26 February 2016

Namibia: Govt to Step On Spending Brakes

Years of increasing government spending should come to an end during the coming financial year.

This was a central message in finance minister Calle Schlettwein's budget statement when he outlined the government's spending plans for the 2016/17 financial year in the National Assembly yesterday.

"[T]his budget is underpinned by two fundamental and mutually reinforcing policy objectives," Schlettwein said when he tabled the second annual budget of his tenure as minister of finance.

"The first objective is to reassert and re-establish a sustainable path for public finance, thereby maintaining macroeconomic stability as a basic enabler for future sustainability and socio-economic development. The second objective is to redirect increasingly scarce financial resources to the priority areas of national development with the objectives of unlocking potential economic growth, job creation and poverty eradication towards the achievement of shared prosperity for all."

Government spending of N$66 billion is budgeted for the 2016/17 financial year. That spending will be about 1,6% less than the expenditure of N$67,08 billion provided for in the national budget for the 2015/16 financial year, and is more than N$5 billion lower than the spending of about N$71,2 billion projected for 2016/17 in the government's medium-term spending plans a year ago.

The recent trend of increasing spending on public servants' salaries has been a cause for concern, Schlettwein said. While this type of expenditure supported gainful employment and opportunities for many Namibians, the government should try to make sure that this spending was not funded in the long term at the expense of other public investments to improve the productive capacity of the economy, he said.

In that regard, public sector salary increases should be limited to not more than the annual inflation rate over the next three years, he proposed.

Spending on non-productive investments would also be reduced, with projects like the construction of office blocks for government institutions to be postponed and spending to be cut on non-essential operational expenditure items like subsistence and travel allowances, overtime, furniture and office equipment and vehicles, he said.

There is more to the 2016/17 budget than the tightening of the country's national purse, though, Schlettwein said. "The budget gives scope to maintain the provision of essential services," he added. "It calls for greater resource prioritisation and quality of spending which offices, ministries and agencies have to embrace."

Schlettwein also said: "Through this budget, we strike a fine balance between growth and fiscal consolidation. The country's growth outlook is reasonably robust in relation to regional and global averages. We can, therefore, look forward to the future with confidence."

He remarked that the budget was being presented against a backdrop of highly uneven and fragile global economic growth. While global economic growth during 2015 is estimated to have been 3,1%, the Namibian economy fared better with growth estimated at 4,5% - although that reflected a deceleration from a growth rate of 6,4% in 2014.

During 2015, Namibia's balance of payments - reflecting the overall state of the country's economic transactions with the rest of the world - returned to a surplus of N$12,6 billion, compared to a deficit of N$1,8 billion in 2014, Schlettwein said.

While the country had to contend with decreasing levels of foreign reserves in 2015 to a point where the reserves could cover only about 1,3 months of imports, compared to the international benchmark of three months of import cover, the government has been able to rebuild the reserves to 3,4 months of import cover, he said.

INCOME, SPENDING

The 2016/17 budget includes projected government income of N$57,8 billion. During the 2014/15 financial year, realised revenue totalled N$49,9 billion, while the preliminary revenue outturn in 2015/16 is estimated at N$56,7 billion - about 4,6% below the budget estimate of N$58,4 billion, Schlettwein said.

On the other side of the national balance sheet, government expenditure during the 2014/15 financial year amounted to N$58,7 billion. It is expected that by the end of the 2015/16 financial year, about 97% to 98% of the budgeted expenditure of N$67,08 billion would have been realised, the minister also indicated.

The projected revenue and spending totals point to a budget deficit of about N$8,1 billion. Schlettwein said the deficit is projected at 4,3% of the country's gross domestic product this year, and is expected to average around 3% of GDP over the next three years.

Namibia's national debt has risen sharply from N$35,9 billion in 2014/5 to an estimated N$59,8 billion by the end of the 2015/16 financial year, and now amounts to about 37% of GDP, Schlettwein said.

Although the debt is expected to increase to N$63,7 billion in 2016/17, this growth should be offset by relatively healthy annual growth in the size of the economy, he said.

Interest payments on the national debt are projected to total about N$4,8 billion in the next financial year - an increase from debt interest payments of about N$2,5 billion in 2014/15 and N$3,1 billion in 2015/16.

Education spending of about N$16,2 billion will account for some 24,5% of total government spending during 2016/17, while N$7,2 billion is to be allocated to health and social services (10,9% of total spending), N$6,6 billion to defence (10% of total spending), N$5,1 billion to safety and security (7,8% of total), N$4,1 billion to transport (6,3%), and N$2,9 billion (N$4,4%) to poverty eradication and social welfare.

Schlettwein announced that old-age pension grants, which were hiked to N$1 000 a month with the 2015/16 budget, would increase by N$100 to N$1 100 a month in 2016/17. The state grant for pensioners would again increase by an additional N$100 next year, he added.

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