National budget preview

… Expectations in an election year

THE 2024 national budget, which sets out expected revenues and key national spending priorities, will be tabled to the parliament on 28 February.

This is an important budget as it will be tabled ahead of an election period, amid an ongoing drought, sluggish non-mining growth and a less supportive global backdrop.

This would require a fine balancing act in managing public finances.
Given this context, here is what to expect from this year’s budget:

1. Positive news on tax policy adjustments Firstly, tax relief for individuals and corporates is expected, which would comprise increasing the tax exemption threshold for individuals from N$50 000 to N$100 000. Tax relief for individuals will be a welcome development as it would ease the pressure on lower-income households caused by accelerated inflation seen over the past two years. Secondly, there is an expectation of reducing the corporate tax rate from 32% to 31%. This is a good first step in making Namibia a more competitive environment for investment.
3. Weaker domestic revenue growth in the short term In the mid-term budget tabled in November 2023, the Ministry of Finance and Public Enterprises forecast revenues to increase only marginally by 0,5% year on year from N$78,6 billion in the 2023/24 financial year to N$78,9 billion in the 2024/25 financial year.
5. This is in line with our view for slower revenue growth, given a weak underlying economy outside of the mining sector and lower diamond-related revenue due to a softening of the international diamond market.
7. The tax policy adjustments for individuals and corporates would also cause a temporary dip in revenue in the short term.
9. While revenue growth is expected to be slower in the current fiscal year, we are positive on more efficient revenue collection in the medium term due to ongoing efforts by the Namibia Revenue Agency (Namra) to enhance domestic revenue mobilisation.
11. Weaker Sacu revenue growth in the medium term Southern African Customs Union (Sacu) receipts will remain a key anchor for fiscal revenue, constituting 27,2% of total revenue.
13. Beyond 2024, these revenues will slow as the South African budget tabled on 23 February shows a decline in transfers to Sacu member countries, compared to the midterm budget policy statement tabled in 2023. The budget initially estimated Sacu revenue transfers at N$85,6 billion, but this has now been lowered to N$77,2 billion.
15. Higher expenditure growth Expenditure growth would likely exceed that of revenue largely on the back of higher interest payments on government debt.
17. The ministry’s forecasts for expenditure growth at 4 year on year from N$89 billion to N$92,4 billion exceed those of revenue growth.
19. There is a risk that expenditure growth overshoots this target as there could be higher election-related expenditure such as welfare spending, grants and drought relief.
21. Furthermore, the civil servant wage increases announced after the tabling of the mid-term budget in 2023 will also feature in higher expenditure numbers.
23. Upward pressure on debt Given the revenue and expenditure dynamics, the budget deficit will widen, which would exert upward pressure on domestic debt levels. Total government debt is currently estimated at N$165,7 billion for the 2024/25 financial year. This implies higher interest payments for the government, which diverts resources away from more productive expenditure.
25. Encouragingly, the government will continue to source most of its funding needs from the domestic market, thus limiting currency risk on debt.

• Ruusa Nandago is an economist at First National Bank.