Friday 14 May 2021
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Fiscal consolidation is not working: Schlettwein must shift gears

Since 2016, Finance Minister Calle Schlettwein has been implementing a programme of fiscal consolidation. The programme aims at reducing revenue and fiscal deficits as well as managing the national debt stock. Revenue deficit occurs when total budget expenditure exceeds revenue generated. Reducing fiscal deficit requires fiscal prudence and can only happen through pragmatic handling of public finances and the judicious use of such resources.
In his 2018/19-2020/21 Fiscal Strategy for Medium Term Expenditure Framework, the Minister of Finance promised among other things to reduce budget deficits, contain public debt and promote pro-growth fiscal consolidation.
Evidence on the ground shows the opposite is happening. Debt as a percentage of GDP has been increasing. In 2015 national debt was 24.6 percent; in 2016 national debt jumped to 42.1 percent; in 2017 the debt reduced slightly to 41.9 percent, and in 2018 the national debt is projected to be 43.8 percent of GDP.
In 2016/17 financial year, the total debt stock was N$69.90 billion. For 2020/21 financial year the debt stock is projected to be N$99.14 billion.
Equally, budget deficits have been increasing. In the financial year 2016/17 revenue outturn was N$50.86 billion which was 2 percent lower than the estimate of N$51.51 billion. This was attributed to shortfall in VAT due to the contraction in the domestic economy.
Revenue from the SACU pool contracted in 2016/17 to N$14.1 billion compared to 2016/2017 revenue of 17.4 billion. Thus, budget deficit in the financial year 2017/18 is estimated to be 6.9 percent of the GDP against the benchmark 3.0 percent of GDP or 10.0 percent of the total revenue.
With regard to pro-growth stance, since 2016 the Namibian economy has been contracting. In the financial year 2016 the economy recorded a growth of a mere 1.1 percent. In 2017 the economy contracted by 0.5 percent and in the current year the economy is expected to contract by 0.9 percent. In his Medium-Term Expenditure Framework 2018/19 to 2020/21, the Minister estimates that by year 2020 the economy will grow by 3.1 percent. In all probability this is likely to be a day dream or wishful thinking. T
he spike in oil prices, the depressed domestic demand for goods and services due to lack of disposal income, high levels of individual indebtedness, and generally lower gross domestic expenditure, are factors conspiring against economic growth recovery.
It is clear that the so-called pro-growth fiscal consolidation is a wrong prescription to an economy in serious recession. The Minister of Finance must change gears. He should embrace the strategy of economic stimulation.
The strategy of economic stimulation aims at increasing the amount of money in the economy in order to stimulate demand. Government should take measures to stimulate demand and therefore growth. Without growth government revenue will continue to be depressed, unemployment shall remain high, poverty levels will continue to rise and government deficits and debt shall deteriorate.
Instead of increasing taxes, under the current economic circumstance, government is supposed to cut taxes to give people more money to save and invest or stimulate demand. The proposed tax increases are ill conceived. Such tax increases shall worsen an already fragile economic situation. What is required now is to encourage investment in productive assets which will grow the economy in the future.
The Bank of Namibia should cut interest rates to lessen the cost on money.
This will enable business people to borrow and invest to grow the economy and create jobs. In the same breath government should disproportionately spend money on public sector to create more jobs.
For example, government should re-prioritise spending in development budget from big projects to widespread public works which are labour intensive, such as renovation of schools, hospitals and other public works.
Priority should also be given to stimulating rural economy by supporting small-holder farmers to be efficient and effective farmers. Agricultural extension workers should advise rural farmers on soil fertility, better seeds, weeds management, post-harvest treatment to avoid losses, marketing of surplus produce and on new agricultural technologies. Similarly, small and medium size enterprises should be supported through government procurement system.
Food for soldiers, patients in hospitals, children in hostels and foodbanks rations, should be sourced locally. Affordable loans should be made available for those who want to invest in rural and depressed communities.
Financing should be mobilised through many sources. The Development Bank of Namibia should be capitalised to open different windows for different borrowers. The national savings should be mobilised from institutions such GIPF to fund strategic national projects such as the renovation of Hosea Kutako International Airport on equity basis.
Training funds under different Ministries should be augmented to effectively provide training opportunities to unemployed youth. Any borrowed money from external sources should be invested in growth enhancing sectors. Avoid by all cost investing money in the so-called vanity projects.
The Private Sector should be mobilised to be a true an engine of economic growth. Government should restore investment confidence by creating certainty and lowering the cost of doing business.
The programme of Public-Private Partnership should be implemented on the basis of equity participation and to benefit from Private Sector management expertise. State owned Enterprise should be made more competitive through outsourcing management to Private Sector. Protect infant industries from unfair competition. Cut out the so-called tenderpreneurs from government projects to save money.
The fiscal consolidation policy is a failure.
The economy needs to be stimulated into high growth trajectory. The Minister of Finance should be humble enough to reconsider his ill informed policy which is driving the country deeper into recession.

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