Investment, Reform and Recovery: – Namibia’s economic vision unveiled
By Josef Kefas Sheehama.
Namibian Finance Minister, Mr Iipumbu Shiimi, delivered his 2023/2024 Mid-Term Budget review on 31 October 2023, providing amongst others insights into the achievements, challenges, and performances of State-Owned Enterprises (SOEs).
The Mid-Term Budget Review holds a pivotal role in the overall budgetary process as it sets the tone for the fiscal framework in the upcoming main budget. The budget serves as a cornerstone of the government’s economic strategy, reflecting the nation’s socioeconomic policy priorities by translating commitments into expenditures. This encompasses projections for key economic indicators like inflation, productivity growth, unemployment rates, and the balance of trade.
The economic outlook is scrutinized closely by investors, rating agencies, taxpayers, and the public at large. Attaining economic and fiscal stability hinges on optimizing domestic resource mobilization and enacting robust legislative measures to combat revenue leaks and illicit financial flows.
But it is also imperative to establish effective debt management frameworks to curtail the mounting debt. The country’s external debt continues to weigh down the economy by limiting access to low-cost, long-term financing, essential for the desired medium to long-term growth trajectory.
To bolster this macroeconomic framework, the government must undertake a series of reforms within its purview. The foundations for economic growth require prudent and credible fiscal and monetary policies, a well-functioning financial system, and a commitment to the rule of law. Achieving this necessitates decisive measures to inspire confidence, encourage investment and job creation, reduce economic inequality, and eliminate regulatory impediments.
Gross revenue is anticipated to grow steadily, with an average annual rate of 8.8% reaching N$74.7 billion in FY2023/24 and N$82 billion by FY2025/26. This growth is underpinned by increased receipts from the Southern African Customs Union (SACU) Customs Revenue Pool and the strengthening of domestic revenues as the economy rebounds. Government expenditure will be maintained at N$53.8 billion. The total gross government debt has risen to 66% of GDP.
Minister Shiimi has cautiously conveyed the government’s commitment to gradual fiscal consolidation, providing much-needed policy certainty and sustainability. The government’s ability to achieve fiscal sustainability will largely depend on the implementation of measures to control operational spending and promote growth-enhancing reforms. This is crucial to support the ongoing fragile economic recovery and offset the negative impact of various challenges, such as rising energy and food prices and a less accommodating interest rate environment. The government is committed to implement reforms to stimulate demand through infrastructure investment, employment programmes, tax incentives to boost consumption, and addressing skills shortages, and modernizing network industries to enhance productive capacity.
Additionally, the minister has indicated the introduction of a modified Tax Relief Programme to offer relief to taxpayers. The Pro-Poor Tax Policy Changes like the suggested increase in the tax threshold from N$50,000 to N$100,000, and reduced tax rates, are expected to encourage savings and investment, leading to increased production and reduced unemployment.
Despite this being a market-friendly Mid-Term Review, the key lies in its implementation, particularly in the areas of reform and expenditure control. The government’s commitment to driving growth and revenue, while managing expenses, remains pivotal.
Facilitating private-sector involvement in the power sector will boost confidence and broader economic growth. Namibia’s low growth rates and high unemployment underline the need to adapt to global market demands to achieve higher living standards. Climate change is also influencing how major markets regulate imported and domestic products.
Weak domestic demand limits firms’ ability to pass on higher prices to consumers. Higher administered prices and exchange-rate depreciation pose risks of inflation. In line with the government’s commitment to fiscal sustainability, the budget proposes measures to reduce public spending as a share of GDP, improve the composition of spending by curbing wage bill growth, and maintain sound budget execution.
Several large state-owned companies have experienced sharp financial declines in recent years, straining public resources. Unlike their private counterparts, these SOEs often have developmental mandates rather than profit-driven objectives. However, they must strive for financial self-sustainability. Mismanagement and poor governance at major state-owned companies have led to operational failures, financial distress, and increased demands for taxpayer support through the national budget. This is compounded by broad, sometimes unfunded mandates and, in some cases, outdated business models. These entities increasingly rely on external funding, government-guaranteed debt, and bailouts to sustain their operations.
Namibian state-owned enterprises face a myriad of issues, from insolvency to weak accounting systems and corporate governance shortcomings. Given the high public debt levels and the impact of macroeconomic shocks, such as the conflict in the Ukraine and Gaza, the risks associated with a lack of reform are substantial. The ongoing wave of SOE reforms has predominantly focused on consolidation through mergers and acquisitions rather than a comprehensive approach to improving corporate governance.
To rejuvenate the Namibian economy, substantial investments in infrastructure, skills, training, and business incentives are required to stimulate local production for both domestic consumption and exports. A clear fiscal and monetary policy direction is essential, considering the current debt levels and low tax-to-GDP ratio. Increasing debt would add pressure to future budgets due to debt servicing obligations. A significant concern is the implementation of capital projects, as it heavily influences the budget’s impact on the private sector and the economy. The success of the budget in meeting the expectations of Namibians and delivering promised change depends on the effective implementation of institutional and structural reforms to improv the budget process.
In conclusion, the anticipated reward for fiscal discipline is strong economic growth, even in the face of a fragile economy.