spirit of partnerships,” Schlettwein stressed.

The minister added that government is under no illusion that there is no silver bullet to overcome current economic challenges, but rather requires a bouquet of measures delivered through the contribution of all stakeholders.

One can not on the one hand, ardently advocate for the government to scale down its operations in the economy and, on the other hand, cry foul for the restrictive fiscal consolidation policy and hope that inequality will be solved. The public and private sectors must form meaningful partnerships with material roles dedicated to stop and overturn the current global trend of increasing inequality,” Schlettwein said.

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