Windhoek — Government's pledge to fully settle outstanding invoices of state contractors totalling more than N$3 billion by the end of August is expected to provide much-needed momentum to the ongoing economic recovery.
President Hage Geingob on Monday said the government deeply regrets the accumulation of unsettled invoices that resulted mainly from weak revenue collection - and emphasised the government understands the serious impact the outstanding invoices has on business operations, particularly for small and medium-sized enterprises.
"In this year's budget N$1.7 billion was allocated and was most likely already paid out in the first quarter of the 2017/18 fiscal year with respect to outstanding claims accruing from fiscal 2016/17. It is our understanding that the government realises the importance of its role in the economy, the impact of fiscal consolidation (necessary as it may have been) and the resultant impact on business. An additional N$3 billion to service claims which are still outstanding would certainly lend impetus to an economic recovery in the second quarter of the fiscal year and improve liquidity (depending on how much is retained)," commented Ngoni Bopoto, research analyst at Namibia Equity Brokers.
Bopoto added that the ability of the treasury to curb unauthorised spending by state-owned enterprises and a move to commercialise select operations will determine the sustainability of an economic recovery. However, he cautioned that alternative ways of raising funds must be considered in order to manage the budget deficit.
Another economic analyst, Purvance Heuer, director of research at Simonis Storm Securities, noted that it would be good if the government can pay the invoices by the end of the month. "This will allow suppliers of services to government to reduce any debt they may have accumulated over the period."
However, Heuer was less optimistic about the ability of the N$3 billion to drive economic recovery. "I doubt that it will do much to stimulate economic growth as business confidence is very low at the moment and instead of businesses spending these funds they would rather opt to reduce debt and keep powder dry."
During Monday's announcement at State House, Geingob said the government has realized that one key factor fuelling discontent and opinion is the occurrence of unsettled invoices.
Also at Monday's announcement was Finance Minister Calle Schlettwein, who confirmed that money is available to settle the outstanding invoices and that sectors to be paid include construction, water and agriculture.
To support the opinion that the country is on the path to economic recovery, Geingob highlighted the significant rain received earlier this year, which he said is fuelling a recovery of the agricultural sectors. He also noted consumer price inflation, which has been on a downward trajectory during the past six months and hit a low of 6.1 percent in June 2017, as well as some demand indicators such as monthly credit extension by commercial banks, which have "remarkably" improved liquidity conditions.
Geingob also mentioned a notable improvement in the trade deficit and a relatively strong local currency during the first six months of this year, coupled with reduced fuel prices, which he said provide an additional boost to private consumption during a period when government resources are stretched.