Budget predicts return to economic growth

TWO years of recession should come to an end this year, with Namibia’s economy projected to return to growth during 2019, finance minister Calle Schlettwein said when he tabled the national budget for the 2019/20 financial year in parliament yesterday.

After contracting during 2017 and 2018, Namibia’s gross domestic product could grow by up to 1% this year, on the back of projected increased mining sector exports, increased investment in public infrastructure, and a mild recovery in consumer spending, Schlettwein said while announcing that the government planned to spend N$66,5 billion during the 2019/20 financial year.

Schlettwein also said the economic growth could improve to a rate of 2,2% in 2020, “if it is supported by the timely implementation of supportive policy measures”.

In the budget for 2019/20, he said, development spending was increased by 42%, from N$5,5 billion in the 2018/19 financial year to N$7,9 billion during the year starting from 1 April, as a measure aimed at resuscitating growth and creating jobs.

However, with aggregate public spending generally projected to remain flat, “private investment inflows are necessary to lift the growth potential of the economy”, and increased private sector participation was required to drive economic growth and job creation, Schlettwein said.

Projected government spending of N$66,5 billion (equal to about 33,8% of GDP) during the 2019/20 financial year and expected revenue of N$58,4 billion will result in a budget deficit of N$8,1 billion (4,1% of GDP).

Schlettwein also noted that the government’s total debt load was expected to reach N$87,5 billion (46,3% of GDP) by the end of the 2018/19 financial year.

The budget estimates unveiled yesterday indicate that the government’s total debt is projected to increase to N$96,2 billion (49% of GDP) during the 2019/20 financial year, N$104,8 billion (51% of GDP) in the year thereafter, and N$112,3 billion (52,3% of GDP) in the 2021/22 financial year.

At 49% of GDP, total state debts would not allow for further aggressive deficit spending as a sustainable option, Schlettwein said.

He pointed out that the government was finding itself in a financial squeeze, with little manoeuvring room:“[S]ignificant increases in domestic revenue through higher and additional taxes will do more harm than good to the economy. Therefore, we are restricted in our ability to increase expenditure.”

The budget estimates also indicate that government spending is projected to total N$67,1 billion (32,7% of GDP) in 2020/21, and N$67,8 billion (31,6% of GDP) in 2021/22. With total revenue of N$59,9 billion projected in 2020/21, and government income of N$61,8 billion forecast in 2021/22, budget deficits of N$7,2 billion (3,5% of GDP) and N$6 billion (2,8% of GDP) are foreseen in those two financial years, respectively.

During 2019/20, the government plans to spend N$29,9 billion – 45% of total expenditure – on civil service personnel costs.

The major recipients of funds in the 2019/20 budget are the Ministry of Basic Education, Arts and Culture, which is to be allocated N$13,7 billion, the Ministry of Finance, which is to receive N$10,8 billion, the Ministry of Health and Social Services, with an allocation of N$6,8 billion, the Ministry of Defence, which is set to receive N$5,9 billion, and the Ministry of Safety and Security, for which N$5,5 billion is being earmarked.

The Ministry of Works and Transport is set to receive N$4 billion, while N$3,6 billion is to be allocated to the Ministry of Poverty Eradication and Social Welfare, and N$3,1 billion will be going to the Ministry of Higher Education, Training and Innovation.

Schlettwein also announced that old-age grants are to be increased by N$50 a month. The grants are currently N$1 250 a month.

State-owned enterprises are set to receive a total of N$1,08 billion in government funding, with nearly half of that – just short of N$500 million – destined for Air Namibia. The loss-making national airline received state funding of N$740 million during the 2018/19 budget, documents show.

The government’s increasing debt load is set to cost N$6,4 billion in interest payments during 2019/20.

Turning to the Public Service Medical Aid Scheme (Psemas), Schlettwein said it would receive a budget allocation of N$2,8 billion for the 2019/20 financial year.

He also noted that an investigation of Psemas, which covers 95% of the medical expenses of its 130 000 members and 155 000 dependants, has revealed that it “suffered from a fraudulent assault launched by stakeholders across the board”.

Said Schlettwein:“[S]ervice providers, members, administrators, civil servants, everyone had a hand in the till.” He added that the culprits were being brought to book, and that N$23 million should be recovered – of which N$13 million has been realised so far.

“We must admit that we cannot do everything with a budget, but we have over the past three years put the country on a sounder financial footing,” Schlettwein remarked towards the end of his address. “When delivered, our economy will be in better shape. The future will be more secure and promising.”

The National Assembly is scheduled to start discussing the budget from Tuesday next week.

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