The Namibian government has moved to curtail the ramifications of Covid-19 with Finance Minister, Iipumbu Shiimi this week tabling his maiden N$72.8 billion budget for the FY2020/21 which looks to be the economic compass with which Namibia intends to lean on this year.
Characterised by targeted emergency measures, the budget, described by economic analysts as ‘expected’ dedicates 16.4% of revenue for the payment of interest payable on moneys borrowed and sets aside an appropriation bill amounting to N$64.3 billion.
This was a rare opportunity that Namibia managed to get as this budget was formulated in such a manner that it addresses the current Covid-19 challenges and supports the measures to curb the spread of the pandemic.
South Africa did not manage to get such an opportunity as the FY2020/21 budget was already tabled by the 26th of February 2020, a month before the spike in Covid-19 cases and the subsequent lockdown of the country.
Botswana much like South Africa also tabled its FY2020/21 budget on 3rd of February 2020 whilst other sub-Saharan countries like Zambia and Zimbabwe had already tabled theirs in October and November 2019 respectively.
Shiimi made use of this golden opportunity to provide many safety nets and funding for Covid-19 interventions in the FY2020/21 budget. In his budget speech he mentioned that this budget is aimed at defeating the pandemic as a necessary condition for future economic recovery and prosperity.
In essence, non-interest operational expenditure is budgeted at N$57.9 billion, 8.8% more than the previous year, reflecting accelerated funding needs to fight Covid-19.
Given the Covid-19 induced weak revenue outlook, Shiimi has noted that the budget deficit for FY2020/21 is estimated at 12.5% of GDP with the debt stock also estimated to rise to N$117.5 billion
“This is a single-year budget, reflecting the commensurate urgency of addressing the elevated once-off needs arising from the impact of Covid-19,” Shiimi explained further highlighting that this is a once-off rise in the budget deficit, as Treasury seeks to adequately respond to the challenges posed by Covid-19 on the economy and social strata.
This is also premised on the reality that owing to Covid-19, revenue for FY2020/21 is expected to be N$8.3 billion or 14.3% below the indicative MTEF estimates for 2020/21.
“This kind of budget was expected considering the difficult environment that the Finance Minister finds himself in owing to Covid-19. Although I would have wanted to see a more aggressive developmental budget, the debt matrixes should not be of primary concern as we are not operating on normal economic activity. This is the case with every other country as countries are responding to the devastating effects of Covid-19,” expressed Salomo Hei, an Economist and Head of Research at the High Economic Intelligence this week.
Echoing these sentiments to Southern Times was Tumelo Thudinyane, Assistant Portfolio Manager at Old Mutual Investment Group who reflected that this budget, given the economic and geopolitical disruption that Covid-19 has caused, was the kind expected.
“I am confident that the focus and increase on core spending in social sectors (health, education, etc.), the continued provision of essential services and support for on-going capital projects as well as maintaining support for critical infrastructure, serve as the necessary impetus to recovery for the economy. It will not be an easy and fast recovery, but unity of purpose and perseverance will be the key to our success,” he said.
Indeed, the acute twin challenge to balance the need to save livelihood and that of economic restoration which has seen the government choose the former; will mean that the path to economic recovery will take longer than anticipated.
Cheryl Emvula, an Economist at Cirrus Capital also told Southern Times that following nearly five years of little or no growth, while most of the rest of the world was growing on average by over 3%, Namibia entered this crisis in a materially worse economic state than many other economies.
“At the same time, a decade in which nine of the 10 years saw fiscal deficits (eight out of 10 with deficits exceeding 5% of GDP, four of which exceeded 7% of GDP), and an increase in the debt stock from 16% of GDP to close to 55% of GDP, has the nation entering this crisis with very little firepower with which to offset the economic shock presented by the pandemic.
“Nevertheless, even should a vaccination be found, there will be long-lasting damage done to the Namibian economy that will take an extended period of time to recover. The opportunity to turn the economic collapse of the past five years around is fast closing, and the positive legacy of post-Independence Namibia hangs in the balance,” he said.
Going forward, Chantel Husselmann, Tax Leader at PwC notes that domestic taxes on goods and services, mainly VAT, will be highly affected due to paused domestic demand as households increase precautionary savings due to uncertainty amidst the Covid-19 pandemic.
“SACU as the main category of tax on international trade will also decrease due to tight trading activities amidst the lockdown on major import destinations.”
The Appropriation Bill
In line with the previous budget sectoral allocation of 47.4%, the budget accorded 49.5% of the N$64.2 billion non-interest expenditure to social sectors. In this the Ministry of Health and Social Services is allocated N$7.95 billion, the Ministry of Basic Education, Arts and Culture receives N$14.2 billion, Higher Education, Training and Innovation receives N$3.3 billion of which N$900.2 million is for UNAM, N$503.9 million for NUST and N$1.5 billion for NSFAF, including a guarantee-backed loan facility of N$238 million.
“The Ministry of Gender Equality, Poverty Eradication and Social Welfare is allocated N$5.3 billion, 8.2% of the total allocation, mainly to cater for the social safety nets, which form the first line of defense against poverty for the vulnerable members of society, especially during this time of COVID-19,” Shiimi noted.
Economic and infrastructure sectors
Economic and infrastructure sectors were accorded a total of N$14.2 billion which is further supported by investment outlay by the Public Enterprises and off-budget project financing.
In this regard, transport receives N$2.4 billion, the Ministry of Agriculture, Water and Land Reform receives N$1.3 billion and the Ministry of Finance is allocated N$6.2 billion. Out of this amount, N$2.6 billion is allocated for PSEMAS. A total amount of up to N$772 million is for the Emergence Income Grant, while the Wage Subsidy Program in collaboration with the Social Security Commission is allocated N$400 million.
An amount of N$330 million is for government’s contribution to GIPF for Political Office Bearers and N$102.8 million for political party funding. N$90 million is allocated to AgriBank to support its loan book. Similarly, a total of N$64.0 million is allocated to DBN for SME and youth entrepreneurship support facilities. A total of N$210.9 million is earmarked for the transitional arrangements for the establishment of NAMRA in the budget year, while N$36.9 million, N$36.6 million and N$2 million are allocated for the Financial Intelligence Centre, Central Procurement Board and Financial Literacy Initiative respectively. The balance is for personnel expenditure and operational costs and the Contingency Fund.
Vote Industrialization and Trade is allocated N$174.8 million to facilitate trade and industrialization objectives.
Public Safety and Order
The Public Safety Sector takes up the third largest share of the budget allocations, totalling N$13.1 billion.
The Ministry of Home Affairs, Safety and Security receives N$5.95 billion, Defense and Veteran Affairs is allocated N$6.2 billion, the Judiciary receives N$375.7 million, while the Ministry of Justice allocated N$480.7 million, and the Anti-Corruption Commission receives N$61.6 million to support activities to fight corruption.
The Administrative Sector receives the least allocation of N$4.5 billion, equivalent to 6.9% of the total allocation.
N$1.7 billion is allocated to the urban and rural development to support, among others, increasing provision for sanitation infrastructure, land servicing and bulk water supply services, sewage and electricity, N$ 1.0 billion for International Relations and Cooperation, N$131 million for the National Assembly and N$101.3 million for the National Council.
“For the FY2019/20, a total of N$324.2 million was allocated to the Contingency Fund. I have distributed the corresponding information regarding the utilization of the Contingency Fund,” Shiimi said.
Silver lining in tax reform
Among a raft of tax pronunciations, Shiimi noted that under the cloud of Covid-19, no new taxes would be introduced. Furthermore, the proposal, previously announced, to disallow tax deductibility of royalties for mining entities has also been withdrawn.
“This is to encourage investor confidence and economic agents to explore, produce and reinvest in Namibia,” Shiimi explained.
Conclusively, in terms of the SACU Agreement and taking into account sales volumes and targets set for the total tax burdens on respective excisable commodities increases, effective from 27 February 2020 on beer and cigarettes have been effected.
Essentially, a 340ml can of beer or cider will cost an extra 8c, a 750ml bottle of wine will cost an extra 14c, a 750ml bottle of sparkling wine will cost an extra 61c, a bottle of 750 ml spirits, including whisky, gin or vodka, will rise by N$2.89, a packet of 20 cigarettes will cost an extra 74c, a 25 gram of piped tobacco will cost 40c more and a 23 gram cigar will cost an extra N$6.73.