How austere really are the measures?

How austere really are the measures?

When Finance Minister Calle Schlettwein this week said the “Namibian economy has never before been in such a precarious situation”, he was not exaggerating. For all the fiscal woes Namibia endured – including the 2008/09 global financial and economic woes – the Treasury was not concerned with running out of money.

Perusing through the 2010 monetary policy documents and statement, it is clear that the concern with the Treasury, and the monetary regulator, was with stimulating the economy into a state of production to maintain the momentum needed to ride the global economic shocks.

Which to some extent, analysts and observers pointed out this week, worked well but also contributed to some of the problems facing the country now, because of lack of control. There weren’t sufficient measures to establish and grow genuine long-term entrepreneurs, who could be called upon today to sustain the domestic economy. What makes the situation precarious for Namibia today is that our immediate neighbours – especially Angola – would not inject any cash into our economy, something the Namibian domestic economy has so much relied on in the past. The South African economy to which Namibia is linked, would also register negative growth. “The repercussions for Namibia for this collection of negative factors are significant. They significantly impact on domestic growth and government revenue,” Schlettwein said, before proposing budget cuts, which some found too brutal.

“The cuts to expenditure went further than anyone had anticipated and they were, plainly put, brutal,” says Suta Kavari, a Namibian independent research analyst based in Beirut, Lebanon.

Schlettwein cut the operational budget by N$1.82 billion. The cuts are N$634 million on personnel expenditures, N$528 million on travel allowances, material suppliers and transport, N$379,6 million on subsidies and current transfers, and N$278 million on acquisition of capital assets.

The development budget has been cut by N$2.7 billion, which is on construction of office blocks and extensions. The defence ministry was the most affected by the cut on the development budget.

The new fiscal stance advocates that N$1 billion, which in the current fiscal year was budgeted for other items, would now be allocated to activities that are deemed urgent and crucial to ease the country’s financial burden.

“Surely, now talk of constructing vanity projects, like the Parliament [building] and the PM’s ivory towers, would be put to bed! Surely,” says Kavari.

“But whether the cuts to expenditure would be enough to starve off a credit-rating downgrade remains to be seen. The budget review did show that the economy is on the brink and with these cuts it is hard to imagine the economy not slipping into recession. The alternative, however, is too ghastly to even ponder,” Kavari said further.

Schlettwein now warns that “liquidity constraints are an emerging challenge that we are contending with in the domestic market”. Further, he says the financing of the high budget deficit for the past years increasingly led to the mopping up and erosion of market confidence in government bonds and bills. “To restore sustainable debt levels and market confidence, government must cut-back expenditure and contain significant growth in public debt,” Schlettwein said.

The indicative expenditure ceiling was also reduced by N$10 billion for the 2017/18 fiscal year, from N$69.9 billion to N$59.9 billion.

That ceiling is expected to reach N$64.4 billion at the end of the Medium-Term Expenditure Framework, a significant reduction to the N$74.4 billion that was envisaged in February. For the current fiscal year, revenue shortfalls amounted to N$6.2 billion and given the very limited scope for debt, Schlettwein was forced to cut expenditure by N$5.5 billion.

Of the N$5.5 billion, N$2.82 billion was sourced from the operational budget. This is significant because it marks the first time that any cuts have been made to the operational side of the budget.

The wage bill, which accounts for close to 40 percent of the total expenditure – and the hardest part of expenditure to cut – was cut by N$633.39 million.

Nevertheless, Kavari says what Namibia saw last week “is a government aware of the realities of the day, and addressing those realities. We saw a fiscus capable of self-correcting and seriously intent on cutting the excess fat.”

“For a government that has injected a litany of policy uncertainties that have constrained growth, the mid-year budget review was a welcome refresher. Schlettwein’s task was an incredulous one, but absolutely necessary to ensure our long-term macroeconomic sustainability. We all owe him a vote of gratitude.”

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