22 February 2013

Namibia: IMF Calls for 'Quality' Spending in Budget

THE quality of Government's spending will be the key to maintain Namibia's fiscal sustainability, the International Monetary Fund (IMF) has said.

"This will require implementing a prudent public sector wage policy, strengthening the financial viability of the state-owned enterprises, and minimising the fiscal risks associated with the Tipeeg," the IMF said in a statement posted on its website on Wednesday, following the fund's annual consultations with Government at the end of last year.

The IMF's advice comes as Finance Minister Saara Kuugongelwa-Amadhila prepares to table the 2013-14 Budget in Parliament on Tuesday. Part of her juggling act will be the agreed 8% increase in civil servants' salaries, the 15% increase in the remuneration packages of political office bearers, as well as millions in expected bail-outs for Air Namibia and the NBC - to name but a few.

The IMF said it welcomed Government's plan to "unwind" the N$14,7-billion Targeted Intervention Programme for Employment and Economic Growth (Tipeeg) - which now enters its third and final year - and its plan to focus on skills development going forward.

According to the existing Medium Term Expenditure Framework (MTEF), Namibia's budget deficit is supposed to fall from an estimated N$5,7 billion in the current fiscal year to N$467 million in 2013-14. Expenditure is supposed to only increase from N$40,2 billion to nearly N$41 billion, while debt is forecasted to increase from 27,7% of gross domestic product (GDP) to 30,3%. The IMF said there is need for a "tighter fiscal stance in order to rebuild policy buffers, including reserves, and support the peg to the South African rand".

The fund also encouraged Government to strengthen its fiscal framework by "delinking the fiscal stance from volatile Southern African Customs Union (Sacu) and mining revenues".

"This would reinforce the past policy of paying down debt when there are Sacu windfalls," the IMF said.

Government this year expects about N$13,8 billion from the Sacu revenue-sharing pool, and has budgeted for just over N$11 billion from it in 2013-14, according to the existing Estimates for Revenue and Expenditure.

"To enhance revenues, they [IMF directors] highlighted the need for broadening the tax base, improving tax administration, and streamlining tax expenditures. These reforms should be implemented in a manner that improves the predictability and simplicity of the tax system," the IMF said.

The IMF welcomed Government development objectives as set out in the Fourth National Development Plan (NDP4).

"Given high income inequality and unemployment, they [IMF directors] strongly supported the focus on fostering effective investment in education and health and enhancing financial inclusion. Directors also commended the recent launch of the Human Resource Development Council to address the skills mismatch in the labor market."

The IMF commended Namibia's strong macroeconomic performance following the global financial crisis.

"Medium-term prospects remain favourable although subject to downside risks from external and internal developments. Directors called for continued commitment to sound policies and structural reforms to build adequate policy buffers, preserve financial stability, foster stronger and inclusive growth, and reduce unemployment," the IMF said.

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