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REPUBLIC OF NAMIBIA
MINISTRY OF FINANCE
24 September 2015
PRESS RELEASE
Status on Macro-fiscal situation and Policy Response Package
I.
BACKGROUND AND GUIDING PRICINPLES
1. There have been divergent and, sometimes, conflicting and sensational
reports and analyses regarding the macro-fiscal position of Government
operations and medium-term outlook.
2. The reporting and analysis made often tend to disregard the policy actions
which Government has already undertaken and pursuing to address the
current situation and mitigate any risks. Of particular reference is the article
produced by IJG Securities and published in Die Republikein of 24
September, 2015 under the sensational heading: “Geld droog op”. This sort
of categorization paints a public picture that meeting the financing needs of
the budget is a difficult proposition for the Government.
3. I would like to lay out the factual matters and address the concerns raised.
The Ministry of Finance also wishes to assure the public that Government
will continue to execute the national budget, without compromising
macroeconomic stability and sustainability of fiscal operations. These are
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the fundamental principles which form the basis of our fiscal and financial
management.
4. There are five main macro-fiscal risk areas and policy priorities which the
Government is giving priority attention. These pertain to the following:4.1 Impact of the global economy and financial markets: The global
economy as assessed by the International Monetary Fund and the World
Bank is estimated to slowdown in 2015. This is due to the anticipated
slowdown in Emerging Markets Economies, particularly the economies of
China, the Commonwealth of Independent States, Brazil and South
Africa. Sub-Saharan African economies are also expected to slow down.
The main factors at play are the improving fundamentals in Advanced
Economies, the normalization of monetary policy especially the exit from
quantitative easing in the United States of America and the consequent
outflow of capital from Emerging Markets. Commodity prices for both fuel
and non-fuel commodities have also been on the downward spiral due to
falling demand, especially in the light of the slowdown of the Chinese
economy.
For Namibia as a small open economy, our efforts are to pursue exportled inclusive growth through improving our productive capacity and
diversifying the economy, while protecting budgetary allocations to social
sectors. This is the budget policy emphasis as layout the FY2015/16
Budget Statement
4.2 Outlook on SACU Revenue: Revenue from SACU, which accounts for
about 34 percent of Namibia’s revenue, has come under strain due to the
weak growth outturn and prospects for the South African economy. The
adjustments in SACU revenue means that Namibia is likely to bear the
consequences of a negative adjustment in the next financial year. The
outlook will only improve moderately, based on the growth prospects for
the SACU economies, especially for South Africa.
I wish to state that it is not the first time that volatility in SACU revenue
has occurred. Namibia has, however, been able to navigate through the
effects of such volatility. It is our plan to do so going forward, through
expanding and deepening the domestic revenue base and most
important, accelerating the tax administration reform agenda. I should
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also emphasize that Namibia views SACU as a platform for achieving
greater regional integration and industrial development than mere
revenue distribution. As a country, we would advance these goals
through the national Industrial Policy, the Growth at Home Strategy and
other structural reforms.
4.3 Expansionary budget and future sustainability: The Government
expansionary fiscal policy for the past years has supported the growth of
the economy, provision of increased services to more Namibians and
creation of jobs, especially in the public infrastructure development and
construction sector. Government is, however, cognizant that prolonged
fiscal expansion has exerted pressure on the stock of international
reserves held at the Bank of Namibia and also, to some extent, on the
liquidity position in the domestic market.
To this effect, Government has commenced with the Mid-Year Budget
Review, in line with the commitment made during the tabling of the
FY2015/16 Budget. The review will allow Government to identify internal
savings during the current fiscal year and also to align the outer years of
the Medium-Term Expenditure Framework (MTEF) to the revised macrofiscal outlook. I intend to table the Medium-Term Budget Policy and
Budget Review proposals at the end of October, 2015. I thus invite the
public to embrace the Mid-Year review as a platform for enhancing the
quality and targeting of expenditure, greater openness and participation
in the budget process so that the input provided feed into the formulation
of the budget and MTEF for the ensuring year.
4.4 Domestic liquidity conditions and financing of the budget deficit:
The effects of increasing supply of credit to finance household and
Government borrowings have benefitted from domestic financing by the
local financial markets over time. This means that there is, to some
extent, less liquid assets available to support increased borrowing
activity, especially in the context of expected turns on assets elsewhere.
This, however, does not take away the fact that substantial domestic
capital continues to flow out of the country. If capital can still flow out of
the country in substantial sizes, the claim of credit drying up needs to be
fully substantiated.
Let me, however, state that for each budget year, Government formulates
a Borrowing and Deficit Financing Strategy that satisfies the borrowing
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needs and mitigates risks. For the FY2015/16, the Government has
successfully funded the budget deficit from both the domestic market
and regional markets. For the record, the Government has managed to
source funding from the domestic market up to 50% of the FY2015/16
fiscal year’s budget deficit financing needs. As stated, while the domestic
capital market claims to be less liquid to support domestic borrowing
needs, capital continues to flow out of the country unabatedly. Certain
local capital markets investors go as far as being excessively speculative
with over- price offers only to claim being overlooked when market
diversification provides better avenues for raising capital. For these
reasons, local auctions placed in September this year were
undersubscribed under the guise of credit having dried up.
Nonetheless, the Government has successfully funded 61 percent of the
budget deficit through a combination of local and foreign sourcing, of
which about 17 percent is earmarked for boosting the country’s foreign
reserve position by borrowing on the South Africa market. Government
will persist in its prudent execution of the Financing Plan to address the
remaining needs. Government will also pursue other domestic policy
options and leveraging alternative innovative funding means in order to
alleviate pressure on the budget. We have issued the Rand denominated
bond on the Johannesburg Stock Exchange (JSE) and will proceed to
issue a Eurobond in the international market in support of these
objectives. These instruments will be issued on the back of the proven
financial strength of the Government.
4.5 Stock of international Reserves: Increasing private investment,
especially in the mining sector, high investment in construction and
imports of especially luxury goods has led to the relatively low level of
international reserves. In practical terms, however, the reserves situation
should not be overstated. The current reserves level is three times more
than sufficient to support the currency peg of the Namibia dollar to the
South African Rand.
Furthermore, the Government has taken active steps to boost the foreign
reserves position as stated above. We have also taken comfort of the fact
that key private sector projects such as the Swakop Uranium will
commence with production and export phase, while others will also
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expand exports in the coming year. The reserve stock at the Bank of
Namibia is further supplemented institutional investors.
Conclusion
The recent spate of commentary on the macro-fiscal status of the country
and Government financial operations often fell short of recognizing the
policy actions being implemented. In particular, the concerns raised
about the “drying up of liquidity” in the domestic market do not go as far
as indicating that capital is still flowing out of the country, in spite of the
presence of secure investment instruments such as Government bonds
and Treasury Bills.
Government is satisfied that over 60 percent of the deficit financing needs
is already met half-way through the budget implementation phase, with
the remaining funding needs to be raised over the remaining calendar in
line with the cash-flow needs.
We have already commenced with the Mid-Year Budget Review to
enhance the quality of spending and align the spending proposals to the
dynamic macroeconomic environment. The outcome of the review will be
announced in October, 2015.
The necessary foreign reserve position will be achieved through the
execution of the deliberate Financing Plan and increased benefits from
increasing exports and domestic productive capacity initiatives.
The Government, therefore, wishes to reassure the public that
macroeconomic stability, fiscal prudence and sustainability remain key in
the conduct of Government fiscal policy and economic management. Our
policies will remain robust, pro-growth, pro-poor, pro-business and in
support of the national development agenda in a dynamic and integrated
global economy.
Thank you.
-----------------------------Calle Schlettwein, MP
MINISTER
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