…A critical time in the economic progress of Namibia
By Hilary Mare
PILLARS of economic and infrastructure development, social development, and effective governance and service delivery in the medium-term policy focus have constantly been highlighted as those that resonate well with national development goals and constitute the key levers for the transition to the Fifth National Development Plan.
In view of this, it is imperative to acknowledge that Government faces key macro-critical economic issues that if not addressed may plunge the economic prospects and ideals of Namibia in darkness and sink the pursuit of growth and development.
Threatening the realisation of the Fourth National Development Plan (NDP4) Government currently battles implementation of solution to these staggering economic ills. Evidently during a parliamentary address a fortnight ago, Finance Minister Calle Schlettwein made it clear that economic growth had been overstated and that Namibia faces decline challenges that need to be fully addressed.
“As a small open economy and fragile in terms of the environmental impact, the effects of the slowdown in our major trading partners and global commodity prices are being felt in the domestic economy through a considerable slowdown in revenue and activity in some sectors of the economy. For this reason, growth for this year is expected to be considerably lower than the 4.3 percent projected in 2016. The severity of the economic slowdown was understated. Even at the global level, IMF had to respectively revise downward the global economic outlook in January, April and July this year.
“With regard to fiscal operations, we have to contend with considerably lower than anticipated revenue outturn, due to weaker economic output. As a result of shortfalls in GDP and revenue during the FY2015/16, the fiscal indicators have changed; with the budget deficit for that year now estimated at about 8.3 percent, up from the 5.3 percent deficit that was budgeted for, while the public debt ratio has also risen to about 40 percent of GDP. This outturn has carried over to the current fiscal year and needs to be contained. Concerted policy response package will have to be rolled out, starting with the Mid-Year Budget Review this year and extended to the rest of the MTEF in a manner that balances between ensuring growth and social development, while placing public finances on a sustainable path,” he expressed.
Namibia’s economic decline has been affirmed by credit rating agency Fitch a few weeks ago when the economic outlook on the rating was revised from stable to negative, reflecting a number of prevalent risk factors which need to be managed prudently and mitigated in the short to the medium-term.
Amongst factors highlighted by Fitch, Namibia was found to have an increase in budget deficit in 2015/2016 to 8.3 percent of GDP, from the budgeted deficit of 5.3 percent, above the fiscal target of five percent and the ‘BBB’ median of 2.7 percent, this mainly as a result of the shortfalls in budgeted revenue; increase in the Government debt stock to 38.2 percent of GDP, above the target of 35 percent at the end of 2015, which is forecast to rise further to 39 percent of GDP by 2016, deteriorating current account deficit to 14.1 percent of GDP in 2015, from 8.9 percent in 2013, and above the BBB median of 1.3 percent, declining levels of international foreign reserves of around 2.7 months of import cover by mid-2016, which is below the peer median of 5.7 months of imports coverage, and other policy issues such as the possible negative repercussions on the economy from the envisaged coming into force of the New Equitable Economic Empowerment Framework (NEEEF) in its current form.
“These key strength and risk factors have equally been emphasised during the recently concluded 2016 Article IV Consultation Surveillance mission undertaken by IMF in mid-September and whose report will be available at the end of October 2016, after the necessary approval process.
“It should be noted that the current MTEF which I tabled in February 2016 provides a basis for pro-growth fiscal consolidation, with phased spending cuts already commenced, while other non-core spending has been lowered or postponed in many cases, and Fitch has welcomed this approach in its statement,” Schlettwein said.
Essentially, four macro-critical policy issues were clearly outlined and highlighted in the Mid-year Review last year and till to date, they have remained core and ripe for solutions with Government promising to resolve them in the near future.
These are firstly, the structural challenges of addressing unemployment, inequality and implementing measures to eradicate poverty, through targeted developmental intervention measures. Multi-pronged interventions, better targeting and more urgency are required to make a meaningful impact on these structural challenges.
Secondly, the declining public revenue due to contractions in receipts from the Southern Africa Customs Union (SACU) and the impact of external factors on the domestic economy requires that Government aligns the expenditure outlook to the revenue outlook and the changing macroeconomic environment.
Thirdly, the widening twin deficits regarding the budget deficit and the current account deficit as a result of shocks on revenue and the weakening of the external trade position. The fiscal consolidation framework will seek to reduce the budget deficit over the MTEF in order to stabilise growth in public debt. Its pro-growth dimension supports interventions to help lift tomorrow’s growth potential of the economy. However, more structural policies to improve the productive and export-oriented capacity of the economy are needed to buttress the external position over the medium to long-term.
Lastly Government has had to contend with declining levels of international reserves as a consequence of negative trade balances, with reserves continuing to dwindle.
“The external effects on our economy as well as domestic vulnerabilities, especially those emphasised in the external assessments require timely and concerted response mechanism. Let me take this opportunity to reassure the market and the public that the Government will spare no time to implement the corrective measures in a timely and targeted manner.
This is, of course, taking cognizance of the fact that we are a small open economy and we have weathered perfect storms and headwinds in the past. We summon common resolve and energy to move forward. We have started a dialogue with the financial sector that is the banking sector, asset managers and other non-banking financial service providers and all pension funds and insurers to develop an action plan for the way forward,” said Schlettwein in his recent parliamentary address.
In conclusion; as Government tries to arrest these issues there is no doubt that more needs to be done if the Government is to fully succeed in coming out the victor in what could become a perilous situation and an economic free fall.
Confidente. Lifting the Lid. Copyright © 2015