8 March 2018

Namibia: Spending Cut, but Govt Debt Balloons

Government spending will be cut by more than N$1 billion during the 2018/19 financial year, but Namibia's state debt will still continue to balloon over coming years, it is envisaged in the national budget that finance minister Calle Schlettwein tabled in parliament yesterday.

The budget provides for total government spending of N$65 billion in 2018/19 - N$1,05 billion less than the revised estimate of N$66,05 billion in total spending during the 2017/18 financial year.

With revenue of N$56,7 billion budgeted for in 2018/19, government will be confronted with a budget shortfall of N$8,3 billion. That will amount to about 4,5% of Namibia's gross domestic product, and represents an improvement on the revised estimated budget deficit of N$9,2 billion (5,4% of GDP) in the 2017/18 financial year.

Schlettwein said government spending is projected to decline as a proportion of GDP, from a level of 38,4% of GDP during 2017/18 to 35,2% in 2018/19, and to hover around 32,8% of GDP over the three-year medium-term expenditure framework.

Budget figures released yesterday indicate that government spending is projected to amount to about N$65,7 billion in the 2019/20 financial year, which would be the equivalent of 32,7% of GDP, and would be about N$66,3 billion (30,2% of GDP) in the year thereafter.

With a budget deficit of N$7,9 billion (4% of GDP) projected for 2019/20 and a shortfall of N$5 billion (2,3% of GDP) expected in the year after that, Namibia's national debt will continue to grow, increasing from a revised estimate of N$74,4 billion in 2017/18 to N$83,7 billion in 2018/19, N$92,7 billion the year after that, and N$99,1 billion by 2020/21.

At those levels, total state debt will be the equivalent of 45,3% of GDP in 2018/19, 46,2% of GDP in the next year, and 45,2% of GDP in 2020/21 - all above the debt limit of 35% of GDP that government has set as a target.

Schlettwein announced that state old-age grants will be increased by N$50 a month, low earners will get some tax relief through a cut in the lowest income tax rate from 18% to 17%, and that the rich will have to start paying more income tax.

He said current tax brackets for individual income tax would be readjusted and new tax rates would be introduced for top earners, with individuals raking in more than N$1,5 million a year to be taxed at a rate of 39%, and a tax rate of 40% to be applicable to people with an annual income of more than N$2,5 million.

Other tax changes announced by the finance minister are an additional national 'sin tax' of 5% on alcohol and tobacco products, a fuel levy increase of 25 cents per litre of levied fuel products, and the introduction of a 10% tax on dividends.

Tax changes are anticipated to generate about N$500 million in extra government revenue, Schlettwein said.

With personnel expenditure of N$28,9 billion budgeted for in 2018/19, the minister said Namibia's public sector wage bill amounted to 50% of revenue, and was one of the highest in the world.

He said measures would be instituted to bring down the share of the wage bill from 16% of GDP to about 12% of GDP over the next five years, through a combination of natural attrition and below-inflation wage adjustments.

Bailouts given to state-owned enterprises cannot continue without end, and inefficient and unsustainable enterprises should be shed in part or entirely, he also said.

In the 2018/19 budget, national airline Air Namibia will again be the recipient of major financial assistance from the national treasury, though. The budget includes a N$740 million subsidy for the airline in 2018/19, with further assistance of N$676 million budgeted for in 2019/20 and N$698 million projected to be allocated in 2020/21.

Other major allocations in the 2018/19 budget are N$13,4 billion for education, arts and culture, N$6,5 billion for health and social services, N$5,9 billion for defence, N$5,1 billion for safety and security, N$3,4 billion for poverty eradication and social welfare, N$3,4 billion for transport, and N$3,2 billion for higher education, training and innovation.

Interest payments on the national debt will amount to N$5,7 billion in 2018/19, Schlettwein said.

While the budget would reduce total expenditure, development spending will be increased from N$5,6 billion in the revised 2017/18 budget to N$7,3 billion in 2018/19 and N$8,2 billion in the year thereafter, he also announced.

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