Guest Contributor | Feb 22, 2024 | 0
2022/23 budget outlook – IJG
By IJG Research.
Point 39 of the budget speech states, “…government is committed to redirecting much of the revenue increases in the coming years, as the economy recovers, towards debt redemption and reducing the borrowing requirement. At the same time, we recognize that the scope for further expenditure consolidation has thinned significantly, and we thus shift the policy focus towards entrenching sustainable economic growth.”
The first point regarding redirecting increases in revenue toward debt redemption and reducing the borrowing requirement is not reflected in the projected Medium Term Expenditure Framework (MTEF) numbers. However, in order to pay down debt, the government would need to be running a budget surplus and not a deficit.
This is clearly not the case, and the projected deficits remain large in the MTEF budget. Should revenue continue growing at the same compound annual growth rate of 1.9% as over the last seven years, then just the increase in projected interest costs alone will ensure that revenue growth cannot be allocated to paying down debt before entering a debt trap.
Higher revenue growth through productive expenditure is needed to reduce the deficit and the growth rate of public debt. In addition, as we have previously pointed out, growing revenue can also be achieved through policy rather than just through the pursuit of developmental projects that have a positive internal rate of return.
The second point regarding little room in which to further consolidate expenditure is possibly a more important one. This alludes to the possibility that the government’s willingness to pursue fiscal consolidation is waning.
Government expenditure under “fiscal consolidation” aimed to contain expenditure as far as possible without creating too much of a drag on the economy. In theory, fiscal consolidation should have been applied to an overheating economy and not one already under pressure for a variety of reasons, and thus it has not had any particularly positive impact as implemented. It is easy to see why the ministries campaigning for a share of the budget may be frustrated as they would feel hamstrung with regards to fulfilling their various mandates. Fiscal consolidation, as it was applied at least, seems to have been shown the door.
This begs the question: what next? How does a government with large twin deficits start to increase expenditure while revenue growth has languished and future growth remains uncertain? The answer has to lie in pursuing revenue growth in excess of expenditure growth. The MTEF budget does not however indicate that the Ministry of Finance expects this to materialize.
Revenue and expenditure growth (in quantum) are projected to be in lockstep with one another over the MTEF period. This is bold as growing expenditure off the back of projected increases in revenue has led the fiscus down the current path where debt has skyrocketed and there is precious little to show for it.
This does not mean that increased spending will not work. Namibia just has a poor track record of government spending resulting in additional revenue in excess of what was expended. Even the boom years between 2011 and 2015 were supported by large scale direct investment by the private sector as well as rapid credit extension rather than just government spending.
The Targeted Intervention Programme for Employment and Economic Growth (TIPEEG) is unlikely to have resulted in much of a long-term revenue stream. The development of the Otjikoto mine is an example, much more so.
And therein lies the answer to the question. Creating an enabling environment for the private sector, both foreign and domestic, to invest in economically viable opportunities is critical to the government’s pursuit of revenue growth. Some interventions mentioned by the minister in his speech stand out as encompassing this in principle.
The opening up of the leasing of the green schemes to the private sector is a good example. Such examples seem few and far between at present for much enthusiasm regarding the 2022/23 budget as tabled yesterday.
At least much of the budgeted expenditure increases reside in the hands of the Ministry of Finance for now. We just hope those hands remain safe hands as we head towards the SWAPO elective congress later this year.