Search
Thursday 24 January 2019
  • :
  • :

Namibia Economic Performance: Is Minister Schlettwein In Control?

Minister Calle Schlettwein in his Budget Review Statement of November 2017 stated among other things that “…measures to improve the productive capacity of the economy as well as economic diversification are critical for Namibia to bolster resilience”. He stressed the need to entrench fiscal sustainability and the necessity of providing fiscal support to the fledgling economic growth. If these measures were implemented it was to be expected that economic performance would gradually improve. It was disappointing therefore that Fitch Rating Agency has recently affirmed Namibia’s Long -Term Foreign Currency Issue Default Rating at “BB plus”, meaning that Namibia is still down- graded to non-investment status. Though Fitch forecasted a stable economic outlook, such outlook was dependent on government’s commitment to stabilising public debt and undertaking fiscal reforms.
Around the same time Fitch re-downgraded the country, Simonis Storm issued its Fixed Income Report. The report paints a gloomy picture of the state of the Namibian economy in general and the level of indebtedness, in particular. A headline in the Namibian newspaper of 7 August 2018 read: “ Govt debt could double in seven years”. According Simonis Storm report, government budget deficit this year was recorded at N$ 6,1 billion. At the same time domestic market debt was recorded at N$ 51,3 billion, foreign bonds N 17,6 billion, bilateral debt was N1,1billion and multilateral debt was recorded at N$6,7 billion. Foreign bonds are mainly the Eurobond and Johannesburg Stock Exchange (JSC) bonds. The Eurobond is expected to mature by the end of this year. The JSE bonds are expected to mature within the next seven years. Meanwhile it was reported that government applied for a N$ 10 billion loan from African Development Bank to fund current deficit.
In the meantime, the Namibia Statistics Agency recently reported that the national economy contracted by 0.9 percent compared to a 0.6 growth in 2016. The sluggish growth was particularly recorded in the secondary and tertiary industries. Secondary industries recorded a decline of 6.7 percent and tertiary industries declined by 1.4 percent. In a small economy such as ours both the secondary and tertiary industries depend to large extent on government procurement and investment programmes. The negative growth suggests strongly that government borrowing seems to be for consumption rather than investment. Normally borrowing should positively contribute to the growth in Gross Domestic Product (GDP). We have witnessed challenges, for example, in meat processing whereby farmers prefer to sell their animals on hoof for foreign markets. It appears that local meat processors are not paying consummate prices to producers. In this case government could have supported producers with incentives to sell locally. The same can also be said with regard to over capacity in cement production. Since the contruction sector contracted massively government could have assisted cement producers to seek alternative markets. The Minister of Industry and SMS Development is on record saying that Namibia has nothing to sell to other African countries. This is regrettable.
The primary sector is reported to be recovering. Diamond mining grew by 12 percent; uranium by 23.4 percent and metal ores by 9.9percent. However, these subsectors are susceptible to external shocks. They could not entirely be relied upon to drive economic recovery. According to the latest forecast the economy is likely to grow by 0.6 percent next year.
Other risk factors include the unpredictable risk posed by the strength or otherwise of the Rand. With threats of the nationalisation of the Reserve Bank of South Africa and the nationalisation of land without compensation in South Africa, the Rand is likely to pose a serious threat to the strength on the Namibian Dollar. In the same vein income from SACU Common Revenue Fund is declining in the short term. This does not bode well for the Namibian fiscus. Labour unrest is another risk factor. As the cost of living sky rockets workers’ pockets will be hit hard. The possibility of labour unrest cannot be ruled out.
If government continues to ignore the challenges faced by our economy in the hope that the economy shall self- correct, the country runs a risk of being permanently down graded to junk status. At one time government put up risk benchmarks for borrowing. These benchmarks included that total debt to GDP should not be above 35 percent; domestic debt to GDP should not go above 28 percent; foreign debt should not go above 7 percent; and debt servicing as a proportion of revenue should not be above 10 percent. Now it appears that these risk benchmarks have been abandoned. The Minister of Finance was recently quoted to have told the media that debt level of about 40,4 percent are acceptable for a middle- income country like Namibia. In my view this is irresponsible. Namibia runs a real risk of falling in debt trap. This means that the country will start to borrow to pay debt or it risks a roll-over. Such a situation shall compromise the future of the coming generations. Or the government will be forced to increase taxes to the level that the people shall not be able to save. This has already started to happen. The other day the Minister of Finance broached the idea of taxing street vendors known as “ kapana women”. Failure to implement that he increased the fuel levy with subsequent risk to inflation.
Clearly the Finance Minister is not living up to his stated goals of entrenching fiscal sustainability and provision of support to fledgling economic growth. From time to time the Minister declares that he sees “green shoots” in the economy. May be the Minister is living in Lewis Carrol’s Alice’s Adventure in the Wonderland. Cry the beloved Namibia!




Leave a Reply

Your email address will not be published. Required fields are marked *