Opinion – Mid-term budget review: respect the dividing line

The mid-term budget review plays a vital role in the entire budget process as it sets the tone for the budget framework for the next main budget. The budget is the government’s most important economic instrument, as it reflects the country’s socio-economic policy priorities by translating policy priorities and commitments into expenditures. This would include projections for inflation, productivity growth, unemployment and the trade balance. The economic outlook is critical and watched closely by investors, rating agencies, taxpayers and citizens in general. Economic and fiscal stability is possible if we maximize domestic resource mobilization and develop strong legislative policies that will limit revenue leakage and illicit financial flows. We should have debt management frameworks to avoid the debt that we continue to incur.

The country’s external debt continues to weigh on the economy by restricting access to the long-term, low-cost financing needed to support the desired medium- and long-term growth trajectory. Therefore, the macroeconomic framework needs to be complemented by a series of reforms that are under government control.

The foundations of economic growth are a prudent and credible fiscal and monetary policy, a well-functioning financial system and respect for the rule of law. Achieving this requires decisive action to build confidence, promote investment and job creation, reduce economic inequality and remove regulatory bottlenecks.

Gross receipts are estimated to grow at an average rate of 7.9% to reach N$64.1 billion in fiscal year 2023/24 and N$78.3 billion by fiscal year 2025/26, supported by increasing revenue from the SACU customs revenue pool and strengthening domestic revenue as the economy recovers. Expenditure is maintained at 56.9% billion.

Gross public debt (total stock of debt) is increasing to 69% of GDP, therefore Minister Iipumbu Shiimi cautiously signals the government’s commitment to continue gradual fiscal consolidation, providing much-needed certainty and sustainability to fiscal policy.

In my view, the extent to which the government can achieve fiscal sustainability will depend on implementing spending to slow down and accelerate growth-enhancing reforms.

This is essential to support the fragile economic recovery underway and should counteract the negative impact of several headwinds, ranging from rising energy and food prices to a relatively less accommodative interest rate environment. The government is committed to implementing reforms aimed at stimulating demand through infrastructure investment, employment programs and tax incentives that should boost consumption, ease skills constraints and modernize network industries. which should ultimately lead to an increase in production capacity.

In addition, the Minister indicates that a modified tax relief program will be put in place for another period to provide much-needed relief to taxpayers. The pro-poor tax policy changes or the tax threshold increases from N$50,000 to N$100,000. Reduced tax rates can stimulate savings and investment, leading to increased output and reduced unemployment. Well done, Hon. Shiimi! While this is another market-friendly mid-term review budget, implementation will again be key, especially on the reform and spending fronts. Here, the political will to drive growth and raise incomes while controlling spending will once again prove vital.

Facilitating faster private sector involvement in the power sector will catalyze confidence and growth more broadly. Namibia’s low levels of growth and high unemployment reinforce the desire to protect existing industries and jobs. To achieve a higher standard of living, Namibia must adapt to the demands of the world market. Climate change is beginning to shape the way larger markets regulate imported and domestic products.

Climate challenges also represent opportunities to generate new economic activities. Jobs and investments can be created by drawing on the skills and capital of the private sector, while the demand for carbon-intensive products can be managed with incentives and penalties. Industrial policy must support companies capable of meeting these challenges. A forward-looking policy that takes into account climate change would support efforts to increase youth employment, as announced in the national budget, in sectors such as business process outsourcing, tourism and technology.

Weak domestic demand continues to limit companies’ ability to pass on higher prices to consumers. There is a risk that the rise in administered prices and the depreciation of the exchange rate will put upward pressure on inflation.

In line with the government’s commitment to fiscal sustainability, the revision budget proposes a set of measures aimed at reducing public expenditure as a percentage of GDP, improving the composition of expenditure by reducing the growth of the wage bill and maintain good budget execution. Although local economic development projects often focus on small areas, they generally require the collaboration of stakeholders from across government, the private sector and community organizations to be successful.

The financial performance of several large public enterprises has continued to deteriorate sharply in recent years, leading to an increasing drain on public resources. Unlike their private counterparts, most SOEs have development rather than profit mandates. Nevertheless, these entities must be financially autonomous.

In recent years, a pattern of mismanagement and poor governance in large state-owned enterprises has led to operational failures, financial difficulties and increased demands for taxpayer support through the national budget. This problem is compounded by extended, sometimes unfunded mandates and, in some cases, outdated business models. However, these entities increasingly depend on external financing, government-guaranteed debt and bailouts to support their operations.

Reviving the Namibian economy would require massive investments in infrastructure, skills and training; enact and enforce favorable business incentives to stimulate the production of goods and services for local consumption and export, and have a clear fiscal and monetary policy direction for the economy. Namibia needs to tread carefully, as debts are paid by revenue rather than GDP – and also given the low tax-to-GDP ratio. Also, taking on more debt in the current year would mean additional pressure on future budgets due to debt service obligations. One of the biggest risks facing the budget is the poor implementation of investment projects, which is a major concern for actors in the economy – and influences to a large extent the level of impact of the budget. on the private sector and the economy. The ability of the budget to meet the expectations of Namibians and deliver the promised changes largely depends on the implementation of institutional and structural reforms aimed at improving the budget process.

To this end, it was evident that during the Covid-19 pandemic, people had lost their means of earning a living and their ability to access capital. By allowing partial access to retirement savings, the government will allow people to use part of their retirement savings in times of distress.

Therefore, it is argued that the problem is the limited number of resources – and therefore there is no good resource allocation mechanism. In other words, the limited quantity available imposes choices that are still far from perfect. But if we reverse this perspective, it is precisely because resources are limited that a transparent mechanism and procedure is needed to ensure minimum standards and best value for money.

2022-10-28 Josef Kefas Sheehama

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