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Fiscus needs higher revenue to avert Debt Default

Fiscus needs higher revenue to avert Debt Default

By Josef Kefas Sheehama.

It is worth remembering that the word “credit” comes from the Latin word for “trust” which underpins the financial system. Namibia is ranked at number 10th, according to the Sovereign Debt Vulnerability Ranking. The agency estimates that Namibia’s sovereign debt currently stands at approximately 69% of Gross Domestic Product, and that it continues to grow. This puts Namibia among the top 10 countries worldwide whose governments are most likely to default on their debt obligations.

We know that borrowing makes sense for rich and poor if it finances things such as schools, hospitals, and physical and digital infrastructure. These are smart investments that can boost potential growth and improve the economic wellbeing of all Namibians. Building trust in sovereign borrowing is now more important than ever. The bottom line is that high debt burdens have left many governments more vulnerable to a sudden tightening of global financial conditions and higher interest costs.

Furthermore, a rapidly growing debt burden jeopardizes development goals, as the government spends more on debt servicing and less on infrastructure, health, and education. High debt can also create uncertainty, which deters investment and innovation. Given the extent of fiscal consolidation now required, however, both expenditure reductions and tax increases are necessary to stabilize debt.

Moreover, as independent Economic and Business Analyst doing research in political economy and international economics, I can confidently argue that Namibia is unlikely to default despite the concerns. But in the end, the only way to ensure the stability of the capital market is to address the economic challenges with an immediate focus on policies that will raise Namibia’s potential growth.

Therefore, a sustainable trajectory for the Namibian economy is one where reforms are implemented to raise Namibia’s potential growth rate. Developing new policies and sharing fresh ideas can help move the sovereign debt needle in the right direction. Implementing flexible industrial and trade policies to promote competitiveness and facilitate long-run growth should continue to be a strategic policy focus area. Successful industrial and trade policy should be focused, flexible and premised on the notion of embedded autonomy. It requires the prioritization and rationalization of interventions and must be underpinned by embedded autonomy which demands that the government elicits useful information from the private sector, which has the best knowledge of industrial and trade opportunities.

The government should urgently implement reforms that can boost Namibia’s growth in the short term, while also creating the conditions for higher long-term sustainable growth. These growth reforms should promote economic transformation, support labour-intensive growth, and create a globally competitive economy.

The current state of the Namibian economy is unsustainable. Low economic growth entrenches poverty and inequality. High income inequality aggravates social fragmentation and poses a risk to economic growth and to peace and stability. Inequality contributes to extremely divergent views, which make compromises difficult, consequently the resulting stalemate and policy uncertainty can contribute to economic weakness. A growth-oriented policy agenda must be accompanied by interventions that change how the benefits of growth are distributed and fundamentally transform the systems and patterns of ownership.

Initiatives that transform the economy must meet the dual tests of sustainability and intergenerational equity. In other words, economic transformation must be implemented in a manner that does not compromise the long-term ability to grow. This means that at the heart of our economic policy must be a concurrent emphasis on economic transformation, inclusive growth, and competitiveness as this offers the most sensible strategy to address the challenges of unemployment, poverty, and inequality.

Namibia suffers from stubbornly high levels of unemployment that are compounded by inefficient spatial patterns that makes participation in the formal and informal economy costly and difficult for individuals.

Agriculture makes it important in the pursuit of inclusive, labour-intensive economic growth, its rural linkages, ability to absorb less-skilled labour, large multipliers due to extensive links with the rest of the economy, competitive labour productivity, and importance for export-led growth. A growing agricultural sector can therefore help address our challenges of unemployment and low growth while countering rural poverty.

Tourism is another of the key sectors that can deliver inclusive growth through its labour absorption potential. Tourism is characterized by low barriers to entry as most tourism businesses are small, providing services such as accommodation, tour guiding, day tours, and taxi services. An important aspect is its unlimited scalability for inclusive growth and economic transformation.

Furthermore, rebuilding business confidence is a fundamental starting point to resuscitating investment. Private enterprises are the chief agents in creating employment, providing funds, building competitiveness and driving innovation. The private sector’s role in encouraging a country’s growth and economic development cannot be overstated. Private investments by the corporate sector are critical for higher growth rates and economic development. Effective partnerships between the government and the private sector in critical areas of infrastructure and long-term investments would expedite development. Corporates are integral to fostering innovation and entrepreneurship and ensuring the future progress of an economy.

In the future, Namibia will need further fundamental reforms for more robust and inclusive growth. The focus needs to be on creating a business environment more conducive to private investment and job creation. This requires improved governance, reducing the cost of doing business, making goods and services markets more open to competition, allowing companies to compensate workers in line with their skills and productivity, and making state-owned service providers more efficient.

Finally, the success of Namibia‘s Trade Policy and Strategy will, in the end, be measured by the extent to which it contributes to the government’s overall socio-economic objectives of industrial diversification and upgrading, and employment creation.


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A Guest Contributor is any of a number of experts who contribute articles and columns under their own respective names. They are regarded as authorities in their disciplines, and their work is usually published with limited editing only. They may also contribute to other publications. - Ed.

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