Analysts weigh in on ‘Covid-budget’

By Hilary Mare

ECONOMIC analysts have said that  the recently tabled national budget and the growing budget deficit were in line with expectations highlighting that despite Covid-19, the economy had been contracting over the years with  policy frameworks to attract domestic and foreign direct investment not having been conducive.

In a post-budget discussion  hosted by Nedbank Namibia and Simonis Storm Securities last week, Bruce Hansen, Managing Director of Simonis Storm underlined pre-existing domestic challenges such as unsustainable high expenditure levels, increase in the public deficit, increase in the public wage bill, slow implementation of reform to bolster growth and droughts.

Namibia’s debt is projected to increase to N$117 billion, or almost 69 percent of GDP, while revenue will be down 14.3 percent compared to estimates for FY2020/21 in the previous budget. Corporate income tax alone is estimated to fall by approximately 25.5 percent.

In Finance Minister Iipumbu Shiimi’s budget totalling N$72.8 billion last week, debt servicing and interest payments in the 2020/21 budget represent 16.4 percent of total Government revenue, amounting to N$8.4 billion – 6.4 percentage points above the self-imposed benchmark of 10 percent.

Economist Klaus Schade said that because of uncertainties and difficulty in consultations with other Cabinet members due to the lockdown, the Minister presented a one-year budget instead of the normal three-year rolling budget. He expects, however, that the policy issues raised at the end of the budget statement will be addressed in the mid-year review.

One issue was, “how do we finance this huge budget deficit? And how much do we need to borrow from other markets?” He noted that despite past efforts to curb expenditure, the gap between capital budget and borrowing exceeds this year’s parameters by far.

“This is another benchmark that we need to focus on to bring this into positive territory,” he added.

Schade urged for a clear strategy to rein in the deficit and to overcome these difficulties after years of using borrowed funds for operational expenses. He pointed out his concern that the Ministry of Urban and Rural Development would receive nearly N$800 million less than expected, at a time when water and sanitation are more important than ever.

Dr Jesse de Beer, UNAM economics lecturer, noted that a budget deficit would be expected during times of crisis, but that it is now quite concerning at N$20 billion vs. N$7 billion in the previous budget. She too expressed concern about the enormous civil servants’ wage bill, echoing the urgency of finding a way to grow the gross domestic product (GDP) to service the increasing debt.

Dr Eddie Turner, Head of Corporate and Investment Banking at Nedbank Namibia, and calling it a Covid-budget, due to the understandable focus on health expenditure, mentioned that he was pleased consumers were not burdened with an extra tax liability. Turner said citizens need to look beyond the current scenario and therefore cannot be reactionary in respect of the overall economic outlook. Drawing a correlation between health and education, he shared his disappointment that there had not been a greater focus on education. “We need to create more entrepreneurs, and education is an avenue we need to look at.”

Turner also advised that the impact on tourism not be underestimated, as the lack of foreign tourists and prevailing regional trade uncertainties significantly affect economic activity. He expressed appreciation at the fact that the Southern Africa Customs Union (SACU) revenue did not dip too much, but said it will definitely dip next year due to the current lockdown. He said it is therefore important for the economy to recover, and suggested approaching the International Monetary Fund (IMF) for assistance.

De Beer did caution that there seems to be a level of resistance in Africa to go to the IMF. Such caution is probably not warranted in the current circumstances, since Covid-19 related lending should be at favourable terms. It should also be kept in mind that the Eurobonds issued in 2011 and 2015 should be redeemed in 2021. Government saved for the repayment of these bonds in a sinking fund at the Bank of Namibia and it might be necessary to access part of the sinking fund now.

The panel emphasised that Namibia will only be able to progress if Namibians innovate and collaborate, as the concept applies to all – government, businesses and individuals. They concluded by saying that unity of purpose and fostering new methods would be key ways forward.