Reallocation not to be celebrated - analysts

Zero, low implementation rate

NDAMA NAKASHOLE

PSG Namibia’s head of research, Eloise du Plessis, says the fact that N$1.8 billion can now be reallocated from the development budget because it was not spent is not something to be celebrated.

Another analyst, Simonis Storm’s Indileni Nanghonga, says for a country that needs to embark on capital projects for development, it is surprising that only 27% of the capital budget allocation has been utilised by midterm, which has led to a N$1.8 billion reallocation to the operational budget.

Another firm, IJG Securities, says it is surprising that further reallocation out of the development budget has taken place given that this is the portion of the budget which should drive increases in the productive capacity of the economy.

In its analysis, Cirrus Capital concludes that the operational budget is increasing at the cost of the development budget.

The operational budget now makes up 81.4% of total expenditure, and interest payments around 10%. This leaves only 8.6% for the development budget, far away from the 20% target.

In his midterm budget review on Wednesday, finance minister Calle Schlettwein announced that N$1.8 billion was left over from the development budget, mainly from projects with zero or low implementation rate.

“The development budget has been cut again and again over the last three years to fund day-to-day government spending,” says Du Plessis, adding that the move is not sustainable.

An example of this is the N$138 million that has been reallocated from the construction and maintenance of schools to salaries, she said.

Zooming in

In its commentary on the midterm budget review, Cirrus Capital says the budget does not do enough.

However, there are a few positive signs in the minister speech, it says.

“Various mentions as to a growth package, coupled with a renewed commitment to consult further on tax proposals, are certainly indications as to a potential move in the right direction,” the firm says.

This said, the largely “business as usual” feel to the budget and the speech, as well as the far-from-impressive reallocation of funds between expenditure lines, the failure to make dramatic cuts to wasteful non-core expenditure (indeed increases in the likes of defence spending and civil service wages) and the pilfering of higher-return capital budget funds for largely consumption-linked recurrent purposes, remain a cause for concern, says Cirrus.

“Furthermore, the general policy environment in the country has taken a dramatic turn for the worse over the past two to three years, and a similarly dramatic about-turn will be required in order to rebuild investor confidence and spark a return to the types of levels of growth (in excess of 4% for an extended period of time) required for a measured reduction in unemployment. While the budget cannot fix this alone, the right message on the likes of corporate tax, could go a long way to restoring confidence.”

In her analysis, Du Plessis says: “All objectives of fiscal policy are right and good, government-friendly government projects, implementation of policies to make it easier for business, government spending and other types of funding.”

She adds that the question remains which of these goals will be achieved.

Simonis Storm commends the minister for allowing adequate time for consultation and stakeholder input on several tax policy proposals.

“There are also specific proposals to be refined, such as taxing foreign income of Namibian residents, providing for specific taxation of trusts and others, says Nanghonga of Simonis Storm.

Noteworthy, she says, is the progress being made on the tax administration reforms to get the Revenue Agency up and running by March 2019.

Do or die

Cirrus says that after nine consecutive quarters of contraction, the Namibian economy cannot handle any additional fiscal withdrawals, meaning either a further reduction in expenditure or an increase in taxes.

“Either one of these responses would be absolutely disastrous for the economy, for employment, for growth and for government’s own future revenue.

“At this point, dramatic policy changes are required to ensure growth is rekindled – with a plethora of economists and advisors in government, we need to come up with something better than more taxes to fix our issues.

“We need a dramatic change of policy, away from inward-looking, nationalistic and redistributive measures towards investment-attracting measures such as reduced red tape, work-permit reform, a more hospitable business environment, reduced policy uncertainty, reduced demands on the private sector to fix public-sector issues, corporate tax reform, and other similar pro-investment policies,” it says.

The firm further says that Namibia’s ruling party has ample support to push through policies that are positive for the country long term, even if unpopular in the short term.

“Government is currently making it harder for itself to achieve these changes, in that as poor policy bites, unemployment rises, as does the voter base’s desire for quick-fix, populist interventions.”

Little information

PSG’s Du Plessis says the budget review said the right things without much detail.

There is still no finalisation of tax changes and they are still being discussed by the working group.

The Public Procurement Act and the Investment Promotion Act are the two pieces of legislation that are supposed to boost investment in Namibia from outside and stimulate local business, she says. Both are still under review.

According to Du Plessis, a positive development is to increase tax-deductible pension contributions to encourage local savings. The forum for stakeholders to discuss the implementation of major projects that are not yet implemented indicates that the problem is acknowledged. Urgent action is necessary though, she urges.