… As analysts offer counter-projections to budget review
By Hilary Mare
FOLLOWING the tabling of the mid-term budget review by Minister of Finance, Calle Schlettwein, in parliament last Thursday, economic analysts have raised concerns over the continued lack of fiscal discipline, which will result in increased unproductive expenditure and grow the budget deficit.
The minister announced the expenditure ceiling for the next Medium-Term Expenditure Framework (MTEF) at N$64.5 billion in the 2018/19 financial year (FY), N$65.5 billion in 2019/20 and N$66.9 billion in 2020/21.
Simonis and Storm Securities economic analyst, Indileni Nanghonga, told Confidente that this spending trajectory provides for about N$5.4 billion additional spending to the current MTEF ceilings, as a means of implementing the proposed intervention measures, while adding that the projected budget deficits are lower than they expect.
“Our forecast for expenditure to GDP is 32 percent. At the same time we forecast the budget deficit as a percentage of GDP at -5.5 percent, -5.6 percent and -3.5 percent for 2017/18, 2018/19 and 2019/20, respectively, while the Ministry of Finance forecasts -3.6 percent, -2.5 percent and -1 percent, respectively. Our deficit forecast is premised on lower tax collections than forecasted, due to a weaker than expected economy, lower SACU (Southern African Customs Union) receipts forecasted and an upward revision in the expenditure ceiling,” she highlighted.
Justifying this, Nanghonga noted that South Africa’s growth is expected to remain low, at 1.1 percent in 2018, and that a higher revenue collection from SACU is unsustainable, and is therefore expected to be lower, going forward.
SACU revenue is expected to come in at N$17.4 billion in the FY2018/19, compared to N$19.6 billion recorded in the FY2017/18.
“We forecast overall government revenue to contract by 5.7 percent, to N$53.9 billion for FY2018/19, compared to the estimated budgeted revenue of N$57.2 billion. As a result, we expect the budget deficit as a percentage of GDP to be -5.6 percent for FY2018/19, compared to a revised -4.2 percent estimated by the Ministry of Finance for the same period. This is on account of a shortfall in SACU revenue and on lower tax collections than forecasted, due to a weaker than expected economy,” Nanghonga said.
Furthermore, the unsustainable civil wage bill has been also highlighted as key area needing to be addressed, if fiscal discipline is to be achieved.
“The public sector wage bill has increasingly crowded out other areas of spending. Namibia’s personnel expenditure stood at 43 percent as a percentage of total expenditure and at 48 percent as a percentage of operational expenditure. Further increases in personnel expenditure are likely to be seen in the next financial period. Although the government froze new vacancies, we believe that due to a number of student graduates and the high demand for public workers in the health and education sector, this will lead to a number of incidents of social unrest, going forward. This will force the government to open up some vacancies; thus our expectation for an increase in personnel expenditure,” a budget review report by Simonis and Storm highlighted.
Echoing these views, Naufiku Hamunime, an economist at Standard Bank, noted with concern that it is unsustainable for over a fifth of the population to be employed by government.
“The wage bill needs to be addressed, as a matter of urgency. There are historical trends, apart from the wage bill, that have led to Namibia finding itself in a perfect storm. For instance, if we look at our development budget, it is supposed to be used for developmental projects, such as roads and water, but a greater part of it has been spent on unproductive expenditure such as offices,” she said, while also raising concerns about fiscal discipline.
In his budget review, Schlettwein stated that the additional spending needed for FY2017/18 is a once-off transitory adjustment, within a fiscal consolidation framework. The government will maintain the fiscal consolidation policy framework over the MTEF, which avoids sudden expenditure correction and gives greater impetus to targeted allocations to support economic growth objectives, and the provision of social services, while keeping the growth in public debt in check.
“We find it hard to believe that this will be a once-off event. We expect more outstanding invoices from institutions that government hasn’t settled,” Nanghonga said.
On their Twitter page, Cirrus Capital, fronted by economist Roland Brown, posted: “Major fiscal slippage in the mid-term budget; larger budget deficits across the whole MTEF.”
The financial services company then added, “Major increase in expenditure expectations across the whole MTEF; at the same time the revenue is being revised down. N$4 billion increase in expenditure in the current financial year.”
Due to the slowdown in the economy, Namibia’s per capita income has begun to stagnate since 2012, despite the continuous growth in GDP. This is widening the already wide gap between rich and poor.
The government has committed itself to maintain a balanced fiscal consolidation policy, with the express objective of stabilising the growth in public debt over the medium to long-term, while maintaining growth-friendliness and the social development objectives of its fiscal policy. Furthermore, plans are to gradually reduce the expenditure-to-GDP ratio threshold from 40 percent of GDP to 30 percent over the MTEF, and reduce the budget deficit threshold from 5 percent of GDP to below 3 percent, over the MTEF.
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