FNB rebuts budget deficit projections

By Hilary Mare

CONSIDERING last year’s developments, FirstRand Namibia (FNB) has refuted that proposed budget deficits proposed in the 2019/20 Mid-Term Budget Review highlighting that the government is unlikely to be able to consolidate this year’s budget deficit.

The proposed budget deficit will reduce from an estimated 4.1% of GDP in 2019/20 to 3.5% in 2020/21 and reach about 2.5% of GDP by FY2022/23.

“These figures seem unrealistic, with our current estimates projecting that it will hover around the 4% mark over the next few years simply on the back of revenue risk. The poor growth outlook, and the additional AfDB loan will result in a worsening debt-to-GDP ratio which is expected to breach 50% next year. These numbers pose notable risks to Namibia’s credit rating, particularly by Fitch and Moody’s who already have the country at speculative grade,” Daniel Kavishe, FirstRand Namibia Group Economist said.

Finance Minister Calle Schlettwein tabled the 2019/20 Mid-Term Budget Review at a time when the local economy remains fully engrossed in recession, revenue collection risks remain tilted to the downside and with the pressure to resuscitate the economy through spending is mounting.

“This is the third consecutive year in which the minister has had to rebalance and recalculate his approach to the fiscus in the mid-term review, making significant changes to either expenditure or revenue from what was originally presented in the Budget.”

Although revenue collection seems be on target, Kavishe noted that there is a likelihood that VAT receipts will underperform this festive season due to the overall slowdown in wholesale and retail trade.

“Consequently, non-mining company expenditure will likely come under more pressure due to the weak business environment. Nonetheless, the minister expects an average annual increase of 3.1% despite the poor economy and fickle SACU revenue estimates,” he added.

He also explained that execution on expenditure was poor at only 46% in the mid-term review, compared to 50% last year.

“The poor execution rate is a sign of a bigger bottleneck in procurement processes which has become a perennial problem. The minister has opted to redirect spending of about N$1bn from the development budget, to operational expenses — a bold move given public opinion and international scrutiny of operational cost matters.

“This redirection in spending from the development budget, which has large ripple effects in the overall economy, is likely to further limit the fiscal space needed to reinvigorate the economy. Given that the government is a significant player in the economy, this means that the prevailing recessionary pressures are likely to continue to weigh down on consumer demand and real growth in wages.  Unperturbed by this, the minister proposed changes that allow for additional recruitment of teachers and doctors, further allocation towards drought relief and the bulk of the remainder towards social welfare costs. These measures will be well-accepted by voters as they support the socialistic views engrained in the government’s current strategy.”

Namibia plans to invigorate the economy by borrowing an additional N$2.5billion from the African Development Bank (AfDB) to be directed towards water infrastructure. In this regard, Kavishe aslo noted that it seems the approach at this stage is more debt, while the Ministry of Finance deals with internal procurement matters.

“The AfDB tends to run a separate procurement system process, which is likely what the minister is banking on given the state of internal affairs. The minister further announced that certain key energy projects, which have basically stalled at the procurement office but offer quick wins for the economy, will be accelerated. Namibia also plans to lift the threshold for unlisted investments in phases from 5%, 7.5% and ultimately to 10%, subject to performance criteria — undoubtedly a big move that will invariably release billions directly into the economy over the next few years, provided there are economically justifiable projects to match them, something that appears to be lacking given the low drawn down numbers from currently available funds,” further stated Kavishe.