2018 mid-term budget review

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By Magreth Nunuhe

Windhoek – Namibia’s economic outlook looks bleak due to continued recessionary pressure against the backdrop of a prolonged consolidation period since mid-2016 that has seen reduced the country’s economic growth, leading to job losses and decline in consumption related to public spending in real terms.

Namibia’s Minister of Finance, Calle Schlettwein, made these remarks when he presented the 2018 Budget Review in Parliament on Wednesday, reiterating his call for the nation to live within its means to ensure that expenditure remains aligned to public revenue.

“Fiscal consolidation reduces public expenditure and, therefore, has a negative impact on the domestic economy,” he pointed out.

The Finance Minister said the stable outlook reflects the public debt stabilisation objectives and the prospect of a return to a moderate growth outlook.

The budget review is an additional component that provides advance information of the medium-term policy interventions and spending priorities for the next Medium-Term Expenditure Framework (MTEF) and also affords the legislature and the Namibian public the opportunity to make inputs into the budget preparation processes for the 2019/20 financial year well in advance of tabling of the annual budget. Namibia has experienced persistent droughts, which have affected the agricultural and water sectors, while weak growth in neighbouring trading partners has adversely impacted the domestic economy. Volatility in the global capital and financial markets, distressing exchange rates and domestic policy responsiveness have all negatively impacted Namibia’s growth prospects.

“Indeed, the low growth outlook for Namibia’s main regional trading partners present multiple challenges with respect to overall domestic economic performance and revenue outlook, especially on the revenue from SACU and subdued consumer demand over the medium term,” said Schlettwein.

Domestic revenue is declining due to a fall in Southern African Customs Union (SACU) receipts, accumulating arrears and lower-than-projected VAT income.

As a proportion of gross domestic product (GDP), total revenue is projected to slow to 30.2% in FY2018/19, from 32.9% in FY2017/18. Over the next MTEF, revenue is expected to average around 28.5% of GDP. The weak outlook on revenue is mainly stemming from the continued decline in SACU revenue as a result of the subdued economic growth for especially the South African economy.

Schlettwein further warned that as a consequence, revenue projections would not allow Namibia to make significant increases in public expenditure in the near future and taking take up more debt would be unsustainable. “To return to positive growth, the economy needs to be stimulated to enhance investment, consumption, exports and productive capacity. Improved public spending, supported by better revenues and fiscal buffers would be needed to bring about such countercyclical intervention,” he emphasised.

Schlettwein said there was a need to restart the growth engines within the constraints of a sustainable framework, such as addressing bottlenecks in central procurement, eliminating potential corruption and over-pricing in public procurement and improving the efficiency of the operations of State-Owned Enterprises, among others.

He added that as the economy is emerging from a downturn, Namibia’s public finances have limited capacity to provide stimuli and aggressive domestic mobilisation through punitive tax increases is also not a viable option. 

In the midst of a waning economy, the country has overspent by 1.7% on the revised budget with actual expenditure outturn of R67.7 billion.

The R3 billion also remains outstanding in tax arrears although the revenue outturn was 3.7% better than projected. There was a total revenue outturn of R58.8 billion - 4.3% better than the original budget and 3.7% better than the revised budget revenue.

The 2017/18 Appropriation Amendment Act provided for an additional budget of R4.1 billion or some 6.5% of the original appropriated expenditure of which R2.2 billion was devoted to settle spending arrears and the remainder for reallocation to Offices/Ministries and Agencies to meet identified spending shortfalls.

According to Schlettwein, the budget deficit was reduced by a cumulative 3.8% of GDP over the past three years, or some 1.3% annually over the same calendar, from 8.1% in FY2015/16 to about 4.4% this year,

The minister further disclosed that spending as a proportion of GDP was reduced from a high of 40.2% for the FY2015/16 to an estimated 34.6% in FY2017/2018.

Schlettwein estimates primary industries to grow by about 5.7% in 2018 as production ramp up by Husab Uranium Mine reaches full capacity, with the agricultural sector expected to further support the outlook. “Fish processing activities remain subdued, with a contraction of about 8% this year on account of high cost of fishing and stock pressures,” he said.

Over the medium-term, growth in primary industries is expected to moderate to 3.2% on average over the MTEF, reflecting onshore diamond production constraints, depressed uranium prices

However, secondary industries output is expected to remain in contractionary territory due to recessionary pressures in the manufacturing and construction sectors over this year

The tertiary services sector, which accounts for over 57% of GDP and key to economic recovery, are estimated to continue experiencing recessionary pressures this year, posting an estimated contraction of about 1.4%.

In the total expenditure budget reallocations, as expected Namibia’s education sector benefits with the lion’s share of r236.9 million for basic education and R189.3 million is allocated to higher education, followed by the health sector getting R175.1 million and defence taking R124.5 million.

The Ministry of Finance is allocated R272 million, of which R95 million is for contributions to the Pension Fund, and R7 million for Financial Intelligence Centre.

Safety and Security receives R50 million for utilities, rental and related expenses, R124.5 million is allocated to Defence for utilities and transport related expenses. The R99.7 million is allocated to Information and Communication Technology for NBC operational expenses while R9.8 million is allocated to the Electoral Commission of Namibia for mobile voter registration facilities.

 

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