Budget review:Stimulating domesticdemand while cultivating fiscal prudence

Iipumbu Shiimi

Minister of finance and public enterprises Iipumbu Shiimi tabled the 2024/25 national budget to parliament on 28 February ahead of a key election year, amid an ongoing drought, sluggish non-mining growth, and a less supportive global backdrop.

The budget is underpinned by three priority policy pillars: stimulating domestic demand, accelerating investment in productive public infrastructure and cultivating fiscal prudence.

The Ministry of Finance and Public Enterprises expects stronger economic growth of 5,6% year on year (y/y) in 2023, 4,0% in 2024 and 3,9% in 2025, driven by oil and gas exploration and uranium production – in line with our expectations.

Fiscal revenue is expected to increase by 11,5% y/y to N$90,4 billion in the 2024/25 financial year from N$81,1 billion in 2023/24 on the back of higher Southern African Customs Union (Sacu) receipts, personal income tax, non-mining company tax and value-added tax (VAT).

A number of tax policy reform measures intended to provide relief to both individuals and corporates and to improve administrative efficiency will be implemented.

Expenditure is projected to rise by 11,9% to N$100,1 billion in 2024/25, from N$89,5 billion in the prior year on the back of civil service wage increases, higher welfare spending, an increase in development spending and higher interest rate costs.

Given the revenue and expenditure dynamics, the budget deficit for 2024/25 is estimated to widen to N$8,9 billion in nominal terms, from N$7,8 billion in 2023/24, but it will remain unchanged relative to gross domestic product (GDP) at 3,2%.

Similarly, the total debt stock for the 2024/25 financial year will increase in nominal terms to N$165,8 billion from N$154,2 billion in 2023/24.

Relative to GDP, debt is estimated to reach 62,5% of GDP in 2023/24, down from 66,2% in 2022/23.

Going forward, the ratio is expected to continue decreasing to 60,1% in 2024/25, 56,8% in 2025/26 and 56,4% in 2026/27.

The significantly lower ratio compared to previous estimates is due to strong nominal GDP growth, outpacing the increase in debt stock.

– Ruusa Nandago is an economist at FNB Namibia.

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