Government braces for 4,5% deficit

GOVERNMENT has decided to boost public spending for a second year running in a bid to counter the effects of a global economy that is in crisis, slowing down and heading into recession.

Announcing Government’s spending plans for the next financial year in the National Assembly yesterday, Finance Minister Saara Kuugongelwa-Amadhila unveiled a national Budget in which Government plans a marked increase in spending for a second successive year, on the back of a Budget deficit of close to N$4 billion, while also handing most Namibians some tax relief. Totalling N$800 million over the course of the next financial year, these tax breaks should help tide Namibians over some tough economic times that are bound to lie ahead.Government plans to spend an estimated N$25,5 billion in the new financial year.During the 2008-09 financial year, public spending totalled N$22,4 billion.’For the past four years, we have managed to increase revenue considerably, and this has allowed us to pursue an expansionary fiscal policy to address our developmental challenges, without jeopardising fiscal sustainability,’ Kuugongelwa-Amadhila remarked during her Budget speech.STRATEGYShe announced that Government plans to increase its spending by 12,5 per cent during the 2009-10 financial year. Over the next three financial years, Government spending is set to increase by a total of N$10,5 billion, she said.The spending increases illustrate Government’s ‘counter-cyclical expansionary approach’ – that is, that while the economy world-wide is slowing down and sliding into recession, Namibia is set on a strategy where public spending will be boosted in an effort to mitigate the impact of the woes of the global economy.Summarising the aims targeted with the Budget, she said: ‘The Budget interventions do not only aim to stimulate economic growth in the short term, but they also seek to consolidate the basis for sustainable growth in the long term, while at the same time addressing welfare needs of our people.’The headline figures of Government’s Budget for the year to the end of March 2010 that Kuugongelwa-Amadhila announced yesterday, are:• Spending totalling N$25,5 billion;• income expected to total N$21,7 billion;• a Budget deficit of 4,5 per cent of the country’s gross domestic product.This is a substantial deviation from the plans that the Ministry of Finance still had for this year’s Budget a year ago, when its main projections for Government’s finances in the 2009-10 financial year were:• Spending of some N$21,748 billion;• income of about N$21,752 billion;• and a small resulting Budget surplus of N$3,9 million, which was regarded as a balanced budget.WHO GETS WHATWith the tabling of the 2008-09 budget last year, the Ministry of Finance expected that Government’s spending would exceed its income by some N$1,5 billion during that financial year. In fact, Namibia has had a third consecutive budget surplus during 2008-09, Kuugongelwa-Amadhila said yesterday.Due to a strong performance in revenue collections for a third year running, she said, the Budget surplus of N$2,3 billion that was recorded in 2006-07 has been followed by a surplus of N$3,3 billion in 2007-08. Instead of the projected deficit of N$1,5 billion in 2008-09, a surplus of N$138 million is now expected, she said.The largest increases in spending during 2009-10 will be on education, and on health, Kuugongelwa-Amadhila said.The largest share of the Budget has been allocated to the Ministry of Education, which is set to receive N$5,37 billion during 2009-10. This is an increase of 12,3 per cent on the education budget of N$4,7 billion during the 2008-09 financial year.The Ministry of Finance is to receive N$3,9 billion, which is a decrease of 5,9 per cent on its budget allocation of N$4,1 billion in 2008-09.Of this, N$100 million is set to wing its way to Air Namibia, bringing the amount the national airline has been receiving from the public coffers since 2000 to N$2,46 billion.The Development Bank of Namibia is also set to receive N$150 million out of the Finance Ministry’s budget this year – on top of N$150 million it received last year – while power utility NamPower is set to receive N$120 million, water utility NamWater N$50 million and the Agricultural Bank of Namibia N$31 million. The Finance Ministry is also budgeting for spending of N$1,35 billion on interest and charges on Government debt.The Ministry of Defence will, for a second consecutive year, receive the third largest chunk out of the budget. At N$2,59 billion, defence spending will be 9,5 per cent more than the previous year’s N$2,37 billion.The fourth largest share of the Budget goes on health spending, for which N$2,4 billion is provided in 2009-10. That is an increase of 13 per cent on the previous year’s health budget of N$2,13 billion.Spending on road construction and rehabilitation is projected to amount to close to N$1,4 billion in 2009-10.INCOME SOURCESWhile spending projections are going up, Government’s income projections, which are heavily dependent on the state of the economy, are more of a mixed bag, compared to last year’s budget forecasts.A year ago, the Finance Ministry still expected to collect N$433 million in company tax from diamond mining companies, N$482,6 million from other mining companies, and N$1,95 billion from non-mining companies during the 2009-10 financial year.Company tax income from diamond mining companies is now expected to plummet to only a little over N$10 million in 2009-10.Government’s income from diamond royalties are also expected to fall. Last year, it was forecast that some N$464,6 million in diamond royalties would flow into the State Treasury during 2009-10. This figure is now expected to be N$125,2 million.Tax income from other mining companies is expected to hold up, though, with tax income of N$554,5 million expected from other mining companies in 2009-10. Revenue of N$1,8 billion from other companies is being budgeted for in 2009-10.Income from the Southern African Customs Union (Sacu) – one of Government’s most important sources of revenue – was expected a year ago to total some N$8,5 billion during 2009-10. Income from Sacu is now projected to be N$9,3 billion in 2009-10.An increase in revenue from income tax on individuals is also expected in 2009-10, with N$4,4 billion budgeted to be received from this source. Last year, it was estimated Government would be receiving N$3,9 billion from this source in 2009-10.Income from value added tax is however expected to fall. Last year, it was projected that income from VAT would total N$4,03 billion in 2009-10. That figure has now been cut to N$3,2 billion.With a succession of years of deficit spending planned, Government’s debt is set to grow as well.Government’s debt stood at N$13,16 billion at the end of December 2008, Kuugongelwa-Amadhila said.According to the Budget documents, this debt is expected to grow to N$15,1 billion during 2009-10, N$19,39 billion in the year after that, and N$23,2 billion in the 2011-12 financial year.The debt level is set to average 25,6 per cent of Namibia’s GDP over this period, Kuugongelwa-Amadhila said, but it will rise to a level of 29 per cent of GDP by 2011-12 – which is well above the Government deficit target level of below 25 per cent of GDP.werner@namibian.com.na