The Fatal Error of Over-Borrowing

One would question what the main purpose of such borrowing is if results are not visible. So, the analysis would be that a country cannot have debt growing by double digits while the economy is only growing by low single digits.

One big reason is that debt is used for consumption purposes and debt servicing, which economic experts view as dangerous for economic growth for future generations.

The Namibian economy is reeling from the impact of an economic downturn, prolonged drought, and the effects of the Covid-19 pandemic.

Currently, these three aspects are forcing the economy into a high unemployment rate and a questionable poverty rate.

The domestic economy grew by 5,3% in the first quarter of 2022.

According to the 2022/23 budget statement as at January 2022, the total debt stock stood at N$124,8 billion, which is 66,7% of the country’s gross domestic product (GDP).

Total revenue for the medium-term expenditure framework (MTEF) was projected at around 29,8% of GDP by the Ministry of Finance.

In simple terms, the total debt stock is growing at a faster pace than the revenue the government is expected to collect.

Another fact is that interest payments are expected to rise to N$9,2 billion in the 2022/23 financial year, which is equivalent to 15,4% of projected revenue for the year.

Also, this is above Namibia’s internal benchmark of 10%.

It is thus clear that much of the revenue collected for the financial year will be absorbed by the servicing of this accumulating debt.

Finance minister Iipumbu Shiimi during his budget statement clearly said this would adversely impact allocations to key programmes in furthering Namibia’s national development objectives.

For the last 10 years, domestic debt has been growing at a faster rate than foreign debt.

This has translated into higher debt-servicing costs as a percentage of revenue for the country.

In light of this, Shiimi advised Namibians to continue with concerted efforts to live within their means and stem the pace of debt accumulation.

Furthermore, Namibia’s operational budget lays out the development budget in terms of allocation. As has been the case, the operational budget is mostly dominated by civil servants’ salaries, which bear no fruit when it comes to economic growth.

So, most of the expenditure is going towards consumption purposes, and not integral placements.

In terms of the 2022/23 national budget, the operational budget received a percentage share of 91,8% of the total budget, while the development budget received a 8,2% share.

This is according to the medium-term expenditure framework for 2022/23 to 2024/25.

This, without a doubt, has negative long-term effects on the domestic economy and on future generations.

Looking at the consequences future generations are expected to inherit this huge amount of debt.

They will have to work harder and bear their parents’ sins of debt accumulation by producing high revenue for the country and investing in productive means that will be able to yield results such as economic growth and much-needed employment.

Secondly, if much of the debt is for consumption purposes, then less will be available for developmental projects like in the health and education sectors.

This will, therefore, deteriorate the living standards of citizens. If debts are poorly managed, Namibia can expect a further drop in living standards.

Unemployment is another aspect one can link to the poor management of debt in Namibia.

Imagine Namibia, with one of the youngest populations on the continent, has a youth unemployment rate of a staggering 50,3%.

According to figures from the Namibia Statistics Agency (NSA), the country’s overall unemployment rate dropped slightly from 34% in 2016 to 33,4% in 2018, which is when the last census was done.

Surely, if a census is done soon, one can expect a shocking new percentage, given the impact of Covid-19.

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