Crunch time for state finances

FINANCE minister Calle Schlettwein has sounded the alarm on the condition of Namibia’s economy and government finances.

A slowdown in economic growth, accompanied by a decrease in government income and an increase in Namibia’s budget deficit and state debt, have put the squeeze on state finances and left the government with limited room to manoeuvre in an effort to weather the tough times in which both the global and local economies are finding themselves.

The result of these risks facing the Namibian economy and the national treasury is that government will have to cut its spending, and get the budget deficit and state debt back within the sustainable limits set for these key indicators of the country’s financial health.

With this message, Schlettwein unveiled a review of the national budget for the 2016/17 financial year, which runs to the end of March next year, in the National Assembly yesterday.

“The Namibian economy has never before been in such a precarious situation,” Schlettwein stated as he delivered a sobering overview of the state of the economy eight months after the tabling of the national budget for 2016/17.

Whereas Namibia’s economy was projected to grow during 2016 at an annual rate of 4,3% at the time the 2016/17 national budget was discussed in parliament, that expected growth rate has been revised to about 2,5% – less than half the robust growth rate of 5,3% recorded in 2015, Schlettwein said.

As a result of the difference between Namibia’s projected and actual economic growth rate this year, government income is also lower than expected, and the budget deficit and increase in the national debt is higher than foreseen in the budget, he explained.

During the 2015/16 financial year, a budget deficit equal to 5,3% of Namibia’s gross domestic product – already above the targeted deficit limit of 5% of GDP – was expected, Schlettwein said. However, that budget shortfall has increased to 8,3% of GDP in the meantime, he said.

In the budget for the 2016/17 fiscal year, a deficit of 4,3% of GDP was foreseen – but it is now expected to reach an estimated 7,8% of GDP if action to contain spending is not taken in time, he warned.

The national debt has also increased more than had been expected in the budget eight months ago, Schlettwein indicated further.

While public debt was budgeted to amount to 36,7% of GDP in the 2015/16 fiscal year – exceeding the set debt threshold of 35% of GDP – it actually increased to 40,1% of GDP, and would rise to 42,4% of GDP by the end of this financial year, unless an intervention to cut government spending was staged, he added.

The situation in which Namibia finds itself “calls for a well-conceived, timely, resolute and consistent policy response”, Schlettwein said. The government must cut back on spending, and contain the significant growth in public debt to restore sustainable debt levels and market confidence, he stated.

The aim over the next three years will be to reduce government spending to a level below 35% of GDP, and gradually reduce the deficit threshold from 5% to below 3% of GDP, Schlettwein said.

The national budget for the 2016/17 financial year set out total government spending of about N$66 billion, expected revenue of N$57,8 billion, and a resultant deficit of about N$8,1 billion.

In the budget review, it is proposed that government expenditure should be cut by a nett N$4,5 billion, to about N$61,5 billion. Revenue is expected to decrease to about N$51,5 billion – leaving a budget shortfall of N$9,98 billion, or about 6,3 % of a revised GDP of N$158,6 billion.

The operational budget is to be cut by N$2,8 billion, the development budget by N$2,7 billion, and interest payments on the national debt are to be reduced by about N$1 billion, Schlettwein said.

Out of the cuts amounting to N$5,5 billion, an amount of N$1 billion will be reallocated within the budget. This would include N$350 million to be earmarked to fund the construction of the Neckartal Dam, N$150 million to be allocated to the Ministry of Gender Equality and Child Welfare’s programme to provide support to orphans and vulnerable children, N$150 million for the drought relief programme under the Office of the Prime Minister, and allocations of N$100 million each to the University of Namibia, the Namibia University of Science and Technology, and for the settlement of mass housing contracts, Schlettwein said.

Spending cuts under the development budget will mainly be concentrated on the construction or extension of office blocks, including the proposed new parliament building and new offices for the Prime Minister, the minister said.

On the operational side of the budget, personnel expenditure is to be cut by about N$633 million, and spending on mainly subsistence and travel allowances, material supplies and transport will be cut by about N$527,8 million, Schlettwein added.

“Our economy, small as it is, remains resilient amidst current challenging times,” he remarked on a more positive note, before adding: “The consolidation framework has the objective of placing our public finances on a sound, prudent and sustainable path.”

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