Rebuilding fiscal buffers will require reform
The development budget will need to be safeguarded to fund critical infrastructure.
NAUFIKU HAMUNIME
As national restrictions have begun to ease and vaccination rates have gradually risen, albeit sluggishly, it is fair to say that the domestic macroeconomic outlook can only improve in 2022.
According to the Bank of Namibia (BoN), the domestic economy is projected to grow by 3.3% in 2022 and increase to 4% in 2023 supported by easing covid-19 restrictions and recoveries across nearly all sectors. And whilst this certainly provides cause for some form of cautious optimism, it is important to note that much of the economy’s forecasted growth will come about as a result of the very low base created by the pandemic and will, in part, be supported by increased diamond mining activity.
As such, given the pre-Covid structural weaknesses that already existed in the domestic economy it is unlikely that growth, which is unaccompanied by structural reform, will be a panacea, as risks related to the slow vaccine uptake, commodity prices, climatic swings and the fiscus are likely to continue to prevail.
Regarding government finances, the proceeds from the listing of MTC and the launch of the Namibia Revenue Agency (NamRA) in 2021 should contribute towards the increasing the government’s revenue and improving revenue collection efforts, respectively. However, in 2022 Namibia’s fiscal position is likely to be strained on account of expected declines in transfers from the Southern African Customs Union (SACU) which typically accounts for roughly 33% of government revenue. Additionally, given the pre-Covid structural weaknesses that already existed in managing the budget deficit and the public debt stock which is expected to exceed 70% of gross domestic product (GDP) in the 2022/23 financial year (FY) - it is unlikely that the government will be able to rebuild its fiscal buffers or invest in productive sectors without further reforms.
Going into 2022, if the projected growth expectations do materialise, rebuilding fiscal buffers and investing in productive sectors will have to be two of the governments’ key priorities. Practically, this will mean that the development budget will need to be safeguarded to fund critical infrastructure and not be underspent or diverted to other uses. Additionally, now more than ever, longstanding issues such as the wage bill, reliance on SACU revenue, high public debt, and growing interest payments – will need to be addressed in order to rebuild the country’s fiscal strength and safeguard the domestic economy.
As national restrictions have begun to ease and vaccination rates have gradually risen, albeit sluggishly, it is fair to say that the domestic macroeconomic outlook can only improve in 2022.
According to the Bank of Namibia (BoN), the domestic economy is projected to grow by 3.3% in 2022 and increase to 4% in 2023 supported by easing covid-19 restrictions and recoveries across nearly all sectors. And whilst this certainly provides cause for some form of cautious optimism, it is important to note that much of the economy’s forecasted growth will come about as a result of the very low base created by the pandemic and will, in part, be supported by increased diamond mining activity.
As such, given the pre-Covid structural weaknesses that already existed in the domestic economy it is unlikely that growth, which is unaccompanied by structural reform, will be a panacea, as risks related to the slow vaccine uptake, commodity prices, climatic swings and the fiscus are likely to continue to prevail.
Regarding government finances, the proceeds from the listing of MTC and the launch of the Namibia Revenue Agency (NamRA) in 2021 should contribute towards the increasing the government’s revenue and improving revenue collection efforts, respectively. However, in 2022 Namibia’s fiscal position is likely to be strained on account of expected declines in transfers from the Southern African Customs Union (SACU) which typically accounts for roughly 33% of government revenue. Additionally, given the pre-Covid structural weaknesses that already existed in managing the budget deficit and the public debt stock which is expected to exceed 70% of gross domestic product (GDP) in the 2022/23 financial year (FY) - it is unlikely that the government will be able to rebuild its fiscal buffers or invest in productive sectors without further reforms.
Going into 2022, if the projected growth expectations do materialise, rebuilding fiscal buffers and investing in productive sectors will have to be two of the governments’ key priorities. Practically, this will mean that the development budget will need to be safeguarded to fund critical infrastructure and not be underspent or diverted to other uses. Additionally, now more than ever, longstanding issues such as the wage bill, reliance on SACU revenue, high public debt, and growing interest payments – will need to be addressed in order to rebuild the country’s fiscal strength and safeguard the domestic economy.
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