Expenditure cuts: rationale and consequences

“I would rather have people laugh at my economies than weep for my extravagances,” King Oscar II of Sweden once said.

The headwinds being experienced by the Namibian economy at the moment remind us of King Oscar’s words and meaning, as the nation seeks answers to the slump the country, region and world find themselves in, economically.

Our situation was properly put into context by Bank of Namibia Governor Ipumbu Shiimi this week, particularly where they originated from and what needs to be done to minimise its impact, as he explains in this edition of New Era.

President Hage Geingob has, rather unfairly, taken the flack for the state of the economy, while others directed their wrath at his predecessor, former president Hifikepunye Pohamba, for their supposed handling of the economy.

In all their rants, the critics often failed to cite the global, regional and local economic challenges that have continued to be felt in recent years, forcing government to embark on necessary mitigating interventions.

With the slight exception of South Africa, the entire southern African region is dependent on the sale of raw materials and commodities for its survival. Of course the region, and Namibia particularly, must perhaps take blame for not having done enough to diversify their economies.

But diversification is not a Sunday picnic – it’s an expensive undertaking that requires billions of dollars and thousands of people, most likely foreigners, with skills in areas we intend to venture into.

Neighbours Angola, for example, rely heavily on oil, a commodity whose price fell like a rock in 2015 and has struggled to recover ever since. At some stage oil fetched $100 per barrel, but this plummeted to $28 in recent months. It is this state of affairs that drove thousands of Angolans away from Namibian border towns, such as Oshikango.

This meant, therefore, that Namibian businesses could no longer rake in the revenues that Angolans brought in – leading to job losses and reduced VAT and other taxes for government.

Add to this the prolonged drought conditions, which apart from impacting lives and homes across the nation, also affected key bulk water-consuming industries, such as construction and manufacturing.

These are but some of the many challenges that have gotten us where we are today and which appear, in truth, stronger than our collective strength and will as a nation.

South Africa, our main trading partner, is on a negative ratings watch by agencies, while Zambia and Botswana, whose economies also rely on extractive industries, have equally paid the price of overreliance on commodities.
Zimbabwe, with all its difficulties, brought upon it by indiscriminate sanctions by the powers that be of the world, has been in the doldrums for nearly two decades.

Knowing it had no control over external forces, the Namibian government realised it faces bleak growth prospects – just like almost every nation in the world currently – and decided to embark on prudent spending cuts and a review of its priorities.

With lower than expected revenue and limitations on the borrowing capacity, government identified N$5.5 billion expenses to be cut in the 2016/2017 fiscal year, of which N$1 billion will be re-allocated for urgent funding needs and priorities.

Auditors Deloitte said at the time that they believe this was a correct decision that government committed itself to fiscal consolidation, especially since the cuts will come from non-essential expenses and non-productive assets.

Going forward, we need to arrest the speed at which our national debts are growing – even when knowing that the 35 percent debt benchmark we originally set for ourselves is prudent and one of the lowest in the world.

And as suggested by Governor Shiimi in his conversation with New Era this week, we also need to identify essential spending areas and wrestle our funds away from less important areas.

We are strong advocates of spending in economic activities that stimulate growth, rather than those that gobble up our scarce resources without returns. Infrastructure, such as those needed to make Namibia a logistics hub and a gateway to southern Africa – as President Geingob envisions – should be among those priority areas.

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