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Business / Economics

Budget 2024-2025 Review: Building Resilience for Growth and Diversification

todayMarch 4, 2024 7

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By Josef Kefas Sheehama

A number of controllable reforms must be implemented in addition to the macroeconomic framework. Prudent and credible monetary and fiscal policy, a sound financial system, and adherence to the law are the cornerstones of economic growth. To do this, bold measures must be taken to boost confidence, encourage investment and the creation of jobs, lessen economic inequality, and remove regulatory obstacles.

First and foremost, I would like to thank the Honourable for presented Namibia with its largest budget totaling 100.1 billion Namibia dollars. Congratulations to Minister Iipumbu Shiimi, the Finance and Public Enterprises Minister, on a job well done! Your work is truly appreciated and deserves a hearty round of applause! I appreciate that you implemented corporate and individual tax reforms and gave the youth a meaningful budget that produces value for society by addressing challenges, positioned to sustain, compete, and thrive in domestic markets. Private-Public Partnerships and collaborations that show clear benefits for business and society are important ingredients to restoring trust in government.

Gross revenue estimated to grow at an average pace of 11.5 percent to reach N$90.4 billion in FY2024/25 and N$ N$93.6 billion by FY2026/27, underpinned by the receipts from the SACU Customs Revenue Pool and strengthening domestic revenues as the economy recovers. Expenditure maintained at N$ 74.6 billion or 8.8% in 2023/24 financial year. Fiscal deficit is expected to decline by 3.2 percent of GDP. Crucially, this reflecting continued commitment to fiscal consolidation and sustainability. Gross government debt (total debt stock) increase to N$165.8 billion, or 60.1% of gross domestic product (GDP) during FY2024/25. Therefore, the 2024/2025 Budget speech by Hon. Minister Ipumbu Shiimi, as cautiously indicating government’s commitment to continued gradual fiscal consolidation, which provides much needed fiscal policy certainty and sustainability.

In my view, that the extent to which government is able to achieve fiscal sustainability will be dependent on implementation of expenditure curb and accelerated growth-enhancing reforms. This is critical for supporting the ongoing fragile economic recovery and should counteract the negative impact of several headwinds, ranging from higher energy, geopolitics and food prices to a relatively less accommodative interest rate environment. Government is determined to implement reforms aimed at stimulating demand through investment in infrastructure; employment programmes and tax incentives that should boost consumption; easing the skills constraints; and modernizing network industries, which should ultimately lead to increased productive capacity.

To achieve higher living standards, Namibia needs to adjust to global market demand. Climate change is starting to shape the manner in which the largest markets regulate imported and domestic products. Climate challenges also represent opportunities to generate new economic activity. Jobs and investment can be created by drawing on private-sector skills and capital, while demand for carbon-intensive products can be managed with incentives and penalties. Industrial policy should support businesses that can respond to these challenges. Future-focused policy that takes cognizance of climate change would support efforts to raise youth employment, as announced in National Budget, in sectors such as business-process outsourcing, agriculture, tourism and technology.

Weak domestic demand continues to limit businesses’ ability to pass higher prices on to consumers. There is a risk that higher administered prices and exchange-rate depreciation could put upward pressure on inflation. In line with government’s commitment to fiscal sustainability, the 2024/2025 Budget proposes a set of spending in sectors which will improve employment opportunities, and maintain good budget execution. Although local economic development projects often focus on small areas, they usually require collaboration among stakeholders across government, the private sector and community organizations to succeed.

The financial performance of several large State-Owned Enterprises (SOE’s) continued to deteriorate sharply over the past years, leading to an increasing drain on public resources. Unlike their private counterparts, most State-Owned Enterprises hold developmental rather than profit-driven mandates. Nonetheless, these entities need to be financially self-sustaining. In recent years, a pattern of mismanagement and poor governance at major state-owned companies has led to operational failures, financial distress and increased demands for taxpayer support through the national budget. This problem is compounded by broad, sometimes unfunded mandates and, in some cases, outdated business models. Increasingly, however, these entities rely on external funding, government-guaranteed debt and bailouts to sustain operations.

To resuscitate the Namibian economy would require massive investment in infrastructure, skills and training; enacting and enforcing enabling-business incentives to stimulate production of goods and services for local consumption and exports and having a clear fiscal and monetary policy direction for the economy. The Namibian economy, in its current configuration, is characterized by a lack of diversification. Having well-diversified economies in terms of employment, trade, government revenue, and growth sources is essential to their resilience. Furthermore, it is estimated that 70% of the Namibian population depends on agriculture in terms of employment, income and food security. Agriculture plays an important role in the process of economic development and can contribute significantly to household food security. In order to improve the agricultural sector the government provides more funding for agricultural tertiaries carry out researches on all areas of agricultural production this will lead to more exports and improvement in the competitiveness of Namibia agriculture production in international markets. But if this is not the government’s priority, the result is that the agriculture sector registers growth but this growth has little or no impact on poverty. Thus, agricultural growth provides opportunities for the poor to increase their incomes. Whether the poor can seize these opportunities depends on their education and health amongst others.

The Ministry of Agriculture, Water and Land Reform has been allocated N$1.9 billion which is not enough. Namibia has about Eleven (11) green scheme projects. More importantly, the majority of the Namibia’s poor live in rural areas and depend upon agriculture for their livelihood. Agriculture is therefore critical both for economic development and poverty reduction. Therefore, investing into agriculture is one of the most important government instruments for promoting economic growth and alleviating poverty in rural areas.

To this end, Namibians can benefit from the good jobs and economic growth that will come with it. We need to make smart decisions today. We need to attract more investment in the industries that are creating good middle class jobs for Namibians. We need to make our economy more resilient by strengthening our SME’s, ensuring our businesses can get their goods to market, and making sure Namibians are able to buy the products they need.

Therefore, we need to make our economy more innovative and more productive and we need to make it easier for businesses, big and small, to invest, grow, and create jobs in Namibia.

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