Economy needs some time to bounce back

The Namibia economy is expected to grow by 1.9% in 2021 a downward revision from 2.1% estimated in the main budget.

19 November 2021 | Economics

This seems realistic given the length of time it will take the tourism and hospitality sector to recover. IPPR

PHILLEPUS UUSIKU

Due to the outbreak of the Covid-19 pandemic last year, the domestic economy suffered an economic loss of 8.5%. In the mid-term budget review presented earlier this month, finance minister Iipumbu Shiimi projected the economy to grow by 1.9% this year, a downward revision from 2.1% estimated in the main budget.

Shiimi further projects the local economy to accelerate by 2.8% next year, with all major industry sectors are expected to record growth. Hence, the economy is only expected to return to its pre-Covid size at the beginning of 2024.

According to the Institute for Public Policy Research (IPPR) democracy report, this seems realistic given the length of time it will take the tourism and hospitality sector to recover.

With little government fiscal stimulus available given the state of public finances and limited new private sector investment likely, it is hard to see what will drive growth over the coming years unless the government’s green hydrogen plans take off, the report reads.

The minister’s growth forecasts have changed since the onset of the Covid-19 pandemic in early 2020. While at the beginning it was thought the pandemic would reduce gross domestic product (GDP) over two years, the view now is that most damage was inflicted in 2020 after which some degree of bounce back would be experienced, but that a good deal of permanent economic “scarring” meant a full return to pre-Covid levels of activity would not take place for some years, the report added.

Reallocations

Shiimi increased the operational budget by N$2.2 billion from N$53.9 billion to N$56.1 billion, while the development budget is reduced by N$279.8 million from N$5.5 billion to N$5.2 billion.

The reallocations lifted the global expenditure ceiling for the fiscal year (FY) 2021/22 from N$67.9 billion to N$69.7 billion.

The budget deficit will remain unchanged at 8.6% of GDP, while public debt is expected set to rise from 62.1% to 68.7% of GDP.

“The minister was faced with slightly more revenue than he expected in March, as well as some savings. Instead of paying down debt, he decided to spend the additional money, in large part on personnel costs while the development budget was cut,” the report pointed out.

With such a large public sector and so many loss-making public enterprises, flat revenue growth gives the minister little room for manoeuvre.

Once the costs of maintaining the status quo have been covered there is little room for additional spending and forecasts presented by the minister suggest little is likely to change up to the next presidential elections.

The key to reducing debt to more sustainable levels is to strengthen investment and growth, especially private and foreign direct investment, both of which have fallen steadily since 2016.

The report notes that this was recognised by Shiimi as he mentioned several initiatives such cutting the corporate tax rate, starting special economic zone (SEZs), 97 potential product lines including high value fruits identified by the Harvard Growth Lab, but things seem to be moving at a leisurely [email protected]

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