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Friday 19 April 2019
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N$50 billion debt amassed in 6 years

Namibia’s public debt grew by N$50 billion from 2010 to 2016, a situation that has sparked fears among many Namibians over the current rate at which the public debt is growing. Figures provided by local stockbrokerage firm Simonis Storm in its recently released “Namibian Fixed Income & Economics” report, indicate that Government debt significantly grew by 415 percent over the last six years from N$12.1 billion recorded in January 2010 to N$62.1 billion in June 2016. In addition, Government debt as a percentage of total debt stood at 43.3 percent in June 2016 compared to 24.7 percent recorded in January 2010.

The total public debt currently stands at N$143.6 billion, as of end of June 2016, compared to N$109.9 billion recorded in the prior year.
Speaking to this publication during a telephonic interview this week, Finance Minister Calle Schlettwein said the debt is justified “because it was used to grow the economy” but warned that the country must at all times strive to be below the set thresholds. Although Schlettwein believes that the debt is justified, he cautioned that limited fiscal space, as a result of borrowing, could be problematic in the future.

The country’s purse manager partially blamed the 2009 financial crisis for the increased debt that Namibia had to undertake, saying Government had to expand the budget. “After the 2009 financial crisis, we intervened by expanding the budget. This was mainly because we were lowly indebted at the time and therefore had a lot of fiscal space. It was not a bad intervention because after the crisis, the economy started to grow by more than 6 percent and that growth was maintained throughout the post-financial crisis years. We must remember that we had to take up more debt and it eventually caused the debt to increase to 37 percent,” said the Finance Minister, who added that the debt undertaken was not in vain because it grew the economy.

“It was justified but the problem is that it used up all our fiscal space, and as a small open economy we must be careful not to surpass the thresholds,” cautioned Schlettwein, who took over the purse of the country last year from current Prime Minister, Saara Kuugongelwa-Amadhila. Simonis Storm believes the current debt is evidence that the public sector is becoming a bigger component of total debt.
Both foreign debt as a percent of GDP and total debt as a percent of GDP have grown above the 7.0 percent and 35.0 percent threshold, respectively.

Foreign debt to GDP currently stood at 17.5 percent in June 2016 while total debt to GDP stood at 38.5 percent (SS estimates) at the end of June 2016. On a monthly basis, total debt contracted by 0.6 percent compared to a positive growth of 2.2 percent in the prior month. The contraction in total debt can be attributed to a monthly contraction in government debt by 2.9 percent compared to a 5.0 percent recorded in the prior month as a result of a stronger rand (reducing the inflationary growth in foreign debt). “Our understanding of the current budget as tabled by the minister was that spending would be curbed in unproductive areas (such as the wage bill, S&T and travelling related spending and other operational expenses) and channelled to areas that will have a positive effect on economic output and employment. As it stands, the fiscal budget for 2015/2016 was N$67 billion,

while Government plans on spending N$71 billion this year,” said Purvance Heuer, director for research and securities at Simonis Storm.
He added: “We await the mid-term budget to understand how effective fiscus plans have been. There are also numerous spending plans that are not part of the budget, particularly on infrastructure. Additionally, Government approved civil servant salary increases of 5.0 percent that was not part of the budget.” Heuer said debt can continue to grow due to the low base that it is coming off, but stressed that at some point Government will have to seriously consolidate or implement tax reforms. Schlettwein, however, indicated that: “Government is already busy with tax reforms such as the recently implemented environmental levy, increased fuel levy, passed amendments through Parliament with regards to Value-added and Income Act to improve the ability to collect better and plug loopholes.”

One area that also needs attention, at least according to Schlettwein, is the ever-increasing public wage bill. “This is an issue that needs to be addressed and contained. It [public wage bill] is an expensive one in relative and absolute terms,” he said.  Schlettwein, however, defended the 5 percent salary increase government accorded to civil servants, saying: “The increase is justifiable because we must realise that these are people working for government, if you do not increase their salaries according to the inflation rate you subsequently make them poorer because they lose buying power…in my view the 5 percent increase was justifiable.” Economists continue to raise alarm over the increasing public wage bill, which is expected to reach N$25 billion during the current financial year.

Despite calls for a leaner and more modern public service, growth in the public service has been unprecedented, so much that Cabinet formulated civil service reforms in a bid to control the escalating wage bill, which caters for the annual salaries of more than 100 000 public servants.

Some financial experts have also warned of potential fiscal imbalances that may arise if the wage bill continues to grow that could eventually lead to a distorted relationship between government expenditure and available tax revenue. For a country that has the sixth largest wage bill relative to GDP in the world, Namibia’s public wage bill continues to be on the increase despite warnings that it might not be sustainable in the future.
The wage bill is currently a third of the national budget.




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