‘We need a concrete recovery plan’-Experts

PHILLEPUS UUSIKU

In the N$67.9 billion budget that was tabled earlier this year for the 2021/22 financial year (FY), there were talks of various reforms and tax proposals.

Of the N$67.9 billion, N$53.9 billion was set aside for operational expenditure, while N$5.6 billion for development projects and the remaining for interest payments. Finance minister Iipumbu Shiimi is expected to table the 2021/22 FY mid-term budget review in parliament this afternoon.

Local analysts believe that fast tracking and implementing more substantial and beneficial reforms are crucial in boosting domestic economic growth and revenue collection through profits and employment.

According to Robert McGregor, head of research at Cirrus Capital, “while all the tax proposals mentioned in March were only listed for 2022/23 onwards, we’d like to see some detail or tangible commitments on issues such as the mooted reduction in the non-mining company tax rate, the zero-rating of sanitary pads, and the increase for allowable pension fund tax deductions.”

McGregor further noted that the 2021 second quarter gross domestic product (GDP) figures revealed a large contraction for the first quarter of the fiscal year, while growth forecasts for this year have been revised downwards by many institutions. These developments do not bode well for revenue collection, as the anticipated recovery in domestic tax revenues would be highly dependent on a recovery in economic activity, and such a recovery does not appear forthcoming.

Revenue

Many companies will have assessed losses from last year which will be carried through at least into this year. With many businesses still under pressure, employment is unlikely to have rebounded materially and upward wage adjustments likely few and far between, he said.

“Additionally, company taxes in 2020 were supported by diamond and gold revenues owing to a weak rand and high gold price. This year, however, the rand has been stronger meaning reduced earnings for hard currency exports like our commodities, while Namibia’s export basket has not seen strong prices or volume increases,” he pointed out.

“On the expenditure front, we believe there is significant risk in increased transfers to ailing state-owned enterprises. Very little was budgeted for state owns enterprises (SOEs) at the start of the year, so any additional transfers will either need to come from redirected expenditure which begs the question whether such allocation was needed in the first place or from improved revenue, which at this juncture appears highly unlikely. It will be important to note whether government will once again look to reallocate from the development budget towards operational expenditure, a regular occurrence in past years,” MC Gregor said.

Expectations

Meanwhile, Kimber Brain, economist at IJG expect the mid-year budget to be broadly similar to the one tabled in March. Since that budget was released, the Bank of Namibia’s expectations for domestic economic growth fell from 2.1% to 1.4% in 2021. As such, there is a possibility that short-term tax revenue expectations are revised marginally downwards. The operational and development budgets shrunk in the March 2021 budget relative to their previous totals. The Ministry of Finance (MoF) also estimated that the operational budget would shrink by 2.7% and 1.5% in each of the next two budget years. Given these conservative predications made in March, further meaningful downwards adjustments to the budget in the current year as well as outer Medium-Term Expenditure Framework (MTEF) periods are unlikely. However, the extended lockdown and curfew that started in June, and that was only fully lifted recently, may have put an unexpected damper on tax revenue growth, perhaps squeezing the operational and development budgets, Brain said.

Sustainability

“Lastly, we would like to see a concrete plan for a post-Covid-19 recovery. While there have been some improvements and positive developments over the past year, we need to see more substantial and beneficial reforms being fast-tracked and implemented to ensure that Namibia sees private investment, both foreign and domestic.”

This must be centred around making Namibia an attractive and competitive investment jurisdiction, not just regionally but globally.

While fiscal consolidation may help reducing the full extent of the budget deficits, Namibia needs strong and sustained economic growth which will boost domestic revenue collection through profits and employment and would play a much more substantial role in addressing the deficit challenge, the head of research at Cirrus [email protected]