Well managed local authorities debt key driver of economic growth: Analyst

By Erasmus Shalihaxwe

ECONOMIC analyst, Joseph Sheehama, said well managed debt of local authorities are key economic drivers of towns, as available budgets are used to finance capital projects to advance infrastructure development, education, health-care and employment creation.

He said this in an interview with Confidente while giving his views on the call to write off debts of local authorities and villages councils which has accumulated to over N$ 133 million around the country.

Landless Peoples Movement (LPM) Member of Parliament, Henny Seibeb, recently inquired about the state of loans availed to local authorities pre- and post-independence in parliament.

This comes after some local authorities requested Government to have their debts written off and allow them to start afresh.

Seibeb made the call in Parliament recently while urging Government to heed the call and consider writing off the debts because it is hampering service delivery.

However, Finance Minister Iipumbu Shiimi, said the outstanding amount is for post-independence, because pre-independence loans were entirely written off.

He further said if a move like that were to go ahead it will would not be fair to other institutions that have honoured their repayment agreements with government.

Sheehama said if municipalities and village councils manage their debts well, then they will have enough in their coffers.

This can then be used to fund projects and create employment for local people who will then circulate the money within that local authority and help the economy grow in that area. Therefore, the idea of writing off debts should be entertained.

“Local authorities should apply debt restructuring as an option and then request write off. They should negotiate affordable terms to reduce debt.

Revenue estimates are seldom underpinned by realistic or realisable revenue assumptions, resulting in municipalities not being able to collect this revenue, and as a result find themselves in cash flow difficulties. Should such situations arise, municipalities must adjust expenditure downwards to ensure that there is sufficient cash to meet these commitments. Local authorities should be viable without depending on the government,” Sheehama said.

He added that the write-offs will encourage municipalities and ratepayers not to pay bills, deepening the malaise in respective state entities that are already saddled with bad debt.

Who were supposed to work hard to generate sufficient revenue to close the gap between the allocation they receive from the fiscus and the budget that is set out for service delivery.

“If a municipality is like a business, then it must be run like one. Any business must have a revenue model in place to determine how its income is generated and to detail the make-up. It is important to understand how this revenue is generated and the key levers of the revenue value chain that must be managed closely. Like any business, understanding the product lines and the sales thereof is a key requirement of ensuring that the sales plan is executed and that the revenue is generated accordingly,” Sheehama explained.

He further added that local authorities need the capacity and political will to implement reforms by generating political support among urban constituents to introduce the necessary legal and institutional changes with the aim of generating increased revenue. Therefore, it is unsustainable and unrealistic for government to write off local authority’s debts.

“Local authorities themselves also show little fiscal effort in raising their own revenues from non-poor households, businesses and from charging for services.

The consequence is that these municipalities are becoming increasingly dependent on government bailouts by asking for a permanent write-off,” Sheehama expressed.