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Namibia: All eyes on Finance Minister’s 2018-19 budget

Namibia’s Finance Minister Calle Schlettwein will be delivering his annual budget speech for 2018-19 in the National Assembly on Wednesday, and economists at Simonis Storm are keen to know how he will deal with the economic challenges besetting the country.Prior to the budget statement, Schlettwein during his medium-term budget review for 2017-18, indicated that fiscal indiscipline should be deterred and nipped in the bud.

Economists at the stockbrokerage and investment research firm expect the Finance minister to give insights on how to avoid declining government revenue amidst the dilemma faced with introducing new taxes in an economy that is trapped in a technical recession.

“We will be keen to know the government’s stance on two critical issues: fiscal consolidation and revenue collection in a way that does not have a negative impact on economic growth, and at the same time maintain or reduce the debt burden.

“On the former, the Minister increased the expenditure ceiling for FY 2018-19 and FY 2019-20 by N$2.6bn and N$2.8bn, respectively.

“This in our view defeats the stance of fiscal consolidation where it has no direct and positive impact on economic growth and permanent job creation.

“The government needs to be pro-active and efficient in dealing with fiscal indiscipline and budget over-commitments by ministries.

“On the latter, revenue collection is clouded with risks around SACU revenue, which is expected to slow down coupled with low tax collections from individuals and corporates due to the soft economy,” said economic analysts Indileni Nanghonga.

“The FY2018-19 budget will be tabled within the context of balancing the negative and positive impacts caused by fiscal consolidation. The prior financial period was dominated by negative economic growth, heightened concerns regarding governance in SOEs and ministries, credit downgrades and regional instability”.

The budgeted revenue for 2017-18 was N$56.7bn compared to the total expenditure of N$66.5bn for the same period. This means that N$9.8bn is financed through debt.

“This means that most of the developmental activities are financed by debt such as the credit line from Africa Development Bank for agricultural projects, rail and for school renovation projects.

“The allocation towards operational expenditure is growing larger. This is mainly diverted to the wage bill. Our view is that government should strive towards a sustainable wage bill and allocate at least 20 percent of the domestic revenue collection to development projects supporting critical infrastructure and human capital development and improving relations with the private sector and encouraging competition,” Nanghonga said.

In June 2017, the African Development Bank approved a loan amount of N$1 billion for the government to finance its Agricultural Mechanisation and Seed Improvement Project.

Last year, the government also secured N$10 billion loan from AfDB to bridge budget deficit. Minister Schlettwein has confirmed that the N$3 billion of the total credit line would cover the budget deficit of N$6.1 billion during the 2017-18 and 2018-19 financial year, while the N$4 billion of the Rand-denominated loan will be used to finance development projects.

Furthermore, Bank of Namibia has increased the borrowing plan for the FY2017-2018 by N$1.2bn during January to cover the existing shortfall on bonds and to further improve the cash-flow position of the Government.

The debt stock increased to N$62.9bn in the FY2016-17 and is expected to increase to N$74.2bn in the FY2017-2018. In January 2018, total government debt stood at N$71.5bn.

“The government should priorities ways to contain excess spending and arrears arising from the tough fiscal consolidation stance. Furthermore, we need to align expenditure to the revised macro fiscal framework and further anchor public finances on a sustainable path, while supporting economic growth objectives.

“The elevated public debt, high budget deficits and concerns raised by credit ratings agencies require a consistent policy response package to address these vulnerabilities. Namibia has already lost its investment grade from both credit ratings agencies and the lack of fiscal discipline will prolong the downgrade stance,” Nanghonga cautioned.

Simonis Storm said they expect Minister Schlettwein on Wednesday to chart out a course how to improve revenue collection by implement measures to protect the tax base, profit shifting and illegal flows of capital through elimination of various categories of tax exemptions.

They further expect him to mention the implementation of the Presumptive Tax proposal to bring the relatively larger units in the informal sector (SME’s) into the tax net, and establish the Namibian Revenue Agency through a phased transitional arrangement to bring about greater efficiency in the collection.

“We do not expect any adjustments in VAT, but we expect fuel levies and some taxes to increase again this year,” Nanghonga said.

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