As preparations for the 2017 National Budget gather momentum and a greater participation by various stakeholders becomes evident, TWILIGHT CAPITAL CONSULTING would like to urge government to consider a paradigm shift in the national budget – anchoring the budget on fiscal suitability.
The budget as a tool through which government sets out priority programmes for economic transformation and builds shared prosperity, fiscal sustainability remains a prerequisite for its effectiveness today and tomorrow. In the time where government is faced with mounting public debt, fiscal sustainability as a guiding post for the affordability of government taxation and spending programmes, should serve as the backbone of budgeting. In simple terms, fiscal just refers to government spending and investing activities and how these are financed through taxes, debt and other liabilities.
Sustainability means having the ability to maintain or support government programmes in the future. So, emphasizing on fiscal sustainability will ensure that the Government of Namibia is able to maintain current policies without compromising future affordability.
In this article, we look at what the Finance Minister should consider to ensure that fiscal sustainability is well embedded in the forthcoming Budget. The 2017 national budget comes at a time when government is cash-strapped, mounting public debt and public discontent, amongst other economic and social challenges. These developments have increased uncertainty and led to negative expectations and thus making the 2017 national budget a special case. The budget is thus expected to demonstrate practicality and clarity on how government will prevent a collapse of the economy during the next 12 months and beyond to steer the economy in the right direction far away from an economic recession and send a convincing message to rating agencies that it is in control. Failing to provide for this, it will be a critical setback for the Hage administration – which is currently facing strong negative discontent across the economic sector over its stance on many issues.
Given the heightened debt crisis, it will be crucial for the 2017 budget to address fiscal sustainability first and foremost. Namibia’s public debt grew by N$50 billion from 2010 to 2016, sparking fears among many Namibians over the sustainability of this debt stock. In this regard, the budget should paint a clear picture that shows how government will prevent exposing future generations to high debt servicing cost.
The budget should contain resolutions of hard decisions because managing fiscal sustainability will not come without the hard decisions or fiscal rules, in fact, it needs generational sacrifice. Fiscal rules, which simply refer to statutory or constitutional restrictions that set specific limits on fiscal indicators such as budgetary balance, debt, government spending, or taxation, must be adhered to at all costs. These rules are critical to demonstrate that government will honor commitments made. Although we have seen government changing some of those, but it is still required of them to demonstrate adherence to them. In the face of dwindling SACU revenues and low expected domestic tax revenue, achieving fiscal sustainability will require that government tightly match revenue to expenditure in order to avoid defaulting on international debts. With international agencies having already raised serious concerns regarding public debts, defaulting on international debt will have a negative impact on the country’s fiscal profile with far-reaching implications on the economy’s ability to attract foreign direct investment (FDI). Therefore, the budget needs to spell out debt ceilings to avoid digging new holes to fill old ones. Achieving this requires government to make tough decisions not only on non-essential expenditures, but also on expensive vehicles, resource wastage and corruption.
Stable economic growth
It’s clearly evident by now that 2016/17 growth will have to be revised downwards and outlook remained gloomy. The 2017 budget therefore should aim to inspire sustainable economic growth that is supported by a culture of productivity and results-based orientation in which expenditure should be matched with results or returns. Performance agreements should be enforced across the board, i.e., ministers, deputy ministers, CEOs, directors, etc. Those that fail to deliver must be held accountable.
The budget should clearly demonstrate how growth ambitions contained in policies such as the Harambee, Vision 2030, NDPs, NEEEF, etc, will create new formal businesses that create formal jobs and allow government to collect taxes with minimum costs. The budget should set the tone for inclusive economic growth and business for all. The perennially neglected informal sector should made part of the mainstream economy and supply chain to increase the tax base. Though experiences have shown it is hard to collect taxes in informal settings, the envisaged Tax Revenue Authority should be charged with that task.
To drive sustainable economic growth, government should also create a prudent fiscal position that obviates pressure on future increases. The 2017 budget needs to provide a stable tax regime that will attract investors while driving existing and new business towards value creation and productivity. Furthermore, it’s critical for the 2017 budget to create an enabling business environment for new investments that will bring new jobs, hence broadening the tax base than increasing taxes on already struggling companies.
The Bank of Namibia has estimated that over the next five years or so Namibia will require more than N$220 billion to finance the needed infrastructure projects. Of this amount, the highest requirement should go to rail, energy, housing and port infrastructure. While a lot of effort has been made in trying to attract FDI and raise funding for this purpose, the 2017 budget needs to reiterate these efforts and move a step ahead – it should not be business as usual. Experience elsewhere has shown that investing in infrastructure makes the country an attractive investment destination. Responsible investment enhances the country’s investment profile while motivating locals towards productive and sustainable economic development. Although about 15.7% of the national budget (economic and infrastructure sector) of 2016, the feeling is that it still falls way below the level required to propel Namibia’s economic growth to high and sustainable levels, as envisioned in the Fourth National Development Plan (NDP4). Therefore, the 2017 budget needs to reflect a sustainable national investment profile supported by responsible investment values.
Sustainable private sector
A lot has been said about private sector’s impact on national competitiveness as reflected in the global competitive reports about Namibia’s rankings. According to the 2016-2017 Global Competitiveness Report of the World Economic Forum, Namibia is now ranked 84th.
In Sub-Saharan Africa, Namibia is at number five after Mauritius, South Africa, Rwanda and Botswana, while in overall continental ranking, Namibia is ranked sixth, with Morocco at number five. This calls for serious attention on this aspect.
It’s crucial that government, through the budget, sets aside resources for monitoring and driving private sector competitiveness besides providing rescue packages. The 2017 budget should outline a national plan and vision for developing and driving policies for the private sector that embed corporate sustainability and sustainable business practices. As such, the budget needs to reflect such ambitions to build a competitive and sustainable private sector that is driven by international best practices and values.
Many countries, including Namibia, are bearing the pain of depressed mineral prices, having placed too much hope on the mining sector. Economic diversification is vital to a country’s long-term economic growth, but many resource-rich countries, including Namibia, remain heavily reliant on revenues generated by mining and very few sectors. The 2017 National Budget must be a tool to help Namibia diversify and avoid a national economy that is built on one sector. A multiple sector approach to fiscal revenue embedded in the budget is crucial as it provides an avenue for different sectors’ contribution to the fiscus. As already identified in the Vision 2030, it will be crucial to promote priority sectors like agriculture, manufacturing, tourism and finance services in addition to mining.
Cabinet and Legislature size
Finally, apart from re-looking at the non-essential expenditure items, government should look also at the size of Cabinet and legislature and executive composition. The number of ministries, ministers and deputy ministers as well as executives is simply too high. If a large country such as China is run successfully by a sizeable member standing committee of its political bureau, then Namibia does not need all those ministries and a number of advisors to run a small population and even smaller economy.
A restructuring of the Executive is, therefore, called for as a matter of principle in the 2017 budget and all savings from trimming the bloated Executive and Legislature should be channeled towards more pressing needs of the country.