Chart of the week
Earlier this year, Minister of Finance, Honourable Iipumbu Shiimi, presented the FY ‘24/25 budget. In our view, the budget struck a lot of the right chords, presenting a positive fiscal trajectory for Namibia, with the government shifting from being a headwind for growth to a prudent facilitator – or at least having the intention to be a facilitator for economic growth.
The full-year budget saw a material improvement of Namibia’s key metrics, owing to a sustained period of robust economic growth. Firstly, the government expects debt-to-GDP to fall to 56.4% by the end of the MTEF (FY ‘26/27), from 67.2% in FY ‘21/22. This is largely a function of redemptions of some of Namibia’s domestic and foreign debt – most notably the second Eurobond due in Oct ’25 with US$750.0 million outstanding.
The government also expects sustained primary surpluses through the MTEF, which returned for the first time since FY ‘12/13. As such, the deficit-to-GDP is expected to decline to -3.0% in FY ‘26/27 from -7.9% in FY ’21/22.
The MTBPS due on 28 Oct ’24 presents an opportunity to measure the government’s execution thus far, with potential for policy changes or updates. On revenue, NamRA has reported N$45.1 billion in tax collections over the last six months, which amounts to 54.5% of the government’s projected N$87.3 billion for the fiscal year.
The outperformance on tax collection halfway through the fiscal year has been a constant since FY ’21/22, but the base is significantly higher this year. While diamond production has slowed due to pressure on prices, SACU receipts (53.1% of overall projection) and personal (57.1% of overall projection) and corporate taxes (55.1% of overall projection) have remained healthy. Further, the government continues to remain conservative on revenue to avoid downside surprises, which, in our view, is a prudent approach.
Expenditure is expected to increase, with a notable increase in developmental spending primarily focused on education, housing infrastructure and healthcare. However, while capital has been made available for the much-needed improvement of various sectors of the Namibian economy, the outturn may be below expectation as large capital projects have taken longer to get underway.
Execution remains a concern, as there may not be extensive capacity to fulfil the government’s goals – this is okay when ideas are bad, but it can be frustrating when there are good ideas. Finally, interest expense is expected to continue to place pressure on the fiscus over the MTEF.
However, notable yield compressions on all government-issued paper (treasury bills and bonds) have resulted in a much lower marginal cost of funding, with more than a N$10.00 premium added to long-duration bonds on offer – i.e. the government is now borrowing at approximately 90c on the N$ versus 79c on the dollar when the budget was tabled.
The market does not expect any fireworks in the MTBPS, but as we believe, “boring budgets are good budgets.”
The full-year budget saw a material improvement of Namibia’s key metrics, owing to a sustained period of robust economic growth. Firstly, the government expects debt-to-GDP to fall to 56.4% by the end of the MTEF (FY ‘26/27), from 67.2% in FY ‘21/22. This is largely a function of redemptions of some of Namibia’s domestic and foreign debt – most notably the second Eurobond due in Oct ’25 with US$750.0 million outstanding.
The government also expects sustained primary surpluses through the MTEF, which returned for the first time since FY ‘12/13. As such, the deficit-to-GDP is expected to decline to -3.0% in FY ‘26/27 from -7.9% in FY ’21/22.
The MTBPS due on 28 Oct ’24 presents an opportunity to measure the government’s execution thus far, with potential for policy changes or updates. On revenue, NamRA has reported N$45.1 billion in tax collections over the last six months, which amounts to 54.5% of the government’s projected N$87.3 billion for the fiscal year.
The outperformance on tax collection halfway through the fiscal year has been a constant since FY ’21/22, but the base is significantly higher this year. While diamond production has slowed due to pressure on prices, SACU receipts (53.1% of overall projection) and personal (57.1% of overall projection) and corporate taxes (55.1% of overall projection) have remained healthy. Further, the government continues to remain conservative on revenue to avoid downside surprises, which, in our view, is a prudent approach.
Expenditure is expected to increase, with a notable increase in developmental spending primarily focused on education, housing infrastructure and healthcare. However, while capital has been made available for the much-needed improvement of various sectors of the Namibian economy, the outturn may be below expectation as large capital projects have taken longer to get underway.
Execution remains a concern, as there may not be extensive capacity to fulfil the government’s goals – this is okay when ideas are bad, but it can be frustrating when there are good ideas. Finally, interest expense is expected to continue to place pressure on the fiscus over the MTEF.
However, notable yield compressions on all government-issued paper (treasury bills and bonds) have resulted in a much lower marginal cost of funding, with more than a N$10.00 premium added to long-duration bonds on offer – i.e. the government is now borrowing at approximately 90c on the N$ versus 79c on the dollar when the budget was tabled.
The market does not expect any fireworks in the MTBPS, but as we believe, “boring budgets are good budgets.”
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