All eyes on Shiimi

27 May 2020 | Economics

OGONE TLHAGE

WINDHOEK



Newly appointed finance minister Iipumbu Shiimi is set to table his maiden budget today, which comes amid the most difficult time in Namibia's democratic history, as the coronavirus outbreak batters the economy and ratings agencies continue to downgrade the country.

The tabling of the budget was put on hold as government was trying to assess the impact of the pandemic, which forced the economy into shutdown.

This was initiated as a measure to stem the spread of the virus after the country reported its first two cases early in March.

University of Namibia (Unam) academic Omu Kakujaha-Matundu said Shiimi has the hardest task of anyone in government at the moment.



Difficult task awaits

“A difficult task awaits the new finance minister, the most difficult task since our independence. He will have to balance current consumption, prompted by income support and other support programmes owing to the coronavirus pandemic, and investment spending on infrastructure,” he said.

Asked whether Shiimi would be able to put forward an expansionary budget while government revenue is under severe pressure, Kakujaha-Matundu said: “He also has to juggle different budget votes - transferring money from other budgets to the social sectors of health and education.

The main question will be how he balances an expansionary budget needed at this time to stimulate the economy against government's reduced fiscal space.

“Thus, what funding options is he going to come up with to fund the expected increased deficit?”



Loss-making SOEs

Matundu also questioned whether government had any appetite to make lasting decisions on loss-making state-owned enterprises (SOEs).





“What will he do with loss-making SOEs such as Air Namibia and a whole lot of others? What assets can government get rid of to finance the deficit? A very difficult balancing act is awaiting him.”



Additional stimulus packages

Commentator Graham Hopwood said he expected the roll-out of additional stimulus packages to assist the poor, and targeted interventions for sectors impacted by the pandemic, particularly tourism.

“I think this budget will primarily be about stimulus for the economy, in response to the damage caused by the coronavirus. Help for the poorest, possibly through an extension of the emergency income grant, and targeted bailouts for certain sectors should be part of the budget package - this is particularly the case for tourism.

“This will inevitably lead to sharp but unavoidable increases in the deficit and debt levels.

“Hard decisions about reducing the size of the civil service and government's wage bill will likely be avoided in this budget. Similarly, tough decisions about the closure of perennially loss-making public enterprises will also be kicked further down the road,” Hopwood said.



More debt expected

IJG analyst Eric Van Zyl expected the taking up of more debt by government, while its deficits would grow larger.

“The budget deficits for the 2020/21 and 2021/22 years will be larger than expected and we expect additional debt issuance as well as expenditure cuts to materialise as a result.”



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