Brace for deep cutsAll eyes on mid-term budget review Economists expect significant cost-cutting measures when the minister of finance tables his mid-term budget review in parliament today. Finance minister Calle Schlettwein is expected to deliver his annual mid-term budget review in the National Assembly today.The minister''s speech comes in the wake of a stern warning from international ratings agency Fitch in August about the country''s sustained ability to honour its debt obligations, as well as a generally deteriorating economic climate in the region.
At the first sign of government''s efforts to address identified issues such as its rising debt (now 38.2% of GDP) and a widening budget deficit (at 8.3% of GDP in 2015), Schlettwein in September announced an abrupt halt in government''s awarding of any new tender contracts.
Local economists surveyed by Namibia Media Holdings (NMH) this week suggested a number of additional measures expected to be announced today, including possible new taxes, recruitment halts and stern expenditure cuts.
“While this is a mid-term budget, and thus changes are likely to be less sizeable than in the full budget, we do expect to see some expenditure cuts and fairly sizeable expenditure reallocation,” said IJG-Securities'' head of research, Rowland Brown.
“These are challenging times for Namibia and the Ministry of Finance. A difficult balancing act is required. On the one hand, spending needs to be reduced so as to keep the budget deficit under control and maintain the country''s record of responsible fiscal management,” Brown said.
“However, should these cuts go too deep, long-term damage to the real economy could ensue,” he warned.
“The Minister will, to the best of his ability, try to allay concerns which have been raised by the ratings agencies,” suggested Ngoni Bopoto, economist at Namibia Equity Brokers (NEB).
“We believe it is necessary for the state to innovate and come up with new ideas and strategies which speak to both the near and longer-term government funding and economic growth prospects,” Bopoto said.
He said Namibia''s current dilemma was not entirely of its own making, seeing that rating agency downgrades of emerging market economies were expected to hit record-breaking levels this year.
“Both the South African and Namibian economies, like their emerging market peers, will remain subject to ratings scrutiny as agency assessments most likely deteriorate,” Bopoto said.
One area where analysts agreed government pronouncement was needed was in the future of the country''s state-owned enterprises (SOEs), and plans to better position these within their respective industries.
“We would appreciate greater mention of strategies to commercialise select SOEs and increased effort to improve coordination between the various organs of state, and policy directives – which would go a long way towards securing private sector buy-in, and therefore catalyse the economy towards achieving its long-term development objectives,” Bopoto said.
Other possible interventions suggested by Simonis Storm Securities'' (SSS) Purvance Heuer were the possible introduction of government''s promised ''solidarity'' tax on the wealthy, a presumptive tax on small and medium enterprises (SMEs), introduction of early retirement plans and recruitment halts in the public service, partial listing of certain SOEs, and an independent revenue agency.
“Globally, tax rates are still some of the highest in Namibia, so it will be hard to raise taxes,” Heuer said.
“We think the minister will give a reassuring speech… that will instil further confidence in Namibia, and a hard line towards spending cuts.
“The main message will be to ensure and restore stability in Namibia”.