2017 budget should be anchored on fiscal sustainability

Windhoek-Twilight Capital Consulting's Managing Director, Mally Likukela, has urged government to consider a paradigm shift in the national budget by anchoring the budget on fiscal sustainability.

His call comes as preparations for the 2017 National Budget gather momentum and greater participation by various stakeholders becomes evident.

"The budget as a tool through which government sets out priority programmes for economic transformation and builds shared prosperity, fiscal sustainability remains a prerequisite for its effectiveness today and tomorrow.

"At a time when government is faced with mounting public debt, fiscal sustainability as guiding post for the affordability of government taxation and spending programmes, should serve as the backbone of budgeting," he said.

Likukela highlighted that in simple terms, fiscal just referred to government spending and investing activities and how it financed these through taxes, debt and other liabilities.

Sustainability meant having the ability to maintain or support government programmes in the future.

"So, emphasising fiscal sustainability will ensure that the government is able to maintain current policies without major adversity compromising the future affordability," he said.

Likukela noted that the 2017 national budget comes at a time when government is cash-strapped, faces mounting public debt and public discontent, amongst other economic and social challenges.

"These developments have increased uncertainty and led to negative expectations, thus making the 2017 national budget a special case.

"The budget is thus expected to demonstrate practicality and clarity on how government will prevent a collapse of the economy during the next 12 months and beyond," he said.

Government needed to steer the economy in the right direction, far away from an economic recession and send a convincing message to rating agencies that it was in control.

Given the heightened debt crisis, it remained crucial for the 2017 budget to address fiscal sustainability first and foremost.

He noted that Namibia's public debt grew by N$50 billion from 2010 to 2016, sparking fears among many Namibians over the sustainability of this debt stock.

In this regard, he feels the budget should paint a clear picture that shows how government will prevent exposing future generations to high debt servicing costs.

The budget further had to contain resolutions dealing with hard decisions because managing fiscal sustainability would not come without hard decisions or fiscal rules, and in fact needed generational sacrifice.

Government needed to adhere to fiscal rules, which simply referred to statutory or constitutional restrictions that set specific limits on fiscal indicators such as budgetary balance, debt, government spending, or taxation at all costs.

These rules were critical for government to demonstrate that it would honour commitments made.

"In the face of dwindling SACU revenues and low expected domestic tax revenue, achieving fiscal sustainability will require that government tightly match revenue to expenditure in order to avoid defaulting on international debts," Likukela said.

He noted that with international agencies having already raised serious concerns regarding public debts, defaulting on international debt would have a negative impact on the country's fiscal profile with far-reaching implications for the economy's ability to attract foreign direct investment (FDI).

Therefore, he suggested that the budget needed to spell out debt ceilings to avoid digging new holes to fill old ones.

Achieving this, he said, required government to make tough decisions not only on non-essential expenditures, but also on expensive vehicles, resource wastage and corruption.

Stable economic growth

In his view, it had become clearly evident by now that the country would have revise 2016/17 growth downward and that the outlook remained gloomy.

The 2017 budget therefore should aim to inspire sustainable economic growth that is supported by a culture of productivity and results-based orientation in which expenditure should be matched with results or returns," Likukela said.

Tax Regime

To drive sustainable economic growth, Likukela noted that government should also create a prudent fiscal position that obviated pressure for future tax increases.

The 2017 budget needed to provide a stable tax regime that would attract investors while driving existing and new business towards value creation and productivity.

Furthermore, he said, it was critical for the 2017 budget to create an enabling business environment for new investments that would bring new jobs, hence broadening the tax base rather than increasing taxes on already struggling companies.

Responsible Investment

The Bank of Namibia estimated that over the next five years or so Namibia would require more than N$220 billion to finance needed infrastructure projects in the country.

Of this amount, the highest requirement should go to rail, energy, housing and port infrastructure.

"While a lot of effort has been made in trying to attract FDI and raise funding for this purpose, the 2017 budget needs to reiterate these efforts and move a step ahead - it should not be business as usual.

"Experience elsewhere has shown that investing in infrastructure makes the country an attractive investment destination.

"Responsible investment enhances the country's investment profile while motivating locals towards productive and sustainable economic development," he added.

Approximately 15.7 per cent of the 2016 national budget went toward the economic and infrastructure sectors, but the feeling was that this still fell way below the level required to propel Namibia's economic growth to high and sustainable levels, as envisioned in the Fourth National Development Plan (NDP 4).

Therefore, the 2017 budget needed to reflect a sustainable national investment profile supported by responsible investment values".

Sustainable private sector

Likukela pointed out that much had been said about the private sector's impact on national competitiveness as reflected in the global competitive reports about Namibia's rankings.

According to the 2016-2017 Global Competitiveness Report of the World Economic Forum, Namibia now ranked 84th.

In Sub-Saharan Africa, Namibia ranked at number five in competitiveness after Mauritius, South Africa, Rwanda and Botswana, while in the overall continental ranking Namibia ranked sixth, with Morocco at number five.

"It's crucial that government, through the budget, sets aside resources for monitoring and driving private sector competitiveness besides providing rescue packages.

"The 2017 budget should outline a national plan and vision for developing and driving policies for the private sector that embed corporate sustainability and sustainable business practices.

"As such, the budget needs to reflect ambitions to build a competitive and sustainable private sector that is driven by international best practices and values," Likukela urged.

Economic Diversification

He continued that many countries, including Namibia, were bearing the pain of depressed mineral prices, having placed too much hope on the mining sector.

"Economic diversification is vital to a country's long-term economic growth, but many resource-rich countries, including Namibia remain heavily reliant on revenues generated by mining and very few sectors.

"The 2017 National Budget must be a tool to help Namibia diversify and avoid a national economy that is built on one sector.

"A multiple sector approach to fiscal revenue embedded in the budget is crucial as it provides an avenue for different sectors' contribution to the fiscus.

"As already identified in the Vision 2030, it will be crucial to promote priority sectors like agriculture, manufacturing, tourism and finance services in addition to mining," he stated.

Cabinet and Legislature size

Apart from re-looking the non-essential expenditure items, Likukela suggested that government should also look at the size of cabinet and legislature and the composition of the executive.

"The number of ministries, ministers and deputy ministers as well as executives is simply too high.

"If a standing committee of its political bureau with a sizable number of members can run a large country such as China successfully, then Namibia does not need all those ministries and numerous advisors to run a small population and even smaller economy.

"A restructuring of the executive is, therefore, called for as a matter of principle in the 2017 budget and all savings from trimming the bloated executive and legislature should be channelled towards more pressing needs of the country," he concluded.

Source: New Era Newspaper Namibia