Policy: All eyes on the budget
Without accountability and punishment, many governments investment including public private partnerships (PPPs) are doomed, analysts say.
PHILLEPUS UUSIKU
Foreign and local investment seem to be a key variable in driving the domestic economy going forward. Therefore, creating a conducive environment to attract investors is crucial, local analysts said.
According to Dr Omu Kakujaha-Matundu, senior economics lecturer at the University of Namibia (UNAM), Namibia has failed dismally in attracting investment and it could be one of the reasons why the government is finding itself in this economic bind.
“Government even destroyed existing investment such as the green schemes”. Without accountability and punishment, many governments investment including public private partnerships (PPPs) are doomed, he warned.
In last year’s budget statement, finance minister Iipumbu Shiimi outlined some tax proposals which individuals and the business community would be eager to get more clarify as it will impact them.
Robert McGregor, head of research at Cirrus Capital, notes that the tax proposals mentioned in last year’s budget statement will not drive economic growth.
“The guaranteed proposals are increases in tax, such as the looming introduction of the dividend tax. It seeks to increase government revenue, when revenue is not the primary challenge.”
Instead, this increases the hurdle rate or decreases the return for existing and potential investors, McGregor said.
This comes at a time when the economy is weak, growth outlook is still poor, and Namibia competes on a global stage for investment where many other economies, globally and regionally, offer better investment terms, he added.
“We should focus on growing the tax base by increasing participation in the formal economy, growing the number of tax payers, by making it easier to start and run a business, and individuals, through increased private sector employment, and providing an environment for improved returns – rather than by increasingly taxing the same base. The proposals that may assist with growth, such as the potential reduction in non-mining company tax, come across as an afterthought,” McGregor said.
The policy direction is counterproductive, not just in terms of the increasing tax proposals, but also proposed legislation such as the National Equitable Economic Empowerment Framework (NEEEF) and Investment Promotion and Facilitation Bill (IPFB), he added.
Expenditure
Meanwhile, Dr Kakujaha-Matundu said, under the current depressed economic conditions one would have liked the minister to table an expansionary budget. That is an increase in public spending in order to stimulate economic growth. Unfortunately, with constrained fiscal space the minister would be forced to retain spending at the same level as the previous year budget. But, still borrowing a little bit more, and jag expenditure a bit, if and only if it is to increase capital spending is not a bad idea. This is not time for fiscal consolidation, but I think the minister has no choice, he said.
McGregor hope to see ongoing commitment to fiscal consolidation, but improvement in the quality of the allocation and spending. “For instance, our spending on education is substantial, but the returns are incredibly poor. Additionally, we increasingly see government’s development expenditure re-prioritised to cover operational expenditure, which has long-term consequences.” He made reference to the current state of education and healthcare infrastructure.
Furthermore, Danie van Wyk, head of research at IJG Securities, said “although civil servant unions are currently putting pressure on the government to increase salaries, we remain hopeful that operational expenditure will remain in line with previous estimates.”
The prior two budgets showed a decline in the expected interest rate on government debt over the Medium-Term Expenditure Framework (MTEF) period. “As the global economic recovery continues to gain momentum, and central banks gradually start the move towards monetary policy normalisation, we would not be surprised to see the ministry revising interest costs upwards, particularly on the longer end of the MTEF period,” he said.
Revenue
“We further expect to see some upward revisions in revenue over the MTEF period driven mostly by an increase in diamond royalties, non-mining tax revenue and the Southern African Customs Union (SACU) receipts, as economic activity has improved somewhat over the last year. Higher than expected revenue would be welcomed as it would place less pressure on the deficit, provided that the government managed to keep expenditure under control,” Van Wyk added.
McGregor notes that domestic revenue sources have proven surprisingly resilient after the initial collapse in 2020, but an improvement in domestic operating conditions is needed to see this grow.
SACU revenue is likely to be revised upwards substantially over the forecast period, which will help reduce the deficits running forward, but leaves us at risk of not reforming the expenditure side of the budget, McGregor pointed out.
Dr Kakujaha-Matundu expects the domestic economy to grow between 1% to 1.5%, while McGregor forecasts a growth rate of 3% in [email protected]
Foreign and local investment seem to be a key variable in driving the domestic economy going forward. Therefore, creating a conducive environment to attract investors is crucial, local analysts said.
According to Dr Omu Kakujaha-Matundu, senior economics lecturer at the University of Namibia (UNAM), Namibia has failed dismally in attracting investment and it could be one of the reasons why the government is finding itself in this economic bind.
“Government even destroyed existing investment such as the green schemes”. Without accountability and punishment, many governments investment including public private partnerships (PPPs) are doomed, he warned.
In last year’s budget statement, finance minister Iipumbu Shiimi outlined some tax proposals which individuals and the business community would be eager to get more clarify as it will impact them.
Robert McGregor, head of research at Cirrus Capital, notes that the tax proposals mentioned in last year’s budget statement will not drive economic growth.
“The guaranteed proposals are increases in tax, such as the looming introduction of the dividend tax. It seeks to increase government revenue, when revenue is not the primary challenge.”
Instead, this increases the hurdle rate or decreases the return for existing and potential investors, McGregor said.
This comes at a time when the economy is weak, growth outlook is still poor, and Namibia competes on a global stage for investment where many other economies, globally and regionally, offer better investment terms, he added.
“We should focus on growing the tax base by increasing participation in the formal economy, growing the number of tax payers, by making it easier to start and run a business, and individuals, through increased private sector employment, and providing an environment for improved returns – rather than by increasingly taxing the same base. The proposals that may assist with growth, such as the potential reduction in non-mining company tax, come across as an afterthought,” McGregor said.
The policy direction is counterproductive, not just in terms of the increasing tax proposals, but also proposed legislation such as the National Equitable Economic Empowerment Framework (NEEEF) and Investment Promotion and Facilitation Bill (IPFB), he added.
Expenditure
Meanwhile, Dr Kakujaha-Matundu said, under the current depressed economic conditions one would have liked the minister to table an expansionary budget. That is an increase in public spending in order to stimulate economic growth. Unfortunately, with constrained fiscal space the minister would be forced to retain spending at the same level as the previous year budget. But, still borrowing a little bit more, and jag expenditure a bit, if and only if it is to increase capital spending is not a bad idea. This is not time for fiscal consolidation, but I think the minister has no choice, he said.
McGregor hope to see ongoing commitment to fiscal consolidation, but improvement in the quality of the allocation and spending. “For instance, our spending on education is substantial, but the returns are incredibly poor. Additionally, we increasingly see government’s development expenditure re-prioritised to cover operational expenditure, which has long-term consequences.” He made reference to the current state of education and healthcare infrastructure.
Furthermore, Danie van Wyk, head of research at IJG Securities, said “although civil servant unions are currently putting pressure on the government to increase salaries, we remain hopeful that operational expenditure will remain in line with previous estimates.”
The prior two budgets showed a decline in the expected interest rate on government debt over the Medium-Term Expenditure Framework (MTEF) period. “As the global economic recovery continues to gain momentum, and central banks gradually start the move towards monetary policy normalisation, we would not be surprised to see the ministry revising interest costs upwards, particularly on the longer end of the MTEF period,” he said.
Revenue
“We further expect to see some upward revisions in revenue over the MTEF period driven mostly by an increase in diamond royalties, non-mining tax revenue and the Southern African Customs Union (SACU) receipts, as economic activity has improved somewhat over the last year. Higher than expected revenue would be welcomed as it would place less pressure on the deficit, provided that the government managed to keep expenditure under control,” Van Wyk added.
McGregor notes that domestic revenue sources have proven surprisingly resilient after the initial collapse in 2020, but an improvement in domestic operating conditions is needed to see this grow.
SACU revenue is likely to be revised upwards substantially over the forecast period, which will help reduce the deficits running forward, but leaves us at risk of not reforming the expenditure side of the budget, McGregor pointed out.
Dr Kakujaha-Matundu expects the domestic economy to grow between 1% to 1.5%, while McGregor forecasts a growth rate of 3% in [email protected]
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