Namibia’s fiscal deficit for 2020/21 to widen by 9.9% of GDP

 Namibia’s fiscal deficit for 2020/21 to widen by 9.9% of GDP

Namibia’s fiscal deficit for 2020/21 to widen by 9.9% of GDP.

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After  a  constant  period  of  high  economic  growth   with  an average  of   not  less than  5%  per  annum  over  the  period  2010-2015,  Namibia experienced a slowdown in real gross domestic product (GDP) in the past four years .

Growth slowed down from 5.3% in 2015 to 0.0% in 2016 and the trend continues up to date.

The lack  vibrant  economic  performance continued  over  the  subsequent   four   years: -1.0%  in  2017,  1.1  in  2018  , -1.6%  in  2019 and  -7,3% in 2020,  driven  by  weak commodity  prices,  persistence  of  drought  and  subdued  economic  activity  in  South  Africa  and  Angola.

According to latest official estimates, the economy contracted by -7.3% in 2020, amidst the ongoing global COVID-19 pandemic and lockdowns.

Namibia’s Vision 2030 articulated the country’s long term development plan while the National Development Plan (NDP) mapped out its medium term implementation framework.

The fourth phase of the NDP was designed to help the country achieve three main goals: high and sustainable economic growth, job creation, and reduction of income inequality.

The emerging challenges were compounded by weaknesses in the public financial management (PFM) environment that impacted on resource mobilization and reduced the quality and efficiency of public spending and deep rooted structural challenges in the business environment that limited capacity for industrialization and economic diversification, resulting in high rates of unemployment, poverty and income inequality.

Against  this backdrop,  the overall objective  of  the Economic  Governance  and  Competitiveness  Support  Programme (EGCSP)was to support the implementation of the Namibian government’s wide  ranging  reforms  and medium term development  agenda,  by accelerating  inclusive  growth and  sustainable  development, preserving  macroeconomic stability, and addressing the challenges of lack of diversification, high unemployment and income inequality.

The package of reforms proposed under the three components of the EGCSP fully corresponded to Namibia’s national priorities for development, particularly its aim for sustainable economic advancement and job creation he  purpose  of  the  EGCSP  was  to promote  inclusive  growth  and  economic  competitiveness  and  diversification  through  improved economic management and business environment reforms.

The EGCSP was provided at a time when Namibia was experiencing an economic slowdown in real GDP growth rate from 5.3% in 2015 to 0.0% in 2016.

The  fiscal  deficit  widened  from 3.7%  of  GDP  in  FY2013/14  to  8.3%  of  GDP  in FY2015/16,  financed  through domestic and external borrowings.

In view of the situation, the Government of Namibia embarked on fiscal consolidation from the second half of FY2016/17 to safeguard macroeconomic stability.

While this was necessary, it contributed to the sharp fall in aggregate demand, and hence growth. At  the  same  time,  the Government embarked  on  wide  ranging  reforms  aimed  at  improving  the performance of state owned enterprises and the business environment.

The   fiscal   consolidation   efforts targeted   expenditure   control and efficiency   and   improving   revenue performance.

These have  yielded  minimal  results as it helped  to  push  fiscal  consolidation  measures,  resulting   a  significant reduction in the budget deficit from 8.3% of GDP in 2015/16 to 4.9% in 2019/20, a decrease in the Expenditure/GDP ratio from 40.2% in 2015/16 to 34.9% in 2018/19; and  significant improvement in foreign reserves from 2.8 months of import cover in 2016  to 5.2 months  by 2020.

The  Namibia  Revenue  Agency  (NAMRA)  Act  was  passed  by  Parliament in  2017,  establishing  the Agency, its powers, functions and management and steps were taken to contain the wage bill–Payroll audits started at the Ministry of Education and the Prime Minister has issued a circular freezing new recruitment.

Despite the a fore mentioned fiscal consolidation efforts by the Government, Namibia’s sovereign ratings  have been downgraded by Moody’s and Fitch since  2017,reflecting  the country’s high debt burden and weak economic growth prospects.

Namibia’s fiscal deficit for 2020/21 is expected to widen to 9.9% of GDP from 4.5% of GDP in 2019/20, due in large part, to a surge in expenditure and headwinds to fiscal revenues as the global Covid-19 pandemic weighs on economic activity.

The Government is expected to resume fiscal consolidation from FY 2021/22, resulting in the deficit gradually narrowing in the near future.

The  EGCSP  has supported  a  wide  range  of  measures  aimed  at  strengthening  public  financial management and public sector efficiency.

Chris Louw

Featured Financial Writer for SA Shares - Read more about Chris's Bio -

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