Budget not what it’s cracked up to be

GOVERNMENT and economists have locked horns over whether the country is managing its debt adequately and whether the 2006-07 national Budget is in fact “pro-growth” and “pro-poor”.

Government has come under heavy fire for not doing enough to encourage small and medium enterprise growth by not creating incentives for investment that will boost the economy. Yesterday, Finance Permanent Secretary Calle Schlettwein told parliamentarians that Government was not yet in a “comfortable” position as far as its debt level was concerned, but maintained that the country was better off now than three years ago.At the current level of 33 per cent of Gross Domestic Product, Schlettwein maintained that Government was still in a position to repay its debt, although its revenue options were limited.Schlettwein said Government was faced with a tight balancing act between producing an expansionary budget which was pro-growth and pro-poor and maintaining fiscal prudence.”Fiscal prudence comes with a price tag, but it shouldn’t be so high that people starve,” said Schlettwein.”Once things are more stable, we can take larger risks and be more expansionary.”But two economists asked to critically assess the 2006-07 Budget maintained that despite being touted as such, this year’s Budget would do very little in terms of bringing about long-term poverty reduction and growing the economy to meet the country’s development targets.The First National Bank’s Martin Mwinga and Robin Sherbourne of the Institute for Public Policy Research (IPPR) both appeared unimpressed that Government would produce a small budget surplus at the end of the 2006-07 financial year for the first time ever, saying it was not significant if done at the cost of expanding the economy.The two men were part of a panel called by the Parliamentary Standing Committee on Economics, Natural Resources and Public Administration to analyse the Budget.Although below international norms, Mwinga maintained that the rate at which Government’s debt had increased since Independence was worrisome.This especially in light of the fact that revenue to support Government spending was being derived from non-renewable resources and from the Southern African Customs Union – sources which economists say are not sustainable.”When you run a surplus, you should have a reduction in debt.But the debt has increased this year, more than when Government runs a deficit,” said Mwinga.”There is no point for us to run a surplus.We are destroying the economy and it will be difficult to rebuild it.”Government spending is expected to increase by 18 per cent in 2006-07.Government’s debt-to-revenue ratio has soared from seven per cent in 1992 to more than 100 per cent to date.Government’s repayment of interest on its debt is equal to its allocations to the Ministries of Defence and Health and Social Services, each of which make up 10 per cent of Government’s total expenditure for 2006-07.Mwinga said it was disconcerting that Namibia’s fiscal policy was responding to economic growth rather than guiding it.For the Budget to reverse poor economic growth, Mwinga said Government had to look at policy that would increase disposable income, increase private-sector investment and spend on projects that would have far-reaching effects.Failing to achieve this, Mwinga said, he was led to conclude that the 2006-07 Budget was in fact not pro-growth.Any economic growth for Namibia in the coming financial year would be dictated by external forces, Mwinga predicted.Sherbourne also raised concerns about Namibia’s debt load, saying that the figure excluded the millions of dollars Government had stood guarantee for.Should these companies default on their loan repayments, Government would be saddled with a much larger debt burden – an estimated seven to eight per cent more than the current amount.He too said he was concerned that despite the small surplus the Finance Minister was promising, she had raised spending to more than five per cent of GDP, once again derailing Government from reaching the intended 30 per cent spending target.Sherbourne said despite its reform efforts of the past two years, Government had gone back to its “good old ways” of high spending and a return to Budget deficits – forecast for the next two financial years.Sherbourne was also not in agreement that major Government spending reflected intentions to grow the economy and improve the lives of the poor.He singled out the more than N$100 million Government will spend on the new State House this financial year (also expressing concerns as to what it would cost the State to maintain the infrastructure and run the complex), N$55 million on security services, N$108 million to protect VIPs, defence equipment of N$185 million, another bailout of Air Namibia to the tune of N$153 million and N$208 million for the Namibia Energy Fund.Sherbourne said if Government was comfortable that these were its spending priorities, it could not complain down the line that the economy had not performed to desired levels, nor that its people were not reaping adequate benefits from its resources.He was of the opinion that Government should focus its resources on infrastructure with a demonstrable economic return, saying he was unsure of exactly what benefits the Northern Railway Project (N$361 million allocation) would have for the economy.Yesterday, Finance Permanent Secretary Calle Schlettwein told parliamentarians that Government was not yet in a “comfortable” position as far as its debt level was concerned, but maintained that the country was better off now than three years ago.At the current level of 33 per cent of Gross Domestic Product, Schlettwein maintained that Government was still in a position to repay its debt, although its revenue options were limited.Schlettwein said Government was faced with a tight balancing act between producing an expansionary budget which was pro-growth and pro-poor and maintaining fiscal prudence.”Fiscal prudence comes with a price tag, but it shouldn’t be so high that people starve,” said Schlettwein.”Once things are more stable, we can take larger risks and be more expansionary.”But two economists asked to critically assess the 2006-07 Budget maintained that despite being touted as such, this year’s Budget would do very little in terms of bringing about long-term poverty reduction and growing the economy to meet the country’s development targets.The First National Bank’s Martin Mwinga and Robin Sherbourne of the Institute for Public Policy Research (IPPR) both appeared unimpressed that Government would produce a small budget surplus at the end of the 2006-07 financial year for the first time ever, saying it was not significant if done at the cost of expanding the economy.The two men were part of a panel called by the Parliamentary Standing Committee on Economics, Natural Resources and Public Administration to analyse the Budget.Although below international norms, Mwinga maintained that the rate at which Government’s debt had increased since Independence was worrisome.This especially in light of the fact that revenue to support Government spending was being derived from non-renewable resources and from the Southern African Customs Union – sources which economists say are not sustainable.”When you run a surplus, you should have a reduction in debt.But the debt has increased this year, more than when Government runs a deficit,” said Mwinga.”There is no point for us to run a surplus.We are destroying the economy and it will be difficult to rebuild it.”Government spending is expected to increase by 18 per cent in 2006-07.Government’s debt-to-revenue ratio has soared from seven per cent in 1992 to more than 100 per cent to date.Government’s repayment of interest on its debt is equal to its allocations to the Ministries of Defence and Health and Social Services, each of which make up 10 per cent of Government’s total expenditure for 2006-07.Mwinga said it was disconcerting that Namibia’s fiscal policy was responding to economic growth rather than guiding it.For the Budget to reverse poor economic growth, Mwinga said Government had to look at policy that would increase disposable income, increase private-sector investment and spend on projects that would have far-reaching effects.Failing to achieve this, Mwinga said, he was led to conclude that the 2006-07 Budget was in fact not pro-growth.Any economic growth for Namibia in the coming financial year would be dictated by external forces, Mwinga predicted.Sherbourne also raised concerns about Namibia’s debt load, saying that the figure excluded the millions of dollars Government had stood guarantee for.Should these companies default on their loan repayments, Government would be saddled with a much larger debt burden – an estimated seven to eight per cent more than the current amount.He too said he was concerned that despite the small surplus the Finance Minister was promising, she had raised spending to more than five per cent of GDP, once again derailing Government from reaching the intended 30 per cent spending target.Sherbourne said despite its reform efforts of the past two years, Government had gone back to its “good old ways” of high spending and a return to Budget deficits – forecast for the next two financial years.Sherbourne was also not in agreement that major Government spending reflected intentions to grow the economy and improve the lives of the poor.He singled out the more than N$100 million Government will spend on the new State House this financial year (also expressing concerns as to what it would cost the State to maintain the infrastructure and run the complex), N$55 million on security services, N$108 million to protect VIPs, defence equipment of N$185 million, another bailout of Air Namibia to the tune of N$153 million and N$208 million for the Namibia Energy Fund.Sherbourne said if Government was comfortable that these were its spending priorities, it could not complain down the line that the economy had not performed to desired levels, nor that its people were not reaping adequate benefits from its resources.He was of the opinion that Government should focus its resources on infrastructure with a demonstrable economic return, saying he was unsure of exactly what benefits the Northern Railway Project (N$361 million allocation) would have for the economy.