2021 Namibian Budget
Last Wednesday, The Honourable Ipumbu Shiimi, the Minister of Finance, tabled the Government's budget for the financial year. This was no easy task as income is severely under pressure, expenses need to be cut, and all amidst a high debt burden. Our economy shrunk by 7.3% in 2020, which indicates the impact of, amongst other things, the COVID-19 pandemic. Of course, we expected a budget deficit, the only question everyone was asking was how big the budget deficit was going to be. There were fears that the deficit would be at 12.5% of our GDP for this financial year, but it now seems that it will come in below 10% which is a relief. However for the coming year, government predicts that the deficit will be at 8.6% of GDP and thereafter to decline to reach 5.5% by 2024.
The expectation is that the economy will grow in real terms over the next three years by 2.1%, followed by 2.8% the year after and then 3.4% in 2024. These appear to be conservative estimates. Another positive was that real income for the current year is expected to be higher now than was predicted last year. However, the coming year's revenue will continue to be less than the previous year by 6.1%, primarily due to lower income from the SACU pool. The minister was tight on expenses with overall expenses N$4.9b (or 5.7%) less than the previous year.
The Government will need to source funding from local and foreign sources to make up the budget deficit. At this point, the expectation is that Government's foreign debt, the EURObond of around N$8b, will be rolled over when it is due later this year. Furthermore, the expectation is that the Government will acquire around N$20b of local debt in the coming year. Total debt is expected to reach N$140b at the end of this year which is 76% of GDP in 2022 and then moving higher, with an anticipated peak of 85% of GDP in 2026 before declining.
Other notable information is the recommended tax amendments. Withholding tax of 10% on dividends will be introduced and VAT will be levied on listed asset managers. On the positive side, non-mining corporate tax is expected to decrease later this year. MTC will also list this year which should generated around N$1.5b.
Worrying is the high-income expectations outside of the SACU pool of 12.4%, whilst this year shrank by 15.9%. There is an expectation that expenditure should return to levels before COVID and that the significant state wage figure will remain. Another worry is the N$8.6b to service the debt burden while only spending N$5.6b on development. The budget's success depends largely on how the economy recovers over the next 3 to 4 years, how strict government can control expenses and unnecessary outflows and the efficiency of revenue collection. Keep an eye out for Government's economic recovery plan which is to be released soon.