Council can borrow money: Meaning and implications

By Lazarus Kwedhi

During the induction workshop for newly elected local authority councillors, the Minister of Urban and Rural Development, Sankwasa James Sankwasa, expressed concern about the continued inability of local authority councils to provide affordable land and housing to residents and the broader public. 

He attributed this failure largely to weak revenue generation from own sources and an overreliance on central government transfers, with limited effort to explore alternative funding mechanisms.

Against this background, the minister reminded councillors of their statutory power and obligation to mobilise additional funding for housing-related purposes, including land servicing.

His remarks are grounded in Sections 30 and 80 of the Local Authorities Act, 1992 (Act No. 23 of 1992), as amended, specifically Sections 30(1)(v)(i) and 80(1)(c).

These provisions empower local authority councils to borrow money, in the form of loans, from any source within Namibia, subject to prior approval by the Minister of Urban and Rural Development after consultation with the Minister of Finance.

Any such loan forms part of the local authority's funds.

While local authorities clearly possess this borrowing power, the meaning and implications of exercising it cannot be ignored, both from an administrative standpoint and in the public interest. Several critical issues arise.

Soon after the induction of councillors, the Ministry of Urban and Rural Development is likely to face a surge of applications from local authorities seeking ministerial approval to borrow money, as contemplated in Section 30(1)(v)(i) of the Act.

This reality underscores the urgent need for a clear, coherent policy framework beyond standard financial lender requirements to guide decisions on whether to approve or decline borrowing requests. Such a framework would bring consistency and predictability to internal processes within the Ministry of Urban and Rural Development, the Ministry of Finance, and local authority councils.

Affordability and sustainability also present serious challenges.

Many local authorities lack sufficient asset value or property portfolios to secure loans from financial institutions.

If this structural weakness is not addressed, the borrowing provision risks becoming largely symbolic, undermining its stated objective of reducing reliance on central government funding.

A further concern relates to fiscal risk and contingent liabilities for the State. In practice, the financial burden may ultimately fall back on the central government if local authorities fail to meet their loan repayment obligations.

Many councils are already heavily indebted and are struggling to settle accounts with bulk service providers such as NamPower and NamWater, as well as statutory institutions including NAMRA, the Social Security Commission, pension funds and medical aid schemes.

These financial pressures are compounded by persistent challenges of corruption, weak financial controls and misappropriation of public funds.

Under such conditions, loan defaults are a realistic possibility, and any attempt by lenders to attach or repossess council assets would almost certainly compel central government intervention through bailouts.

The Act also provides, under Section 30(1)(i), for local authority councils to establish housing schemes, either independently or in partnership with other parties, subject to ministerial approval.

Despite this provision having existed for more than three decades, no local authority has implemented housing schemes at a scale sufficient to address land and housing shortages in towns, municipalities or villages.

In light of the minister’s renewed emphasis on borrowing as a solution, uncertainty remains about whether councils and the ministry intend to activate these housing schemes and whether lending for housing purposes will be structured around them as originally envisaged in the legislation.

In principle, local authorities should finance land servicing and housing development through own-source revenues, central government support or donor funding, while utilising internal technical departments such as infrastructure development and technical services.

The practical challenge, however, is that most councils lack the human capacity, technical expertise and equipment required to execute large-scale housing projects. Borrowing from profit-driven financial institutions, combined with reliance on private contractors, introduces additional risks.

Contractors may inflate tender prices, delay delivery or abandon projects entirely, leaving councils with incomplete developments, as seen during the Mass Housing Programme.

Such outcomes undermine the objective of affordable housing, as both lenders and contractors prioritise profit over public value.

Borrowing in terms of Section 30(1)(v)(i) remains an essential mechanism for supplementing local authority budgets. Still, it is not an ideal model for delivering affordable, accessible and sustainable housing for the majority of Namibians.

This approach shifts the financial burden onto end-users, who must absorb the profit margins of property developers and commercial banks while also paying cost-recovery charges imposed by local authorities.

Borrowing would be more appropriate if directed towards revenue-generating infrastructure such as open markets, shopping complexes, recreational and sports facilities, warehouses, and community halls that can be rented to the public and that, over time, strengthen municipal revenue bases.

Many local authorities continue to underperform in revenue collection due to limited innovation in regional economic development, weak investment-attracting strategies, and underutilisation of donor funding opportunities.

Without a strong legal and policy framework from the central government to regulate local authority debt management, and in the absence of decisive action to address corruption, misappropriation of funds and unethical leadership practices, the borrowing powers granted by law risk undermining, rather than advancing, the public interest in land and housing delivery.