Analysts hail ‘reasonable budget’

02 April 2015 Author   André le Roux

front calle 02 aprilAnalysts have welcomed the 2015/16 national budget that was tabled in parliament on Tuesday by the new finance minister Calle Schlettwein. “Generally speaking, at first glance it looks like a very reasonable budget,” IJG Securities’s chief research analyst Rowland Brown said this week.

 

Schlettwein announced that Government expenditure is set to increase to N$67.08 billion in the new financial year, up 11.6% when compared to 2014/15 and up 4.7% when compared to the previous estimates for 2015/16.

Of this, N$63.2 billion is non-interest expenditure while just under N$4 billion will go towards servicing the interest costs of Government debt.

Stefan Hugo, tax leader at PWC Namibia said the budget had few surprises in the form of the old age pension grant that increased to N$1,000, free education relating to primary and secondary schools and heavy investments in infrastructure development.

“The main motto coming out of the budget related to combating poverty and the drive to grow the economy.

“Other focus areas included transforming the Namibian economy, through job creation, improving the quality of education and skills development, tackling poverty, wealth creation, efficiency in public service delivery and a strong emphasis placed on safety and security with a second largest budget allocation after education,” Hugo said..

FNB Namibia’s manager research and competitor intelligence, Namene Kalili said Wednesday that although he was initially excited about the budget it was nothing spectacular.

Positive takeaways that Kalili had from the budget were free primary and secondary education as well as fiscal alignment.

“On reading of the budget I realised that there was no paradigm shift and that we are not on the right trajectory to reach the goals of Vision 2030,” Kalili said.

He said that Namibia’s current projected growth rate, which Schlettwein Tuesday estimated at 5.3 percent, is disappointing.

“This while there is rising expenditure and persistent deficits. Though these deficits are moving sideways, the debt ceiling of government gives no room for movement. It seems as though there is no long term plan and that the budget is adjusted yearly as pleases,” Kalili said.

He was also not pleased with the rise in social grants and proposed that government should rather do means research to establish who the beneficiaries should be.

Kallili also considered the massive allocation to the Kudu gas to power project a bad investment and proposed that solar power alternatives should be found.

Schlettwein responded that the social grant scheme is at the moment easier to administer.

“You seem to be the only one that is unhappy with the increase,” he said.

As to Kallili’s claim that Kudu is not worth the investment, “the minister said: “We require power generation where we can have a base load that support both off-peak and peak demand. If you ask our neighbours in South-Africa if they are happy with the current implementation of load shedding they would say no.”

Brown however took a different view of the intended infrastructure spending.

“While it is impossible to change the focus of Government spending overnight, and expenditure will remain heavily slanted towards wages and salaries, a number of positive focus areas were mentioned by the minister,” Brown said.

Notable amongst these was the allocation of N$4.93 billion over the MTEF to support the Kudu gas-to-power project.

He said the N$3.27 billion allocated to road construction should be viewed as a positive, as should be the continued dominance of education as a recipient of Government funds.

“Disappointing, however, was the huge expenditure on the lacklustre Green Scheme, which dwarfed the far more urgent need for housing and allocation to the mass housing project.

“A relatively paltry N$1.25 billion was allocated over the MTEF for the mass housing project, while a massive N$7.75 billion was allocated to the green scheme. Equally disappointing is the small allocation to railway development, a key part of the NDP4’s logistics focus,” Brown said.

“In addition, the huge allocation to defence, making it the second largest recipient of funds second only to Education, is hugely disappointing, but not altogether unsurprising. Defence spending now outstrips health spending, a very poor use of finite funds.”

On the revenue side, he said more realistic revenue growth forecasts of around 9% per annum are a relief as they reign in spending somewhat.

Analysts said the awareness by the finance ministry as to the potential slowing of growth in SACU receipts, and the possibility of a contraction therein is also a relief.

They said this illustrates a level of realism and a conservative approach to budgeting from the new minister, which will be viewed as positive by the private sector and rating agencies alike.

The notable tax developments during the current fiscal year are the reduction in corporate income tax to 32% (from 33%) as expected, as well as the reduction in withholding tax on services rendered by non-residents from 25% to 10%.

The projected budget deficit of 5.3 percent of GDP is largely in line with expectations, however it is on the high end given the extended period of expansive fiscal policy seen in the country since 2011.

The deficit is expected to be reduced in the latter years of the MTEF, although such forecasts are usually unreliable if history is anything to go by.

Total debt is projected to increase to an average of 31.5% of GDP over the MTEF, below the 35% threshold, but still high compared to five years ago when the level was little over 16%.

Nevertheless, the value is extremely low by global standards.

However Brown said caution must be exerted in this regard given the lack of diversification in the local economy and its exposure to commodity prices.

Contingent liabilities are projected to increase to an average of 8.7% over the MTEF, below the 10% benchmark.

“This increase is notable, however, it is most likely to drive local development, given the projects being guaranteed by Government and as such is viewed as a positive,” Brown said.

The sovereign guarantees in the pipeline include the construction of a dual carriage between Windhoek and Okahandja, the construction of the national fuel storage facility, fuel pipeline and the fuel offloading jetty at Walvis Bay, and guarantees for the Kudu gas-to-power project and the mass housing programme.

“Most encouraging, however, is the tone and rhetoric in the budget speech, which emphasizes the need for various reforms, expenditure reviews, an outcome focus and ultimately, greater accountability,” Brown added.

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