Is Namibia’s austerity plan working?
Public debt is fast rising despite deep spending cuts while food prices and the number of jobless continue to rise
After three successive years of unabated economic decline and despite deep spending cuts to the public sector to reduce government expenditure, Namibia’s debt burden shows no sign of easing up.
The latest economic report of the Institute of Public Policy Research (IPPR) shows that after ten quarters of economic contraction, state revenue is falling while public debt and the interest payments thereon are rising.
The debt spiral
Namibia’s public debt rose from N$35.9 billion in 2014/15 to N$96.3 billion in the present financial year. Public debt relative to the country’s GDP nearly doubled from 25.5% to 48.9%, although public spending fell over the same period from 41.6% of GDP to around 33.8%.
The interest on debt repayments meanwhile tripled from N$2.1 billion to N$6.4 billion (11% of GDP) over the same period.
While spending declined relative to GDP, the country’s gross domestic product has been contracting steadily for nigh on three years. Despite tightfisted fiscal policy and austerity measures, which have cut the already sparsely funded public sector to the bone, government revenue nevertheless continued to shrink from 35.4% of GDP in 2014/15 down to 29.7% in the current year.
Lacklustre economic performance
The IPPR said: “With the global economy weakening, lacklustre performance in Namibia’s principal neighbours, South Africa and Angola, non-mining private investment lacking and public finances in a parlous state, it is hard to see which elements of aggregate demand are going to pull Namibia’s economy out of its current depressed state.”
The IPPR in part blamed government’s weakened financial position on the exigencies of state-owned enterprises. Though it did not prescribe what is to be done, it said:
“The current Cabinet has dithered over poorly performing public enterprises, arguing that the Public Enterprises Governance Act needed to be put in place before action could be taken. The Act is now in place and key public enterprises and SOEs are reaching the point where continued bailouts can no longer be contemplated, if for no other reason than lack of finance.”
The report cites the Namibia Statistics Agency (NSA)’s preliminary national accounts for Q2 2019, which showed that the economy contracted by a further 2.6%.
“The contraction in Q1 was revised from 2.0% to 2.9%. Namibia’s economy has not experienced consecutive contractions of such magnitude before.”
‘Growth crashed in 2016’
“Quarterly growth crashed in Q2 2016 and has not recovered since. The latest estimates show GDP contracted by 2.6% in Q2 2019 while the contraction experienced in the first quarter of the year was revised from -2.0% to -2.9%.”
By contrast, despite “a contraction of 3.1% in the first quarter, South African GDP grew by an annual rate of 3.1% quarter-on-quarter in Q2 2019.”
The Bank of Namibia also adjusted its economic growth forecast in 2019 downwards to an expected decline of 1.7%, “from the marginally positive growth of 0.3% [projected] earlier in the year.”
On a more hopeful note, the IPPR cited an IMF growth forecast for Namibia of 1.6% next year “after an expected contraction of 0.2% this year.”
Credit crunch and price inflation
On the money markets, indications are that the banks are reluctant to lend in the current climate.
“Credit growth to domestic businesses fell steadily from a peak in 2015 to a trough towards the end of 2017 but has since recovered, reaching 11.2% in May 2019. At the same time credit growth to households, including residential mortgages, has fallen steadily to 7.8% and 6.9% at the end of May 2019,” the IPPR report noted.
“In August, the Bank of Namibia’s Monetary Policy Committee cut the repo rate from 6.75% to 6.50% following signs of weaker than expected growth and the South African Reserve Bank’s actions in July. This is the first change since August 2017.”
Namibian consumers have not been spared the burden of rapid and chronic price rises, which “started to rise steadily from 3.6% at the beginning of 2018 to peak at 5.6% in November, since which point it has subsided reaching 3.7% in August 2019.”
The closure of the famous Warehouse Theatre this week is symptomatic of the fact that consumers are hard-pressed for disposable cash and are having to economise. Many businesses in turn are struggling to pay their bills and are resorting to laying off workers or shutting up shop.
Rising unemployment is one of the manifestations of the deepening economic crisis, which some have argued should properly be regarded as an “economic depression” and not a mere quarterly recession.
The labour statistics marshaled by the IPPR show that employment in the private sector fell from a high of 245,437 in 2014 to 214,693 in 2018. The number of people working in private households also fell by almost half from 136,417 in 2016 to 70,036 in 2018.
Over the two-year period from 2016 on the total number of people in (non-government) employment declined from 486,273 to around 401,970.
Thus by all indications, it would appear that the prescribed medicine of austerity and deep budget cuts is having a disastrous effect on the health of the national economy, much of which is dependent on state spending.
The austerity measures seem to be gaining the nod of approval of investors, because despite these worrisome socio-economic trends, IPPR on Wednesday also cited the latest World Economic Forum report, which said Namibia had climbed several places in terms of business competitiveness.
“The World Economic Forum’s Global Competitiveness Report 2019 has just been released. Namibia has climbed 6 places to 94th. “The country’s score has improved by 1.8 points to 54.5,” it said.
But for the tens of thousands of people who lost their jobs over the past three years and the many bright-eyed youth who see little prospect of finding work, for the many who cannot afford decent shelter or adequate food, that consolation from the World Economic Forum may not be quite enough.