Foreign market subsidizes robust government expenditure

By Penda Jonas Hashoongo
October 2015
Prime Business

The Namibian government, through its Ministry of Finance, will rely on the international market to help fund about 40% of the expenditure outlined in the national budget for the 2015/16 financial year.

Speaking on government’s fiscal position and financing of budget deficit in a Parliament session this month, Minister of Finance, Calle Schlettwein pointed out the need to look at the foreign market to fund the expenditure after successfully funding 61% of the budget deficit, owing in part to the R1.5 billion that was raised on the Johannesburg Stock Exchange (JSE).

“The Government has already successfully funded 61-percent of the budget deficit half-way through the budget implementation calendar. A total of N$4.17 billion was raised from the domestic market, R1.5 billion was raised on the Johannesburg Stock Exchange (JSE) and we will proceed to raise additional financing from the international market, which will be used to partly boost the country’s foreign reserve position and fund the budget in line with the budget financing plan. Government will persist in its prudent execution of the Financing Plan to address the remaining needs,” Schlettwein said.

With regards to the local market, Schlettwein explained his Ministry’s plan to find alternative funding methods so as to ease pressure off forthcoming budgets. In line with this, the Ministry of Finance also explained their intention to curb expenditure, particularly on the least prioritised aspects of government spending.

“We have already commenced with the Mid-Year Budget Review to enhance the quality of spending and align the spending proposals to the dynamic macroeconomic environment. I will also put forth policy proposals for addressing domestic economic priorities and redirect resources to the most productive programmes and compelling priorities. For this reason, the Mid-Year Budget Review will propose spending cuts on least productive items in the manner that does not impair service delivery.”

Schlettwein also took the opportunity to throw water on the issue of the dire straits of the foreign reserves owing to the country’s import-intensive approach, saying that the situation is not as adverse as recent reports have suggested, “In practical terms, the foreign reserves situation should not be overstated. The current official reserves level is three times more than sufficient to support the currency peg of the Namibian Dollar to the South African Rand.

In addition, the capital assets invested abroad are a competitive strength for Namibia and the major investment projects in the mining sector are expected to commence with production and export stage,” he said.

Reports earlier this year purported a near 18% decrease in foreign reserves, which was considered the lowest the reserves had been since 2012. The reports also painted a picture of a strong demand for credit and the confidence of lenders, commercial banks and other financial institutions, to meet this demand.

While outlining a generally healthy stance of the country’s fiscal activities, the Minister of Finance expressed growing concern over the revenue it gets from the Southern African Customs Union (SACU) which government relies on to fund some of its priority projects.

“We anticipate pressure on revenue and this will increase sharply next year due to a significant reduction in revenue from SACU, which accounts for about 34-percent of Namibia’s revenue. The adjustments in SACU’s revenue mean that Namibia will have to contend with the negative adjustment in the next two financial years, given the weak prospects for the South African economy.”

“It is not for the first time that the volatility in SACU revenue has occurred. Namibia has been able to navigate through the effects of such volatility. It is our plan to do so going forward, through expanding and deepening the domestic revenue base, accelerating the tax administration reform agenda and adjusting expenditure levels in line with the changing revenue and macroeconomic environment. Let me also reiterate that Namibia views SACU as an important platform for achieving greater regional integration and industrial development. We have made efforts to contribute to the normal functioning of SACU institutions. As a country, we would advance these goals through the national Industrial Policy, the Growth at Home Strategy and other structural reforms,” Schlettwein added.

Although government’s robust and uncompromising expenditure plan has been met with some reservation from certain portions of Namibia’s fiscal fraternity, Schlettwein assured the nation of his Ministry’s intention to execute the budget as planned and as per government’s needs, so as to attain both the long-term and short-term development plans.

“Macroeconomic stability, fiscal prudence and sustainability will remain key in the conduct of Government fiscal policy and economic management. Our policies will remain robust, pro-growth, pro-poor, pro-business and in support of the national development agenda in a dynamic and integrated global economy,” Schlettwein concluded.