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FINANCE minister Calle Schlettwein is expected to be both a butcher and surgeon when he presents his mid-term budget review this afternoon.
He is expected to announce spending cuts, while at the same containing the impact on economic growth.
In August, the finance ministry directed government institutions to suspend the issuing of all new state contracts until the mid-term budget review.
Ratings agency Fitch has warned that a failure to narrow the fiscal deficit leading to a continued rise in the government debt/GDP ratio, could lead to a negative rating.
This would also be the case if there was a failure to narrow the current account, Fitch said in a document it shared with The Namibian yesterday.
Fitch has already revised the country’s economic outlook from stable to negative, reflecting widening twin deficits and higher public debt.
The International Monetary Fund said last month that an adjustment anchored in a credible medium-term plan is essential to preserve macroeconomic stability and debt sustainability.
An economist who spoke to The Namibian on condition of anonymity, because official comments from their firm have to be approved by top management, said he expects revenue to be revised downwards while wide-ranging expenditure cuts are to be expected, given the revenue shortfalls.
« National credibility is at stake since the government did not stick to its budget deficit targets last year, » he noted.
The economist said ordinary Namibians can expect a slowdown in government support which could have spurred economic growth.
NEVER LET A GOOD CRISIS GO TO WASTE
Eloise du Plessis, an analyst and equity strategist at PSG Namibia, told The Namibian yesterday that she was waiting to see how aggressively cuts will be made to the operational budget, and which of the projects would be suspended for the moment.
Du Plessis quoted Winston Churchill, who once said ‘Never let a good crisis go to waste’.
« Government should use the tough times we are in to consolidate our fiscal position, and put Namibia on a sustainable growth path, » she noted.
She said some of the changes could include involving private sector capital in development projects, and not relying solely on government funds to complete them. « Our growth forecast is between 2% and 2,5% for 2016, » she added.
Executive director of the Economic Association of Namibia Klaus Schade also expects cuts in operational and capital expenditure in order to reduce the budget deficit and public debt. He also said expenditure cuts will impact on economic growth.
« Therefore, it is important to identify items that have the least impact on economic growth. The minister might also adjust our fiscal targets, in particular the debt to GDP ratio which currently stands at 35%. However, we have exceeded the target, and government could decide to increase it to 40%, » he said. The government may also sell shares in state-owned companies and buildings to increase revenue, he noted.
« Cuts in government expenditure will have an impact on economic growth and likely on employment, in particular if infrastructure and construction projects are involved, » he said.
Schade added that the freezing of vacancies will affect employment opportunities further.
Ngoni Bopoto, an economist at Namibia Equity Brokers, said budget cuts and reallocations will be influenced by priorities detailed by the minister earlier this year, as well as identified trends in spending by the respective budget votes.
Like Schade, Bopoto said the minister must announce more plans to commercialise selected state-owned enterprises. He believes that private sector involvement in state companies can catalyse the economy towards achieving its long-term developmental objectives.
Rowland Brown, the head of research at IJG, said the minister will present the review at a juncture when the country is facing challenging times. He said Schlettwein will have to do a ‘difficult balancing act’.
« 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. However, should these cuts go too deep, long-term damage to the real economy could ensue, » he stated.
Brown said this can be avoided by prudent spending, focusing on productive investments over consumption wherever possible, and by focusing on expenditure with the greatest fiscal multiplier effect.
In the annual budget, which Schlettwein tabled in the National Assembly near the end of February, government spending during the 2016/17 financial year was projected to amount to about N$66 billion – about 1,6% less than the expenditure of N$67,08 billion provided for in the national budget for the 2015/16 financial year.
Schlettwein said in his budget speech that the deficit was projected to amount to 4,3% of Namibia’s gross domestic product this year, and was expected to average around 3% of GDP over the next three years.
Copyright 2016 actualité africaine