Of Arithmetic, Debt And Tipeeg

WHETHER it is the concern about the figure of above 51% unemployment rate or with the eye on the elections of 2014 we shall never know.

But the authorities have decided to go Keynesian and throw money at the problem. And here we have in mind The Targeted Intervention Programme for Employment and Economic Growth (Tipeeg).The authors have it, that at the end of a three-year cycle which covers 2011/201; 2012/2013 and 2013/2014 a total of 104 000 (direct and indirect) job opportunities would be created over and above what the economy would create sans Tipeeg. Government stress that ‘ Tipeeg is a specialized (sic) short term project aimed at addressing ….the acute high unemployment situation in the shortest possible time; in this case the next three years…’.The total cost of this intervention comes in at N$9.1billion. This amount is in addition to the regular, annual budget of government Ministries. This intervention will ratchet up government’s deficit from 3% to 7% of the GDP. Concomitantly, the nation’s sovereign debt will jump from 25% to 35% – a whopping 10%! O.K, I gather from the side guffaws from the more gung-ho of you that we have not reached Greek levels of debt immersion yet. And, therefore, the need for avoidance of raising false alarms, etc. It is also true that GRN assures that it…’is mindful of the fact that spending so much money over the medium term may, if not properly monitored, lead to other macroeconomic imbalances, in particular, unsustainable debt dynamics’Given its poor and sluggish record on addressing poverty and inequality for 22 years government is asking us to take a huge leap of faith in their ability to deliver in these three years. Already, some Tipeeg projects, such as the debushing programme – temporary as it is – have run into an implementation glitch. Further, government has created an ad hoc procurement committee as a means to expedite Tipeeg implementation. This has raised concerns about graft, as the exception from the rules of an already compromised government Tender Board, further whittles down checks and balances. And given our burgeoning, but not yet worrisome, debt position the rating agencies were bound to take a view. And so enters Fitch. But then, even prior to the downgrading of Namibia from ‘stable’ to ‘positive’ by Fitch on the 5th of this month, the IMF (The Fund) already took a dim view of our economic management. This followed their visit in October-November last year.The visit by the Fund is an annual ritual carried out in terms of Article IV of its constitutive instrument which functions as a kind of early warning system to inform the Governors on the management of the member countries.Whereas our economy has, lately, grown on average around 4% per annum (6% in 2010) the Fund’s view is that growth will dip below this rate during the Tipeeg period.This is as a combined consequence of uncertainties in mining (uranium mainly following Fukushima, lower deposits at Trekkopje than initial estimates) as well as a weak global outlook which is largely a function of the Eurozone sovereign debt crisis.An additional factor is the ongoing renegotiations of the SACU Revenue formula which may impact revenue. A third of tax revenue derives from SACU. The debut Euro 500m (10 year) bond (‘Namib 21’) launched last year, partly to finance Tipeeg, was well received by the investors and helped to establish the country’s presence in the global financial markets. The downside, however, is that this foray may be fraught with potential currency risks. So watch this space!In sum then, it is the potential currency risks associated with Euro 500m bond, the rapid but steep rise of public debt combined with the uncertainties of future receipts from the Common Revenue Pool which are contributory factors for the downgrading by Fitch. The fact that the markets have taken a contrarian view of Botswana -an economy very similar to ours – suggest that the markets have already factored in the global outlook and, therefore, zero in on the rise in public debt as the bête noire. The downgrading raises our costs of future borrowing from the market as the Euro 500m bond was transacted on the strength of the low 17% debt-GDP ratioTo conclude, in the foreword to the Tipeeg programme, President Hifikepunye Pohamba writes that it is ‘an attempt to arrest the escalating unemployment rate’. We must ask ourselves, as a nation, at what rate the economy needs to grow in order to address this endemic level of unemployment. Given the level of inflation the present 4% growth does not register any wealth creation in real terms.