Tough times bring tough choicesCalle cuts N$5.5bn from national budget Drastic spending cuts include putting on hold the unpopular new parliament building and prime minister’s office building. DENVER ISAACSFinance minister Calle Schlettwein yesterday announced extensive cuts in government expenditure in response to waning global and domestic economic conditions.
As part of his second annual mid-term budget review, Schlettwein announced a freeze on N$5.5 billion in spending allocated in the N$66 billion national budget tabled in February.
“The Namibian economy has never before been in such a precarious situation. This calls for a well-conceived, timely, resolute and consistent policy response,” the minister said, one day after his counterpart in South Africa, Pravin Gordhan, announced similar measures there.
N$2.82 billion was cut from the national operational budget and N$2.7 billion from the development budget.
Of those freed-up funds, Schlettwein said N$4.5 billion (some 81.8%), would be saved to compensate for a revenue shortfall, while the remaining N$1 billion will be reallocated to urgent funding priorities.
In the operational budget, spending cuts are made by freezing public service vacancies, materials and supplies, subsistence and travel allowances, transport, overtime, operational equipment and machinery, vehicles, office furniture and transfers to public enterprises, the minister said.
From the development budget, cabinet resolved to place a moratorium on any new office buildings, including major projects such as the planned new parliament building and a building to house the prime minister’s office.
“In reality, new development projects will only enter the expenditure framework as fiscal space that is consistent with the fiscal stance and adjustment path emerges,” Schlettwein said.
Identified priorities
The minister named seven key priority areas that will receive reallocated funds, including N$350 million to go to the Ministry of Agriculture, Water and Forestry to fund completion of the Neckartal Dam.
N$150 million will go to the Office of the Prime Minister to fund the government’s drought-relief programme, while N$150 million will go to the orphans and vulnerable children programme run by the Ministry of Gender Equality and Child Welfare.
N$50 million will be allocated to the settlement of Mass Housing contracts under the Ministry of Urban and Rural Development, while N$100 million each was allocated to the University of Namibia and the Namibia University of Science and Technology (NUST).
How we got here?
Explaining the underlying conditions which led up to yesterday’s announcements, Schlettwein said Namibia experienced robust growth in the seven years following the 2008 global financial crisis, supported by a commodity boom cycle.
During that time, the country embarked on a prolonged countercyclical expansionary fiscal drive, which, when global conditions turned worse, resulted in the country’s debt surpassing growth in GDP, which is now beyond the sustainability threshold.
“In our domestic economy, a convergence of contributing factors, ranging from low commodity prices, prolonged drought conditions as well as currency and exchange rate shocks, have diminished short-term growth prospects,” the minister said.
Major constraints in this financial year alone, he said, were due in part to low external demand for Namibia’s goods, and fallout from lower growth and domestic challenges in major trading partners South Africa and Angola.
“For the current fiscal year, the revenue is expected to fall short of forecast levels by approximately 9%, or some N$6.23 billion, due to the sharp reduction in economic activity,” Schlettwein said.
Such lower projected revenue, he said, would have resulted in the expected budget deficit in 2016/2017 growing from an initial forecast of 4.3% to a more severe 7.8% unless action was taken to cut spending.
Anticipating February 2017’s budget
The finance minister announced a number of planned proposals in the next full budget to enhance the revenue side.
These include a proposal for introduction of a presumptive tax applicable to small businesses; proposals to eliminate a range of tax exemptions as well as the tax deductibility of some items currently considered.
An earlier proposal of a ‘solidarity wealth tax’ on high-income earners will be redesigned, while provisions of the current Capital Gains Tax will be expanded and strengthened.
He said the government remained committed to public enterprise reforms in the hope of achieving partial listing of some public enterprises.