…Revenue surprises will throw fiscus into tail-spin
By Hilary Mare
THE government remains on an expenditure tightrope, with too much and too little expenditure both likely to cause major long-term economic damage in the country, a democracy report produced by the Institute for Public Policy Research (IPPR) reveals.
Compiled by Cirrus Capital co-founder Rowland Brown and Economist, Cheryl Emvula, the report released last Friday notes that the government cash-flow position remains highly precarious, and with deficit funding options fast running out, any revenue surprises will put the fiscus into a tail-spin due to limited fiscal buffers.
“Most concerning in this regard is SACU receipts, which are likely to underwhelm in 2019. Added to this is the major potential for expenditure overshoots, and the possibility of another cash-flow crisis in late 2018 or late 2019 remains probable,” highlights the report.
On a more positive note, however, while it remains evident that improved expenditure priorities and effectiveness could still be achieved, there are signs that expenditure is now, slowly, being better aligned to national priorities, and that the same amount of money is being spent somewhat more efficiently.
The report advices that there remain numerous opportunities to further increase the effectiveness of expenditure, especially when it comes to access to housing, access to quality education and access to other basic services.
“With regard to education specifically, it is high-time that Namibia moves away from the obsessive focus on coverage as a metric for measuring educational success, and focus on quality. With the 7th highest level of youth unemployment in the world, and few jobs being created in both public and private sector, the quality of local education must come under scrutiny, not just as an issue around economic opportunity, but also as a key reason behind the perpetuation of inequality in the country,” recommends the report.
On the other hand, the report states that personnel expenditure remains of huge concern for Namibia, and is an issue that is borne of high youth-unemployment levels amongst other factors.
It highlights further that government has used both the historic surplus-debt capacity as well as windfall incomes and under spending (savings) on core service infrastructure to act as an employer of last resort for the expensive-yet-poorly functional Namibian public education system.
“That this is an unsustainable situation has been made clear in many historic versions of this IPPR budget review paper. Going forward, efforts have to be introduced to reduce the wage-bill as a percent of GDP and total revenue, but this must be done in a manner that does not disrupt peace and stability in the country,” notes the report.
Earlier this month, the central bank said the government needs to address the causes of the increase in the wage bill through structural reforms.
In its 2017 annual report, the Bank of Namibia advised the government to implement several short-term measures among them freezing salary increases, hiring and implementing an effective tax collection system.
Currently, Namibia’s public sector wage bill amounts to 50% of revenue and is one of the highest in the world. Budget allocation for this financial year indicated that government would spend N$28.9 billion on personnel expenditure.
“The focus on fiscal consolidation is of critical importance for the country’s macroeconomic future. This is to say that every effort should be exerted to ensure no further fiscal slippage is seen in the country, and that sustainable funding models are maintained. Critical in this regard is that should revenue fall for any reason, expenditure will once again have to be rapidly adjusted. Should this not happen, further downgrades to the country’s rating can be expected, and ultimately a debt-trap-situation may loom for the country,” concludes the report.
Responding to some of these issues at a discussion on the budget in Windhoek last week, Finance Minister, Calle Schlettwein said that the situation was not about just how much government spends but also how well money is spent adding that gains in quality of spending will make a big difference.
“We have to grow the economy so we have to slow expenditure drops, and we have to split that expenditure on social welfare and productive spending.”
On SACU risk, Schlettwein said government was reducing its dependence and using more income tax.
“SACU council has decided to create buffers to smooth out volatility,” he said.
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