Namibia: N$72.8b Budget to Restart Economy - Shiimi Looks at Rebuilding in the Wake of COVID-19

Namibian Finance Minister Iipumbu Shiimi in Parliament

Windhoek — Finance Minister Iipumbu Shiimi yesterday tabled a N$72.8 billion national budget, largely aimed at restarting a Namibian economy that – just as the rest of the world – has been brought to its knees by the Covid-19 pandemic.

The budget mainly consists of the N$64.3 Appropriation Bill, coupled with N$8.4 billion or 16.4% of revenue to repay interest on loans in an economy in a depressed global economy, of which the magnitude and severity have not been witnessed since the Great Depression of the 1930s.

At yesterday's tabling, Shiimi explained that Covid-19 presents urgent spending needs for the health sector and responsiveness to support livelihoods and economic sectors that are severely affected by the direct impact of the pandemic. This year's extraordinary budget is presented under the theme 'Together Defeating Covid-19, Together Thriving Again', which Shiimi said summons the collective contribution of all Namibians to defeat Covid-19 as a necessary condition for future economic recovery and prosperity.

Shiimi maiden budget aims to achieve four main goals, namely: to save lives, save livelihoods, save jobs and incomes and to place Namibia in a stronger position to thrive in the foreseeable future.

"Namibia is a small, open economy with the external trade to GDP openness index of about 100%. This makes the economy highly vulnerable to shocks such as the Covid-19 pandemic, mainly through the trade channel and pass-through effects on public revenue," said Shiimi.  According to the finance minister, the projected impact of Covid-19 on the economy and the large downward adjustments in nominal GDP have a significant negative effect on Namibia's revenue and fiscal indicators for the 2020/21 financial year and over the medium term.

This includes revenue for the 2020/21 financial year, which is projected at N$51.4 billion or some 30.0% of GDP.
This is N$8.3 billion or 14.3% below the indicative medium-term Expenditure Framework (MTEF) estimates and reflects the Covid-19 induced impact on the country's various revenue streams.

At N$22.3 billion, Southern African Customs Union (SACU) receipts will anchor Namibia's projected revenue for the current financial year while the next fiscal year, this revenue source is expected to come under pressure in the face of subdued economic and trade conditions globally and the common customs area.

Shocks and trade disruptions
Meanwhile, Shiimi noted that external and domestic demand shocks and trade disruptions will result in about 32.8% decline in Value Added Tax (VAT) collections while supply-side and production disruptions are forecasted to result in a decline of about 20.3% in individual income tax on account of wage reductions and job layoffs across various sectors of the economy.

Corporate income tax is estimated to fall by about 25.5% and as a result of subdued revenue and economic shocks, public expenditure and debt will remain elevated.

Said Shiimi: "This fiscal impetus is necessary to help mitigate the negative impact of Covid-19 on the economy and continued with the provision of critical public services".
This year's budget, therefore, reflects the commensurate urgency of addressing the elevated once-off needs arising from the impact of Covid-19, including non-interest operational expenditure budgeted at N$57.9 billion, 8.8% more than the previous year, reflecting accelerated funding needs to fight Covid-19.

The 2020/21 development budget amounts to N$6.4 billion or 8.4% more than the actual development budget spending in the previous year.
Given the weak revenue outlook, the budget deficit for the 2020/21 financial year is estimated at 12.5% of GDP, which is a once-off rise in the budget deficit, as government seeks to adequately respond to the challenges posed by the pandemic on the economy and social strata.

Yesterday, Shiimi stated that the budget deficit will be financed through a combination of own savings and domestic and external borrowing.
Taking into account the total financing requirements, the total debt stock is estimated to rise to N$117.5 billion, corresponding to 68.7% of GDP, from 54.8% estimated for 2019/20 financial year.

Shiimi stated that going forward, government expenditure will have to be recalibrated to lower levels from the temporary Covid-19 induced peak to stabilise growth in public debt.

In terms of Namibia's tax regime, Shiimi admitted that given the challenging economic landscape, now is not the time to introduce new taxes.

"However, tax administration measures to achieve equity and fairness in the tax system by ensuring that economic agents generating the same level of income, pay the right amount of tax at the right time as well as the measures to plug tax planning and tax avoidance opportunities will continue to be pursued," said Shiimi.

This means all Namibians who earn above the tax threshold of N$50 000 or more per year will now be obligated to pay commensurate tax, irrespective of the type of economic activity from which they derive their income.

"This money is needed to pay for medicines, school books, construction and maintenance of roads and other critical public goods and services that the public enjoys," said Shiimi. This 2020/21 budget accords 49.5% of the N$64.2 billion non-interest expenditure to social sectors.

This, Shiimi noted, is in line with the previous budget sectoral allocation of 47.4%.  "This allocative priority reflects the quantum and speed for availing resources to the health sector to shore up national responsiveness to Covid-19 and the needs in the education sector to cope with the new normal," Shiimi stated.

Allocations
Meanwhile, the ministry of health is allocated N$7.95 billion, which is 12.4% of total non-interest expenditure.
The ministry of basic education receives N$14.2 billion, equivalent to 22.1% of the total allocation and the higher education ministry receives N$3.3 billion or 5.1% of the total allocation of which N$900.2 million is for the University of Namibia, N$503.9 million for the Namibia University of Science and Technology and N$1.5 billion for Namibia Students Financial Assistance Fund (NSFAF), including a guarantee-backed loan facility of N$238 million.

"Such resource outlay reflects the government's commitment to invest in the youth and human capital development as the central driver for sustainable development, employability and poverty reduction over time," he said. Additionally, the Ministry of Gender Equality, Poverty Eradication and Social Welfare was allocated N$5.3 billion, 8.2% of the total allocation, mainly to cater for social safety nets, which form the first line of defence against poverty for vulnerable members of society, particularly during the pandemic.

In the meantime, economic and infrastructure sectors took up the second-largest share of this financial year's budgetary allocations, after social sectors. A total of N$14.2 billion was allocated to the Economic and Infrastructure sectors, which is further supported by investment outlay by Public Enterprises and off-budget project financing. Transport receives N$2.4 billion, for the completion of on-going phases of capital projects with contractual awards.

This allocation is supported by N$1.4 billion from the Road Fund in FY2020/21, the N$644.94 million for road project financing under the African Development Bank (AfDB) loan arrangement during the budget year, with the remainder of N$1.7 billion to be disbursed over the next two years for road and rail infrastructure financing under the AfDB-funded Economic Governance and Competitiveness Program.  Also, NamPower is rolling out investment in energy generation and transmission, particularly solar and wind power generation over the next five years, with an investment of about N$10 billion over the next three years.

This, said Shiimi, would boost the provision of affordable and reliable domestic power generation and improve the balance of payments.

The Ministry of Agriculture, Water and Land Reform receive N$1.3 billion, of which N$929.2 million is earmarked for the commencement of the water infrastructure refurbishment and development program.

The Ministry of Finance is allocated N$6.2 billion, about 9.7% of the total allocation. Out of this amount, N$2.6 billion or 40.4% is allocated for the government medical aid, PSEMAS.

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