Let me reflect on the general state of the economy globally and here at home. At the global level, economic activity for 2017 and 2018 as forecast by the International Monetary Fund (IMF) is projected to improve moderately, thanks to an expected pick-up in demand in Advanced Economies and measured fiscal stimulus in China, which will have positive spillover effects on commodity prices. Indeed see oil and commodity prices bottoming out and, to the extent that this recovery is sustained, the outlook for Developing Economies and commodity exporters will improve. There are, however, significant downside risks to growth, especially those stemming from policy uncertainties of the new administration in the United States, Brexit as well as increasing shift towards protectionism and its global ramifications.
The year 2016 was challenging because of the convergence of numerous negative factors. Key among those factors are the low regional economic and trade performance especially for our main trade partners of South Africa and Angola; depressed commodity prices, a severe drought and significant shocks to public revenue which necessitated targeted expenditure cuts.
The significant shocks to the regional and domestic economy and their consequent effect on public revenue necessitated that we implement timely and targeted fiscal consolidation to align expenditure to the revised economic and revenue outlook and maintain sustainability. As such, we have managed to reduce the budget deficit from what would be 9.1 percent to 6.3 percent in the current year, with the Mid-Year Review target to further reduce the budget deficit to close to 3 percent in the next financial year as a measure to stabilize and eventually reduce growth in public debt. Although our debt levels have increased and we put measures in place to bring it down to 35% of GDP, it is noteworthy to emphasize that relative to some other economies in the region, for instance South Africa, its indebtedness estimated at 51.4 percent to GDP for 2016, and Angola around 72% to GDP.
As a result of these developments, our small open economy was faced with a difficult environment as evidenced by the second and third quarter national accounts outputs. It is estimated that GDP growth for 2016, though still positive, was only about 2 percent or even less.
In spite of the challenging economic environment, we should take pride in the fact that we are one of the few economies which have brought about a consistent reduction in income inequalities and poverty through growth and targeted policy interventions. The preliminary 2015/16 Income and Expenditure Survey demonstrated consistent reduction in income inequalities and poverty with the GINI coefficient now sliding to 0.572, from 0.597 in 2009/10.
The prospects for 2017 are moderately promising and we see the green shoots budding for several reasons. First, commodity prices, both for metal and non-metal commodities show signs of recovery, which augurs well for the generality of the mining sector. Equally, early rain showers offer good prospects for the agricultural sector, but the volumes to date only call for courteous optimism.
Activity in the tourism sector remained strong on the back of a supportive currency and attractiveness of our tourist destination. Improvements in commodity prices are expected to support the export sector, particularly in mining where new mega operations such as Husab Uranium mine that has just commenced with production.
Let me now turn to the FY2016/17 Budget implementation and matters related to meeting the expenditure needs of Government. As you are aware, the total expenditure for the current financial year was revised downward by N$4.5 billion to N$ 61.49 billion as a measure to align the budget to the revised economic and revenue outlook.
Last December, I had the opportunity to address the public on the Government plan for honouring its outstanding payments, some of which arose from overcoming the Government with unauthorised expenditure. As I have stated previously, the revised budget for 2017/16 is fully-funded, with funding smoothly spread out over the financial year. The expenditure execution to date of 75%, suggests that we are well on course to meet to fully execute the budget for FY2016/17.
Since November 2016, following Mid-Year Budget Review, the Government deliberately increased payments to suppliers, contractors and other service providers. To put this into perspectives, the TAW approved for November and December 2016, amounted to N$ 8.2 billion, whilst the actual payments made by the Government totalled N$ 10.1 billion.
In the recent media reports, it was indicated that some service providers or SOEs such as the lawyers, NTB and National Youth Service, etc., were not paid in time because Government ran out of funds. This is disturbing, because as we explained above the Government continues to honor its obligations. The payment requests for the lawyers submitted to Treasury was paid fully. For NYS, they were also paid on their payment date of 25 January, despite the administrative glitches experienced which have to do with their own administrative arrangements than the payment systems. NTB which does not dependent on Government for their operational budget overcame internal administrative glitches and paid their employees yesterday.
This is contrary to perceptions and unsubstantiated reports that the Government is unable to meet its current expenditure obligations. Of course, monthly spending is aligned to cash flow conditions and, in this regard, a Treasury Authorisation Warrant (TAW) is used as a tool to ensure that monthly expenditure for Ministries is aligned to available income.
The payment of salaries enjoys priority and in no instance that the Government lost its ability to meet salary payment obligations for its employees.
As I have stated, there was no system malfunctioning at the Ministry which prevented the remuneration payment for any Government Ministry/Offices or Agencies. I thus urge Offices/ Ministries and Agencies to diligently set out their TAWs and timeously submit their requests to the Ministry in accordance with the established procedures.
I should also state that during the month of December 2016 alone, the Government was able to execute a total of N$ 5.6 billion expenditure, which was about 21 percent higher than the previous month as part of the Government expressed commitment to honour its contractual obligations. We have increasingly honoured some of the
outstanding obligations which are duly budgeted for in the current revised budget.
Another misrepresentation, which has been served to the public, is in regard to alleged “plundering” of GIPF money as bailout for Government. GIPF has responded to this misleading characterization last year. But suffice to say that Government, as the guarantor of GIPF, has overseen the growth of GIPF assets over the years to become one of the well-managed pension funds on the African continent. With assets valued at about N$ 90 billion, GIPF is a key market player and participates in various investment opportunities, including the Government bond programme. Like any other sovereign, one way the governments use to raise money is through the special auctions, provided that the required amount could not be raised through the normal auctions. This method was used by Namibia during this financial year, where the invitation was extended to all market participants. An amount of N$ 3.6 billion was thus raised through the special auction.
In the course of last year, GIPF has completed an asset swap transaction with the Bank of Namibia, that is, a swap of Namibia Dollars for South African Rand assets which was purely a market transaction. Similarly, GIPF continues to participate in the Government bond programme which is open to the generality of the domestic capital market. All Government bond purchases by GIPF and other domestic capital market players have been completed at market rates which guarantee market-related returns on such investments. I thus wish to assure the public and the service providers to Government that the current budget implementation is on course. The preparation for the 2017/18 budget are also on course and I intend to table the budget not later than the second week of March 2017. I have also laid out the priorities and fiscal policy stance for the next MTEF during the Mid-Year Budget Review. We shall follow through with the stated policy direction, emphasizing fiscal consolidation and without losing focus on growth dimension as well as poverty reduction efforts.
• This is an edited excerpt from the statement by the Minister of Finance, Call Schlettwein, on budget implementation and the commencement of tax incentive programme for arrear recovery.