A lot of planning has gone into the stimulus package. How is it possible to put it together in just one week?
For the new Minister of Finance, this past week must have been one of the most hectic in his entire career. Barely a week after he was sworn in, a comprehensive economic stimulus package was put on the table.
At a combined value of N$8.1 billion, the stimulus package is not an impossible amount. Compared to government expenditure of about N$66 billion in 2019, it comes to just over 12% of total expenditure. In the bigger scheme of things, this is quite feasible, except if you do not have the money.
While the private sector is generally very appreciative of the fast and precise support from the fiscus, the question of where the money will come from was raised by several analytically inclined people who spoke to me since the announcement. But I believe the new minister will get ample guidance from his small army of budget staff in the ministry, given the ability for flexibility they had to develop under the previous minister who was most adept at shuffling around large amounts of money to patch holes and to make the stats appear better.
In this regard, I do not think we have too much to worry about. Mr Shiimi has proven himself, not only as an astute guardian of the country’s finances, but also as a decisive, pro-active leader when extreme action is required. Remember that in his former role as Governor of the Bank of Namibia, he was the first public figure to announce a tangible response to the Corona impact by reducing the repo rate a full percentage point in one go. In my mind this bold step required some doing at a time when all the other public entities were still figuring out what they are going to do.
Furthermore, the stimulus package does not seem to be based on a whim. The fact that it is structured to minimise the financial impact on the fiscus, is obvious. The figures speak for themselves. And taking a considerable chunk off the balance sheet to the guarantee category, is also a sound way of spreading risk while not diminishing the package’s effectiveness.
In the end, the ministry will only have to forfeit about N$5 billion from its short-term cashflow to get the stimulus package going. I particularly like the way that it is structured to provide the fastest and most direct relief where it is needed most. Also, by incorporating the commercial banks as partners, it ensures a level of transparency and control that would not have been possible, were the finance ministry simply to go ahead and dish out large amounts of cash to whoever claimed to be in difficulty.
Also, I appreciate the way that other government financial entities like the Development Bank and the Agricultural Bank, have been brought in as conduits for a sizeable portion of the support. All these elements combined, convince me of the forward thinking that has gone into the package’s compilation.
If the way it is put together reflects a rational approach, then I assume it did not escape the financial authorities that this stimulus package will have a dramatic impact on the upcoming budget. I sense that at least part of the commitment comes from fast-tracking some expenditure items in the main budget. I do not know this for a fact but it makes sense that some intended expenditure is moved forward, especially if it will lead to a much faster normalisation of the rest of the economy. These upfront amounts which are now part of the stimulus package, can always be amortised from the main budget at a later stage when the economy has had a chance to adjust to Corona’s impact.
Of course, during times of crisis, there are always small devils which can no longer be hidden. One of these jumped out of the stimulus package as the item for unpaid VAT claims.
It boggles my mind, that suddenly there is enough money to settle VAT claim which are, in the minister’s very own words, “overdue and undisputed.” In plain language this means the Receiver has been sitting on a very substantial amount of money which does not belong to the government but to the private sector. And since the Receiver and everything that has to do with taxes, are always so shrouded in secrecy, the stimulus package sort of forced the ministry to divulge exactly how much it is in arrears with VAT claims.
Looking a little deeper into the VAT figure, it is a simple calculation to determine the value of the transactions from which the VAT accrued. Since VAT is set at 15%, it translates to business of N$20 billion. Add the N$800 million in outstanding invoices and it shows that a total of N$25 billion in transactions is affected.
This is quite revealing since it accuses the finance ministry, in a round about way, of braking the economy, or at least a substantial part of it, by delaying VAT refunds. Since this type of transaction is typically more short-term, I suspect that the full impact on the economy of delayed VAT refunds over a full financial year must be much bigger than the revealed N$3 billion, perhaps by as much as a factor of four.
The sad part is that it needed a calamity on a national scale before circumstances forced the finance ministry to reveal what the real impact of the Receiver on the rest of the economy is.