Govt cash not limitless

Schlettwein warns about demands

15 May 2019 | Economics

Finance minister Calle Schlettwein has cautioned that demands for more money appear to be based on the perception that government has unlimited resources.

Speaking in the National Assembly this week, while responding to the matters raised during budget motivations by ministers, Schlettwein said that stretching the government's finances beyond affordability ranges came with the risk of compromising long-term sustainability.

In March the finance minister had unveiled a N$66.5 billion budget - 2% larger than last year's - geared towards “stimulating economic growth” and creating decent jobs, while further adjusting the public fiscal stance to “sustainable and stable levels”.

The development budget was increased to N$7.9 billion, from N$5.5 billion, and would be protected against frequent reallocation during the financial year.

Schlettwein also announced a raft of tax proposals that are expected to generate approximately N$400 million in revenue. Income-tax changes will come into effect in 2020 after the drafting and tabling of the specific tax proposals. New excise duties will become effective upon the tabling and gazetting of the schedules. Schlettwein said at the time that the budget deficit was estimated at N$8.2 billion, or 4.1% of GDP, and was expected to average 3.4% over the medium-term expenditure framework (MTEF), compared to 4.4% in 2018/19. The deficit would be financed through a combination of domestic, multilateral and bilateral borrowing. The leveraging of state assets in the telecommunication sector is expected to ease financing obligations and mitigate against increases in the debt stock, Schlettwein said.

This week he emphasised prudence. “The increasing calls for adequacy of resources is predicated by the fundamentals of unlimited resources at any point in time. Overemphasis on adequacy of budget allocations has associated risks of going beyond affordability ranges and compromising on long-term sustainability,” he said. He added that as the fiscal space improves, budgetary allocations should increasingly improve, and that at a national level, the timely implementation of structural policy reforms must be done to support the realisation of better outcomes. “In the same vein, the implementation of measures to improve internal operational efficiencies at offices, ministries and agency level are among the success factors to bring about internal gains and enhance sectorial outcomes,” said Schlettwein.

He added that allocative efficiency enables government to increasingly allocate resources where value for money is best realised.

“We live in finite world, with finite resources, and therefore scarcity is a fundamental economic matter of long duration. The tensions of resource adequacy and resource scarcity is a constraint, which comes to bear on budgetary considerations,” he said.