Development funds sacrificed for operational

PHILLEPUS UUSIKU

As some analysts expected, finance minister Iipumbu Shiimi reallocate funds from the development budget towards operational expenditure, a regular occurrence in past years.

The operational budget is increased by N$2.2 billion from N$53.9 billion to N$56.1 billion, while the development budget is reduced by N$279.8 million from N$5.5 billion to N$5.2 billion.

Simonis Storm (SS) is concerned by government’s ongoing willingness to sacrifice developmental spending for the sake of paying public wages and other operational expenses.

IJG Securities also agreed with Simonis Storm that the shift of funds from the development budget towards the operation budget is concerning. The additional funds availed in this 2021/22 budget are also directed at operation expenditure rather than development, IJG said.

“Given the current economic environment and limited fiscal capacity, we call for a well targeted spending plan and narrow policy initiatives that are focused on a select short list of interventions, instead of being over ambitious and trying to overachieve on targets,” SS said.

Iipimbu is his mid-term budget review statement further pointed out that statutory expenditure is reduced marginally from N$8.5 billion in the main budget to N$8.3 billion.

“Given the size of government in our economy, it is very difficult to stimulate economic growth, whilst trying to strengthen the fiscus by implementing fiscal consolidation. The Ministry itself pointed out that “scope for further expenditure consolidation has thinned significantly,” SS said.

“The nation, international financial organisations such as the World Bank and International Monetary Fund (IMF) and credit rating agencies should be forgiving towards our government for increasing development expenditure and temporarily setting aside fiscal consolidation efforts. We argue that fiscal consolidation efforts be set aside temporarily until the economy shows signs of significant economic recovery from the lockdown induced economic depression,” SS added.

RECESSION

The Covid-19 has been blamed for the economic chaos, however, Shiimi acknowledged that the domestic economy has been in a recession since 2016.

IJG Securities noted that it has been eighteen months since the onset of the Covid-19 pandemic and five years since Namibian economy entered recessionary territory, economic opportunities still seem to be decreasing for many, if not most, Namibians.

“And while the national budget is not meant to solve all these challenges, as we have repeatedly pointed out, it can’t, it is a measure of the fiscus’ ability to underpin stability and the policy direction needed to create an enabling environment for growth,” IJG pointed out.

Revenue collection is crucial to the fiscus’ ability to undertake developmental investment that has the ability to boost capacity and future revenues. In this regard, and contrary to the May 2020 budget estimates, revenue collection for 2020/21 exceeded all expectations, coming in 4.3% higher than estimated in March this year at N$57.84 billion.

This is the third highest nominal revenue figure for the fiscus, ever. Of course, the influence of an uncharacteristically large SACU Revenue Pool Share masked much of the contractions in taxes on income and profits and value added tax (VAT), a much more appropriate guideline on domestic economic performance, IJG said.

OUTLOOK

IJG added that the outlook for revenue going forward is decidedly gloomier. Revenue is estimated to contract by 7.3% to N$53.60 billion in the current year, 2021/22, and remain around these levels in the next. It is only in 2023/24 that any meaningful increase in fiscal revenue is expected, and even then, this figure is projected to surpass 2017/18 revenue by only 3.3%, some six years after the fiscus recorded that peak.

The revenue outlook thus reiterates the need for a prudent fiscal budget and a structural reallocation of expenditure away from consumptive activities and toward projects and activities which enhance the productive capacity of the country, IjG added.

Overall, the budget deficit will remain unchanged at 8.6% of gross domestic product (GDP), as was in the main budget, leaving the net borrowing requirement largely static. The ministry forecasts 1.9% GDP growth for 2021 and 2.8% in 2022. The 2022 forecasts are based on improved mining production, marginal growth in agriculture and higher investment spending by public and private sector. Both the secondary and tertiary sectors are expected to contract in 2021. [email protected]