Budget analysis shows weaker revenue, wider deficit

Namibia is collecting less revenue than expected, running a wider deficit and growing more slowly than projected, according to fiscal analysis presented by Cirrus Capital on the 2026/27 budget framework.

Revised estimates show revenue for FY2025/26 has been cut to N$87.4 billion from N$89.4 billion.

The revenue-to-GDP ratio has been revised down sharply to 31.3% from 35.9%. At the same time, the budget deficit has widened to 6.6% of GDP from 6.0%, while real GDP growth has been revised downward to 2.9% from 3.3%.

This means government is collecting less money than expected, spending more than it earns, and growing more slowly.

The effect is that increased borrowing expands the total debt stock and pushes up interest payments, which absorb a larger share of national revenue and reduce the funds available for infrastructure and economic expansion.

Already, finance minister Ericah Shafudah on Thursday said Namibia's total government debt is projected to increase from N$174.6 billion, or 65.2% of GDP, in 2025/2026 to N$217.3 billion by 2028/2029.

Shafudah also said domestic debt constitutes a majority of the stock, while foreign debt remains moderate but helps diversify funding sources.

According to Shafudah, interest payments are projected to rise from N$14.3 billion in 2025/2026 to N$16.2 billion in 2026/2027, then to N$17.1 billion in 2027/2028, and N$17.8 billion in 2028/2029.

Comparatively, government’s total financing requirement is projected to peak at N$19.2 billion in 2026/2027, up from N$14.5 billion in 2025/2026, before moderating to N$12.9 billion in 2027/2028 and N$10.6 billion in 2028/2029.

Negative primary balance objections

Cirrus highlights that Namibia continues to run a primary deficit – meaning government is borrowing not only to service existing debt but also to fund part of its operational expenditure.

Primary balance projections remain negative across the medium term.

The report also flags a structural risk where interest payments grow faster than nominal GDP.

When interest costs rise faster than the economy expands, debt ratios increase unless offset by strong primary surpluses, which Namibia is not yet generating.

On the revenue side, corporate income tax has already been reduced from 32% to 30%, with a further reduction to 28% proposed by FY2026/27.

Assessed loss caps have been introduced at N$5 million for non-mining companies and N$10 million for mining companies.

Dividend tax reform is proposed for implementation in FY2026/27, while VAT registration thresholds have been raised to N$1 million and taxable income thresholds have been increased to N$100 000.

While these reforms aim to improve competitiveness and stimulate investment, they narrow immediate revenue buffers in a constrained fiscal environment.

Refinancing pressure

Expenditure patterns show operational spending dominating the budget structure. Excluding interest payments, the social sector’s share of expenditure rises from 48.4% in the revised 2025/26 estimate to 52.2% by 2028/29.

Development expenditure remains below 25% of total spending, limiting capital formation without additional borrowing.

Funding requirements remain elevated over the medium term. Bond redemptions in FY2026/27 add to refinancing pressure, while switch auctions are being used to manage maturity profiles.

Growth projections offer only moderate relief. Real GDP is expected to recover gradually toward the mid-3% range over the medium term.

Still, at current levels, growth may not be strong enough to materially ease debt ratios if deficits remain above 6% of GDP.

Cirrus concludes that debt stabilisation will depend on improved revenue efficiency under the Medium-Term Revenue Strategy, disciplined expenditure management and stronger economic growth.

The 2026/27 framework, therefore, points to tighter fiscal conditions, elevated borrowing needs and greater sensitivity to growth and interest rate dynamics.

‘Significant shift’

Simonis Storm, however, said there have been significant shifts within the country's debt structure.

Foreign debt declined to approximately N$25.6 billion following the Eurobond redemption, and International Monetary Fund (IMF) repayments now account for 14.4% of the total debt stock.

The firm said Namibia’s settlement of its Eurobond obligation means the country now faces less exposure to exchange rate vulnerabilities. However, Simonis Storm said this reduces currency risk but increases reliance on the domestic capital market.

Domestic funding requirements have widened to roughly N$26.3 billion, up from the previously projected N$21.2 billion.

Revenue growth is expected to hinge on strong Southern African Customs Union (SACU) inflows and a recovery in diamond production.

“Without a meaningful recovery in domestic demand, stronger SACU inflows, or a rebound in diamond production, revenue growth is likely to remain modest.

"If nominal GDP growth averages around 4–5% and deficits remain near 5–6% of GDP, the debt ratio could stabilise slightly above 60% but risks drifting toward 65–70% over the medium term,” Simonis Storm said.