By Hilary Mare
THE global markets research team of RMB at FirstRand Bank Limited has said it expects a 4.5 percent Government budget deficit in 2016, with a recovery of three percent in 2017.
Addressing Namibia’s economic plight in the mid-year outlook in a total Sub-Saharan Africa report, diversified financial services brand encompassing investment banking, fund management, private wealth management and advisory services said that the Government plans to raise additional revenues through the partial listing of state-owned enterprises, improving operational efficiencies in others, while fragmenting some of the larger SOEs.
“The Government continues on its fiscal consolidation path regardless of data reflecting slower growth in Government debt than originally communicated in the national budget. This was attributed to the appreciation of the local currency, which resulted in the reduction in foreign debt in local currency terms. Accordingly, the Government budget deficit forecast has been revised downwards to 4.1 percent returning it to below the self-imposed five percent deficit ceiling for the first time in two years. We expect a 4.5 percent deficit in 2016, with a recovery to 3 percent in 2017,” RMB said. However regrettably, RMB indicated that the Government is in no position to implement countercyclical fiscal policy. “We expect falling SACU revenues and a slowing economy to bear down on Government tax revenue. This, along with a rising debt-to-GDP trajectory will limit the Government’s ability to increase spending to help cushion the growth slowdown,” the establishment added in the report. Earlier this year, IJG Securities stated that due to the slowdown in revenue collection, expenditure too will be revised down, in order to ensure that the deficit does not balloon. As a result, Government expenditure is going to decline from N$67 billion in 2015/16, to N$66 billion in 2016/17. “This is a decline of just over one percent in nominal terms, but will likely exceed seven percent in real terms. This will result in a forecasted deficit of 4.3 percent. We believe that the actual deficit may be larger than this, however, as we believe the MOF GDP growth forecasts of 4.3 percent in real terms, and 14.2 percent in nominal terms, for 2016/17, are simply too ambitious. However, with a deficit of 4.3 percent, some space (albeit limited) still remains should revenue disappoint. “Over the past year, the cost of funding the deficit has increased notably, as a result of the debt to GDP ratio spiking out to a level of 37 percent, from just 23.7 percent at the end of the 2014/15 financial year. As such, the debt-to- GDP ratio has now surpassed the self-imposed threshold of 35 percent. Moreover, this is not, by any means, the only debt benchmark that we have now overshot, with foreign debt as a percent of total debt, being another notable overshoot,” said IJG on its website. The securities firm added that this large increase in debt is due to both lower than forecast growth, as well as sizable debt issuance through the year. “The total outstanding debt of the country has increased by over 70 percent in the last year alone, driven by both domestic and external debt issuance. This level of debt issuance is unquestionably unsustainable in the long term if continued, and in this vein the Minister’s move for greater fiscal consolidation is timeous and much needed. Nevertheless, debt servicing will cost 8.5 percent of total revenue in 2016/17, or some N$4.9billion.
“On the expenditure side, the proposed improvement in expenditure alignment with the national development plan, and stripping out of some of the less productive expenditure in the budget, is a highly positive and much needed development. Because of the low-impact nature of this expenditure, we don’t expect its removal to have too dramatic an impact on growth. In this vein, there remains a lot of meat on the bones of the budget, as there is a huge amount of non-productive, highly consumptive expenditure contained therein. As such, we believe that this stated change in expenditure focus is generally a positive move, and should ensure that we start to run a more productive budget, and that government will better prioritises the use of its finite funds,” explained IJG.
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