‘Desperate’ revised budget expected

Finance minister Iipumbu Shiimi finds himself between a rock and a hard place, and his revised budget – set to be delivered this afternoon – will likely once again be characterised by cuts to development projects to pay for running expenses.

Since the reintroduction of the half-yearly budget review in 2017-18, the development budget has been cut by almost N$3.59 billion in total, mainly in favour of operational spending.

Dr Omu Kakujaha-Matundu, a senior economics lecturer at the University of Namibia (Unam), said Shiimi has no more breathing room. The minister will simply move money from one budget item to the next, he said.

“I think he’s walking into Parliament a desperate man. It’s hard to predict what desperate measures he’ll come up with.”

According to him, Shiimi is currently “between the devil and the deep blue sea”.

“He’s expected to reduce the budget deficit through reduced spending, but at the same time, he also has to stimulate economic growth through greater expenditure.”

Salary hike

Cirrus Capital economist Robert McGregor said he’s concerned that the trend of cutting development capital to fund unproductive operating costs will continue unabated.

According to the main budget for 2022-23, which was tabled in March, more than N$4.9 billion should be directed towards development this year.

Shiimi's revised budget must, among other things, provide for an unplanned N$924 million for the increase in civil servant salaries. This while the state’s salary bill already exceeded N$30 billion in the main budget.

Despite concerns about fiscal sustainability and the need for budget reforms, there is little evidence of prioritised spending, McGregor said. He added that although it is commendable that government was able to put off wage hikes for so long, the scale of this year’s increases will likely lead to fiscal slippage.

Budget deficit

Both McGregor and independent economist Salomo Hei said they believe government has done better than expected with regards to tax collection, especially in the mining industry.

Listed companies, especially financial institutions, also showed improvement.

Government’s main challenge is "tough spending and revenue shocks on multiple fronts", according to McGregor.

Moreover, the state has not been able to keep up with increases in expenditure over the past 15 years.

"Budget reform is difficult and painful, and will likely lead to unsavoury political consequences,” he said.

The biggest cause for concern remains the budget deficit and government's financing strategy, McGregor said. In particular, the reliance on the local market to finance this deficit is "worrying".

According to data from the Namibia Financial Institutions Supervisory Authority (Namfisa), pension funds in the country invested 53.4% of their assets locally by the end of June - well above the minimum requirement of 45%.

"The funding of the budget deficit by Namibian pension funds is not sustainable, especially if the deficit does not reduce quickly and we do not see real reforms to improve economic growth and job creation," he said.