Shiimi on budget crisis management

Finance minister Iipumbu Shiimi says the economy needs to grow and generate sufficient revenue to reduce the deficit and pay back the debt accumulated over time.

19 June 2020 | Economics

Are these subsidies necessary and are they productive? - Iipumbu Shiimi, Finance minister

Phillepus Uusiku - Diversification and restructuring of the economy are of critical importance to ensure Namibia survives the Covid-19 pandemic crisis, as well as ensure robust and positive economic growth.

Speaking at an online budget discussion hosted by Bank Windhoek and EY on Wednesday, finance minister Iipumbu Shiimi pointed out the highlights of the recently tabled 2020/21 national budget.

The minister highlighted possible plan of actions necessary going forward to mitigate the effects of Covid-19 and ensure that Namibia transform and recover from this crisis.

Shiimi noted that the world is in unprecedented times, with global gross domestic product (GDP) and revenue expected to decline significantly this year. This implies that the output which will be produced this year will be much less compared to the output produced in the previous periods.

Regionally, all Southern African Customs Union (SACU) member countries are also projected to register negative growth rates and this equally applies to Namibia.

Shiimi said the crisis requires a collective effort from all Namibians, including individuals and corporate companies. He however, appreciates the respond of Namibians in fighting the pandemic to ensure the country moves forward as a nation.

Constrained revenue

“When you are confronted with a situation where both growth and revenue is falling because of inactive economic activities, it becomes difficult because one also needs respond to the pandemic.

“With already constrained revenue, the government is forced to increase health expenditure to ensure that lives are protected and that health officials have the necessary and sufficient protective equipment, medicine and facilities,” he said.

Considering that fiscal revenue streams are constrained, it is the government’s role to pump money into the economy, such as the relief packages and wage subsidies to assist the vulnerable community and industries which have lost their livelihood, Shiimi added.

SOEs, wage bill

The increase in expenditure leads to larger deficits and debt, however that is not sustainable in the long run.

Therefore, going forward, the economy needs to grow and generate sufficient revenue to reduce the deficit and pay back the debt accumulated over time.

It is also important that the government change its spending patterns and figure out areas were the government can make some savings, for instances the subsidies state-owned enterprises receive from government. “Are these subsidies necessary and are they productive?” Shiimi asked.

The wage bill is also another controversial aspect the government is looking at.

“It is believed that government officials are overpaid, however it is not always the case because sometimes it is driven by the number of people in the system. Therefore, it will take some time to restructure but it is a possible option that can be considered going forward,” Shiimi said.

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