Budget 2021/22: Outlook
By IJG Securities.
The budget debt and deficit projections have deteriorated more than we expected they would, but are arguably more accurate than before.
Thus while the overall picture is increasingly worrying, the starting point for decision making is more accurate and should put the necessary pressure on government to implement long overdue structural reforms. The liquidation of Air Namibia is an indication of this, and dealing with the wage bill has once again made it into the budget documents, although with little detail on how this large recurrent expenditure may be reformed.
Structural reforms are necessary for the simple reason that the expenditure framework is rigid and unable to cope with shocks to revenue. Without structural reforms deficits remain large and debt costs become ever more unsustainable, eating into tax revenues that could be utilised in an effort to improve the lives of Namibians.
The unseen cost of inefficient spending weighs heavily on the future productive capacity of individuals and infrastructure.
Financial stability has always been high in Namibia with a very large regulated savings pool providing options that countries without such savings would not have. This asset has effectively enabled the “progrowth fiscal consolidation” stance taken by government over the last five years and the large deficits that have accompanied this balance between maintaining expenditure ceilings while revenues have stagnated.
This asset has resulted in cheaper funding than would have been the case without it and enabled government to continue funding its operations without implementing structural reforms.
However this process has eroded the stability of this savings pool as more and more of the assets in the pool are tied to government’s ability to repay its debts. We mentioned above that domestic asset requirements may need to be revised up in order to ensure that deficits are funded in the future.
Debt service costs are approaching debt trap levels. This will further compromise this pool of assets as it increases exposure to a consumptive government on a potentially unsustainable debt trajectory.
This savings pool can only be relied upon for so long before it is compromised to a point where it will never recover and stop providing the benefits noted above. We are not at that point but moving
towards it. It should thus now be a national priority to implement structural reforms which would reduce the reliance on savers to fund inefficient government spending.
There does not seem to be a recognition that this savings pool needs to be protected in order to contribute to future financial stability, not to mention serving the individuals who have diligently contributed to it to ensure a better tomorrow for themselves.
There is still time to implement the necessary structural reforms to return to a sustainable government expenditure trajectory and we are afforded this time largely by this regulated savings pool, but this time is running out.
We are encouraged by the realistic picture presented by this budget but hope to see real reforms implemented. Namibians deserve it.
We are encouraged by the work being done by the Ministry of Finance in this regard, but they will need a broad base of support from within Cabinet and Parliament to expedite implementation of reforms to get to a sustainable and effective expenditure trajectory.
Read IJG’s full review of the 2021/22 national budget.
