Calle's nasty tightrope walk

22 October 2019 | Economics

Finance minister Calle Schlettwein, who will present his midterm budget review in the National Assembly today, once again faces an unenviable task, according to analysts.

Among the tightrope issues Schlettwein will have to navigate are cash transfers to failing SOEs, additional requirements for drought relief, as well as containing the bloated civil service wage bill.

Simonis Storm junior analyst Indileni Nanghonga says during Schlettwein's 2019/2020 budget speech earlier this year the minister said he aimed to stimulate economic growth, bring about decent jobs and further adjust the public fiscal stance to sustainable levels.

She says so far economic growth has been sluggish, -2.9% in the first quarter and -2.6% in the second quarter of 2019, and a lack of decent jobs has supressed the nation.

“We reiterate our concern whether this budget will ensure macroeconomic stability. We expect the midterm budget to give a clear indication of the state's finances and provide clarity on how it will deal with cash-consuming SOEs,” Nanghonga says. Cirrus Capital economist Robert McGregor says Schlettwein once again finds himself in an unenviable position, with a contracting economy and “the imperative need to walk the fiscal tightrope”.

“The most important thing for this (midterm) budget will be to contain expenditure, particularly as the weak economy does not bode well for revenue collection and any larger budget deficit requires additional debt financing.

“There are several risks to the expenditure outlook, such as transfers to failing SOEs, additional requirements for drought relief, as well as containing the civil service wage bill.

“Our debt-to-GDP ratio will likely already look worse, given the contracting economy (forecasts in the initial FY2019/20 budget still anticipated growth), which means there is already a smaller denominator in the calculation, while there is risk that the numerator (i.e. total public debt) will increase.

“The additional uptake of debt would be a concern, as our current debt trajectory is already unsustainable,” McGregor said.

He said more of the same will be dangerous for the economy, especially increases in taxes on the productive sectors within the economy.

“The weak macroeconomic environment already makes it challenging for businesses to operate, and increases in taxes for the productive part of the economy - in order to draw more revenue for the state - will not have the desired consequences.

“If I could change one thing, it would be tax reform. This is not necessarily tax cuts across the board, but rather targeted interventions such as lower taxes for small business, in order to incentivise entrepreneurship which should, in turn, improve business activity and employment, thereby generating additional tax revenue,” McGregor says.

He also anticipates that, like in previous years, much of the development budget expenditure will be reallocated to plug shortfalls in the operational budget, which comes at the cost of future economic growth prospects as less is dedicated towards growth-generating activities such as infrastructure development.

“We also anticipate updated information regarding SACU (Southern African Customs Union) transfers, more specifically whether we will see additional revenue from this source in 2020.

“We hope to see announcements regarding tax proposals floated in the budget earlier this year, such as developments around the dividends tax and non-deductibility of royalties for mining companies, to name just two.

“We also hope to see an explicit announcement regarding transfers to SOEs, such as Air Namibia. Will failing SOEs continue to benefit from taxpayer-funded bailouts, will they be forced to get their act together or face closure without additional help from the state, or will there be some level of privatisation? Transfers to SOEs pose a significant risk to public finances, something also highlighted in Fitch's recent downgrading decision.”

IJG research analyst Dylan van Wyk says the most important thing would be the continued commitment to the fiscal consolidation course that has been set.

“We would like to see that spending is kept within the budgeted limits and that progress is being made to rein in fiscal deficits. Given the low growth in the economy, we hope to see that revenue targets have been revised to better reflect the economic realities and that expenditure is aligned to these forecasts.

“The most irresponsible thing would be an unexpected increase in unproductive spending or a sharp increase in corporate income taxes.

“A slip in expenditure would undermine the progress made on fiscal consolation, while increases in corporate tax would put the brakes on an already slow economy,” he says.

“I would reduce spending in the development portion of the defence budget, and reallocate this to higher priority needs such as long-term water sustainability.”

Van Wyk also says there is a very slim possibility that the liquidation of Air Namibia may be on the cards.

“This would imply an immediate expense, which some have estimated at roughly N$2.5 billion to exit leases and close the airline. We would view this as a more positive development than further bailouts.”

STAFF REPORTER

Similar News

 

Treasury demands reports of lockdown procurement

1 day - 03 June 2020 | Economics

OGONE TLHAGEWINDHOEKThe ministry of finance will demand full reports from public entities, ministries, agencies and offices detailing procurement expenditure incurred during stage one of the...

Credit extension dries up

2 days ago - 02 June 2020 | Economics

Cirrus Securities has released information derived from private sector credit extension (PSCE) figures for April 2020, painting a bleak picture of the Namibian business landscape....

Stimulus in battle to survive

2 days ago - 02 June 2020 | Economics

Andrew Rowles, CFO for Ashburton Namibia: “We expect that the Namibian recession will deepen even further, with the short- to medium-term outlook remaining very challenging.”Augetto...

Water a powerful weapon

2 days ago - 02 June 2020 | Economics

Phillepus ­Uusiku With water being an essential resource to cope with the Covid-19 pandemic, the sector received the third-largest share behind transport and education in...

Transport drives development budget ...

3 days ago - 01 June 2020 | Economics

Phillepus Uusiku - Sectors that have the potential to create employment and boost overall output such as the agricultural sector got a share of 8%...

Tourism faces biggest slump since ‘50s

3 days ago - 01 June 2020 | Economics

Empty sunbeds lie along a beach in the Cypriot resort town of Ayia Napa. International tourism is set to fall by 70% this year, marking...

Payroll gobbles bigger income chunk

6 days ago - 29 May 2020 | Economics

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...

We are not at war - Kamwanyah

6 days ago - 29 May 2020 | Economics

Kenya KamboweRUNDUPolitical commentator Ndumba Kamwanyah has questioned why government continues to divert billions of dollars to the defence ministry, while the country is not under...

No money to pay green scheme workers

1 week ago - 28 May 2020 | Economics

The managing director of the Agricultural Business Development Agency (AgriBusDev), Petrus Uugwanga, says the agency does not have enough money to pay the outstanding salaries...

Price monster remains meek in April

1 week ago - 28 May 2020 | Economics

The fallout from the coronavirus has had a large disinflationary effect on prices in April due to the large demand shock and plunge in oil...

Latest News

Pupils in God's hands

3 hours ago | Education

ILENI NANDJATOOMUNGWELUMEWhile learners at Omungwelume Senior Secondary School squat in shacks due to an incomplete hostel, their principal has placed the situation in God's hands.“They...

Shimbulu wins first round against...

3 hours ago | Justice

ILENI NANDJATOOSHAKATIThe Windhoek High Court yesterday ordered the Oshakati town council not to implement an order by Swapo to replace councillor Katrina Shimbulu.The court also...

Central hospital gears for corona...

3 hours ago | Health

STEFFI BALZARWINDHOEKPresident Hage Geingob yesterday inaugurated an intensive care and isolation ward at the Windhoek Central Hospital, which will be used as part of the...

Heavy is the head

3 hours ago | Opinion

President Hage Geingob will deliver his State of the Nation Address today during what many have described as the gravest time for post-democratic Namibia.If any...

Fishrot investigators get more time

3 hours ago | Justice

OGONE TLHAGEWINDHOEKThe State has been allowed more time to complete its investigations into the Fishrot bribery scandal. Windhoek magistrate Ingrid Unengu yesterday refused to set...

Ondangwa robbers still at large

3 hours ago | Crime

ILENI NANDJATOONDANGWAThe Oshana police have so far recovered over N$92 000 of the N$200 000 stolen from a woman in front the Ondangwa FNB branch...

Gustavo denied bail

3 hours ago | Justice

OGONE TLHAGEWINDHOEKFishrot accused Ricardo Gustavo was denied bail in the Windhoek Magistrate’s Court yesterday.Magistrate Johannes Shuuveni said in his judgment that the charges faced by...

Let's be positive – Steenkamp

3 hours ago | Education

STAFF REPORTER WINDHOEK The executive director in the ministry of education, Sanet Steenkamp, yesterday encouraged teachers and learners to be positive, saying that...

No community transmission of Covid-19

3 hours ago | Health

ELLANIE SMIT WINDHOEK Health ministry executive director Ben Nangombe has confirmed there has still been no community transmission of the coronavirus...

Load More