Government budget squeezed from both sides
By Eloise du Plessis
PSG Namibia’s Head of Research.
The 2021 Budget Speech, delivered in Parliament on 17 March, presented a more austere budget than some analysts had predicted. Not even the deferral of tax increases, the promise of a reduced non-mining company tax rate, or invocations of the fictional African kingdom of ‘Wakanda’ by Finance Minister, Ipumbu Shiimi in his speech could cover the austerity.
Shiimi strikes an uplifting tone, with talk of economic recovery and boosting fiscal resilience in his speech, the budget estimates point to government finances being severely squeezed from both the revenue and expenditure sides. Furthermore, the level of public debt is expected to rise precariously over the medium term.
The 2021/22 Budget is not a stimulus budget as certain commentators in the local media expected it to be. It could not afford to be one, in light of the stark realities facing government finances in the medium term.
SACU revenues that were once the budget’s silver lining are now its iron shackle. The sharp downward revisions to projected Sacu revenues are a hefty blow to the budget – the sum of inflows from the customs union over the medium term (2021-24) has been revised N$12.7 billion lower compared to the 2020 MBR.
This underscores the danger of Namibia’s reliance on Sacu revenues – which typically account for up to 30% of total government revenue – to finance its budgets.
The Ministry of Finance (MoF) commitments to freezing the public wage bill, reducing public enterprise transfers and curbing travel expenses are commendable, it may prove challenging to execute and are likely to face political opposition.
Although higher government expenditure could have been a remedy to temporarily recuperate the ailing economy, the resulting financial requirements would have pushed the country closer to a debt spiral. The MoF has acted prudently to try to limit financing needs and the further escalation of debt service costs.
However, if domestic and regional economic growth continues to lag in the medium term and debt service costs escalate, budget support (in the form of emergency funding or even a programme) from the International Monetary Fund (IMF) will become necessary for financial stability. Namibia has always prided itself for never having the need to approach the IMF, but the country did apply for emergency funding of N$4.5 billon (US$268 million) from the Fund in July last year.
However, this possible IMF loan did not receive any mention in the budget and the latest news on the matter is that the MoF confirmed in December that it had met all the required checks of the application and was still awaiting its approval.
Looking ahead, we still expect some small fiscal slippages in the medium term, given the uncertain path to economic recovery, the tepid pace of fiscal reforms, probable pushback against austerity efforts, the volatility of SACU revenue flows, and continued financial losses at SOEs.
It remains to be seen if fiscal reforms, such as the Public Procurement Amendment Bill and the much-delayed Namibia Revenue Agency (NamRA), will help the government to meet its expenditure targets over the medium term.