….To fund operations, budget deficit and PPPs
Namibia cannot afford to fund its operations, budget deficit and development projects, a situation which left the cash-strapped nation with no option but to source external funding. The precarious financial situation has forced government to apply for a N$10 billion loan from the African Development Bank(AfDB), and this week the loan was approved and will be used to meet the country’s financial operations.
The bank announced the loan deal on Wednesday evening and said “it will support the government’s bold steps geared towards addressing the country’s short, medium and long term development challenges.”
The loan comes at a critical juncture in Namibia’s effort to stabilise the national economy which has been teetering on the edge for quite some time.
Finance minister Calle Schlettwein said the loan does not automatically translate into “additional debt above the budget level”, saying the loan is an “ intended partial, budget deficit financing programme with the African Development Bank over the next two years.”
“The envisaged combined total amount of the operation over a two-year period is up to N$10 billion, to be split in a ratio of 60:40 for Program-based Operation supporting the general budget deficit financing and for targeted financing of development projects respectively,” said Schlettwein.
“As members of AfDB we have been in discussions with them to fund important infrastructure projects. The bank has already funded projects such as the fuel storage and the port extension. Now we are extending that cooperation with AfDB, this cooperation will not necessarily mean additional debt, it is merely to fund the budget deficit, PPPs and operational expenses,” Schlettwein told The Patriot exclusively yesterday morning at State House.
“We have committed to it[loan] and it is a good agreement that helps us to fund the budget as well as the deficit. It will also help to accelerate the development component of the budget through PPP which is not directly funded through the budget. Half of that money is earmarked for infrastructure development projects that can supplement what is in the budget,” Schlettwein explained.
The minister said “there is no need for alarm.”
“I do not know what the alarm is all about, we approved the budget and it has a deficit which needs to be funded. Now we sourced some funds from AfDB in our quest to diversify funding sources, we still have our domestic capital market as our mainstay market to fund that deficit. As you know we experienced some liquidity issues in the last year so there was need for a diversification model. Instead of creating fears, it[loan approval] it should create certainty because AfDB is a Triple A development bank that has shown confidence in our economy by extending this loan on favorable terms,” he explained.
He added: “In terms of this cooperation we have set certain targets to improve growth and they[AfDB] will monitor the progress coupled with financial cooperation with some performance targets that we agreed to.”
In April a delegation of the African Development Bank (AfDB), consisting of 12 of the bank’s 20 board members came to Namibia on a working visit to assess the economic and political situation in the country.
The group at the time praised the government’s fiscal stance and fiscal prudence and pledged to support the Ministry of Finance’s macro-economic policies. The delegation formed part the ultimate decision-making body of the bank, which is tasked with stimulating sustainable economic development and social progress in its member countries, thus contributing to poverty reduction.
The April visit was mainly to assess the situation on the ground in order to decide whether the loan should be granted or not.
Part of the negotiations was that directors from AfDB will visit Namibia and acquaint themselves with the Namibian situation, said Schlettwein.
The publication can also exclusively reveal that the AfDB president Akinwumi Adesina will visit Namibia next month, Details around his visit are still sketchy at the moment.
Explain how the loan will be used, Schlettwein said: “In respect to the Programme-based Operation financing, the total combined amounts for two years is N$6 billion, to be equally split into equal transfers of N$3 billion each over the two-year period. Of course, deficit financing includes some of the development spending which supports infrastructure development.”
He added: “The N$4 billion that will support infrastructure financing is significant from the point of view of supporting long-term economic growth and job creation objectives. The details of the specific split across the infrastructure project pipeline will be developed in interaction with Offices/Ministries and Agencies concerned as well as with the AfDB.”
He said the the financing mechanism will have two components, one directed at partially financing the general budget deficit and, the other component targeted at infrastructure financing for some of the key economic projects contained in the budget.
According to a statement released on Wednesday: “The Board of Directors of the African Development Bank has approved a loan of US$ 226.5 million (ZAR 3 billion) to finance the Namibia Economic Governance and Competitiveness Support Programme (EGCSP).” The operation is the Bank’s maiden policy based operation in Namibia and the first of two programmatic series for the 2017/18 and 2018/19 fiscal years.
The EGCSP was well received by the Board who commended the quality of the operation and was satisfied with the Namibian government’s strong commitment to the implementation of reforms.
The programme will support the strengthening of public financial management and improve the quality and efficiency of public sector spending, while laying a solid foundation for industrialization through support to critical business environment reforms.
“The EGCSP is designed to address emerging vulnerabilities undermining macroeconomic stability and support the Government’s ongoing bold structural reforms aimed at driving long-term job creating growth and reducing income equality,” says Senior Vice-President Charles Boamah, who presided over the AfDB Board meeting.
It is aligned with the Bank’s Country Strategy Paper for Namibia; two of the operational priorities of the Bank Group’s Ten-Year Strategy; and the High 5s agenda on industrialization and improving the quality of life.
“Namibia registered one of the highest average growth rates in Africa over the past 20 years and made some good progress in reducing poverty. “
However, said AfDB, more progress is needed to further reduce unemployment, and income inequality. “These challenges are compounded by bottlenecks in public financial management (PFM) and the business environment, which limit the pace of industrialization and economic diversification.”
In 2016, Namibia recorded a sharp slow-down in real gross domestic product (GDP) from 5.3% in 2015 to 0.2%. As a share of GDP, the fiscal deficit at 8.3%, the current account deficit at 13.7%, and public sector debt at 39.8%, had also markedly increased, while international reserves at 2.8 months of imports were below the international benchmark of 3 months. “Guided by Vision 2030, the National Development Plan, the Harambee Prosperity Plan and other sector policies and strategies, the Government has embarked on fiscal consolidation and wide ranging PFM and business environment reforms to address these challenges and these are beginning to yield positive results.” “The African Development Bank, in collaboration with other development partners, will support the government’s bold steps geared towards addressing the country’s short, medium and long term development challenges.”
The approval of the EGCSP is a major step in this direction.