Payroll gobbles bigger income chunk

Shiimi wants assessment

29 May 2020 | Economics

No material expenditure reform can be achieved without addressing the civil service wage bill. – Cirrus Securities

Jo-Maré Duddy – Nearly N$560 out of every N$1 000 of government’s own revenue in 2020/21 will pay for civil servants’ salaries and benefits, leaving only N$440 for other expenses and infrastructure like schools and hospitals.

Government’s payroll for 2020/21 totals about N$28.7 billion or 56% of total income of nearly N$51.4 billion. In 2019/20 it was nearly N$29.8 billion or 51% of total income of around N$58.2 billion.

A decade ago, the payroll equalled about 42.7% of total income, budget data shows. Then, the wage bill totalled about N$12.7 billion.

The amount budgeted for this year is about a N$1 billion or 3.5% less than the total estimated payroll for 2019/20.

Government’s wage bill for 2020/21 constitutes about 39% of the total budget of nearly N$72.8 billion tabled by finance minister Iipumbu Shiimi on Wednesday. Last year, the figure was around 44%.

Namibia this year faces a record budget deficit of N$21.4 billion. Financing this will chase up debt to an all-time high of N$117.5 billion.

‘Right size’

Shiimi only tabled a budget for 2020/21, promising a full medium-term expenditure framework (MTEF) and package of structural policy reforms in the mid-year budget review. The essence of this package will provide “evidence-based, transformational reforms to be implemented over the next MTEF and beyond”, he said.

Strategic priorities will, among others, entail “conducting an assessment to find a sustainable and responsible strategy to right size the public service and consequently contain the wage bill on the back of the consolidation of government functions implemented this year”, the minister said.

Commenting on the budget yesterday, Cirrus Securities said “no material expenditure reform can be achieved without addressing the civil service wage bill”.

‘Rigid’

Moody’s, who rates government’s long-term debt in foreign currencies at two notches below junk, last Friday lowered Namibia’s outlook from stable to negative.

In its report, Moody’s said as Namibia’s debt servicing burden rises, the “rigid budget structure (in particular the government wage bill) means the task of repeating ambitious fiscal consolidation will become increasingly more difficult”.

“The scope for additional non-wage bill expenditure rationalisation and capital expenditure reductions has been largely exhausted, with further expenditure reduction much more politically challenging,” the international rating agency said.

Moody’s warned that “longer term, reduced confidence in the government's ability to introduce broader structural reforms to reduce the economy's and budget's persistent vulnerabilities may warrant positioning the rating at a lower level”.

Deeper into junk

Moody's would likely downgrade Namibia's rating should the policy response to the economic and fiscal challenges resulting from the coronavirus shock be insufficient to arrest the upward debt trajectory, and if the ongoing deterioration in Namibia's debt burden and debt affordability was likely to result in liquidity risks, raising questions over the government's ability to refinance maturing debt.

Longer term, reduced confidence in the government's ability to introduce broader structural reforms to reduce the economy's and budget's persistent vulnerabilities may warrant positioning the rating at a lower level. A sustained decline in foreign currency reserves that threatened reserves adequacy would also put downward pressure on the rating.