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Monday 21 January 2019
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How Namibia went ‘broke’

…Namibians told country is not broke

 

Namibia is broke, but it doesn’t have to be.
An analysis done by The Patriot on the country’s financial history dating back to the 1990s shows that its elected officials and those charged with managing its finances failed repeatedly — or refused — to make the tough economic and political decisions that might have saved the country from the economic crunch it faces.
The indecisiveness ranging from failing to trim the bloated civil service to formulating an efficient tax system, the sluggish monitoring of poor-performing state-owned enterprises are amongst a plethora of reasons responsible for this sad state of affairs.
Instead, amid a decline in employment figures, illicit capital outflows, plummeting tax revenues and skyrocketing housing prices, Namibia’s leaders engaged in a billion-dollar borrowing binge, created new brackets for tax and failed to cut expenses when they needed to.
Simultaneously, they gifted workers and retirees with generous bonuses. And under pressure from unions and, sometimes, arbitrators, they failed to cut control the public medical aid scheme which has now gone bust — saddling the country with staggering costs that today threaten the safety and quality of life of people who live here.
The numbers, most from Treasury, lay waste to misconceptions about the roots of Namibia’s economic crisis. For critics who want to blame President Hage Geingob for starting this mess, think again. And although the President’s love for the posh life such as expensive cars for the Presidential motorcade and bloated presidential office may have contributed to the economic crisis, his predecessors needs to shoulder the blame as well.
Although some may say it is late, he has adopted the traits of an astute money manager who recognized, a few weeks back, the challenges the country faced and began slashing staff. Geingob has decided to let go off five officials in his office.
Upon entering office in 2015, Geingob told critics of his bloated government that “democracy is a costly exercise”.
Financial observers who applauded finance minister Calle Schlettwein’s financial acumen following his pursuit to restructure the country’s economy cannot ignore the fact the numbers prove that Schlettwein’s austerity plan devastated the finances of private sector companies, subsequently leading to the closure of many small businesses.
The country bungled multiple empowerment programmes and overpaid outrageously for infrastructure projects such as roads and office buildings.
Bureaucracy bogged down even the simplest deals and contracts, which led to the country dropping in the global rankings when it comes to the ease of doing business.
When all the numbers are crunched, one thing is clear, a crisis was looming for Namibia but there were many opportunities when decisive action by decision-makers might have fended off bankruptcy.
Economists feel that had government shown more fiscal discipline and not launched a borrowing spree to cover operating expenses that continued into Geingob’s tenure, things might have been different.
Ultimately, Namibia ended up with a debt portfolio that now stands at N$76.6 billion.
Over the past year, total government spending amounted to N$67.6 billion, the highest rate to date and a total revenue outturn of N$57.9 billion.

‘State capture claims nonsense’
Constant claims and the ongoing discourse that Chinese firms have captured the State were brandished by Schlettwein as pure nonsense.
“Such statements are not supported by facts and merely propagated to hoodwink the public that Namibia is over exposed to Chinese loans,” said the country’s purse manager.
Namibia has seen the influx of Chinese not only in the country but developed close ties to major projects, Schlettwein said funding is mainly large for the construction of roads.
Some of the projects that benefited from these loans (concessional loans) over the years include the National Youth Center, roads such as Omakange-Ruacana, Engela-Outapi, scanners at borders, electronic documents recording management system at the Office of the Prime Minister and the infamous TransNamib locomotives.
Schlettwein pointed out that the total debt exposure to China is only 2.6 percent of the total debt portfolio, whereas the total debt servicing obligation is only 1 percent, which is indicative of the concessonality in relation to other debt.
“For the size of our economy, government operations account for about 57 percent and the private sector mainly mining, wholesale and retail trade, financial intermediation and the tertiary services sector does not reflect predominance in Chinese ownership. The argument is, if we say China has captured our economy, we must check whether the 57 percent, which is the public sector has been captured by China.
There is no ownership of Chinese entities in public entities. So the argument of being captured is nonsense and far from the truth,” said Schlettwein.
And as much as there are sentiments that loans from countries such as China account for most of the national debt. Figures presented by Schlettwein however showed that it is not the case.
Namibia got grants to the tune of N$1.340 billion, interest free loans up to N$302 million and concessional loans of N$1.694 billion from China.
According to the Finance Minister, “these loans offers are provided within mutual understanding between the two governments and contain concessional terms and condition as opposed to market loans or other borrowing like those provided for by Development Financial institution and the bond market.”

Not broke
But despite the rampant corruption, mismanagement of public funds and an evidently limping economy, Treasury continues avoid taking blame for the failing economy-and in fact-while Namibians’ pockets are running empty, government says “we are not broke”.
Last year, Moody’s downgraded Namibia’s long-term senior unsecured bond rating from Baa3 to Ba1 with a negative outlook. This is a non-investment grade or ‘junk’ status citing an ‘erosion of Namibia’s fiscal strength’ and alleged ‘increasing debt burden’ as concerning.
The rating agency at the time also noted limited institutional capacity to manage possible shocks and to address long-term fiscal rigidities while at the same time seeing a risk with the Namibian government’s liquidity.
“The storm is over, but the damage is not yet fully fixed. We are now in the mending stage,” said Schlettwein.
On the domestic economy, overall pace of growth has improved to a mild contraction of 0.1 percent in the first quarter of this year, markedly better than the estimated decline of 1.1 percent of 2017 and 0.4 percent during the quarter of 2017.
Ironically, he said, sectors which were at the epicenter of contraction are emerging out of negative growth.
“The construction sector has rebounded to positive territory by an estimated 23 percent in the first quarter this year with positive effects on jobs and incomes,” he said.
Schlettwein also added that international reserves have strengthened to about 4.7 months of import cover, from 2.8 months two years ago while expecting the emerging overall economic recovery to be gradual at just over 1 percentage point this year but accelerating to around 3 percent by the end of the Medium Term expenditure Framework.
From a fiscal perspective, while the ministry is reinforcing pro-growth dimensions, Schlettwein said more resources have aligned from none-core to core priority expenditure to curb wastage.
“We are sourcing ring-fenced financing from the African Development Bank to finance strategic projects in logistics sector, but also in agriculture modernization,” said the Finance Minister.




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