Reply_by_the_Minister_of_Finance_on_the_Second_Reading_of_the_2020_2021_National_Budget :: COVID-19

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Reply_by_the_Minister_of_Finance_on_the_Second_Reading_of_the_2020_2021_National_Budget

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Reply_by_the_Minister_of_Finance_on_the_Second_Reading_of_the_2020_2021_National_Budget

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Republic of Namibia

Ministry of Finance

Reply by the Minister of Finance

On Matters Raised during the Second Reading of the

2020/21

Appropriation Bill

and the

2020/21 Expenditure Framework

Ipumbu Shiimi, MP

Minister of Finance

05 June 2020

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Honourable Speaker,

Honourable Members,

1. I rise to respond to the questions, comments and matters

raised during the Second Reading of the

2020/21Appropriation Bill and Expenditure Framework.

2. At the on-set, I would like to thank the Honourable

Members and the political parties who have taken the floor

and made contributions on the budgetary policy framework

and the specific budget allocation proposals.

3. I appreciate the fact that there is a general convergence that

providing targeted resources to the national interventions to

contain and defeat COVID-19 is a necessary and urgent

objective at this point in time. It is a necessary condition

for our preparedness to gradually opening up the economy

and trade during these unprecedented times.

4. Equally, I appreciate and concur with the emphasis made

that going forward, we must greatly enable the economy

and its productive capacity in order to bring about inclusive

growth, job creation and the improvement of the living

standards of all Namibians. This is to be built on the

successes we have made and the lessons learn from the

developmental challenges we are facing and tackling.

5. Honourable Speaker, the questions posed and contributions

made refer to various aspects of the Appropriation Bill and

the Expenditure Framework. I will respond to these

questions and proposals from the thematic perspective and

the sub-themes in which these matters fall.

6. The main sub-themes for the various interventions are in

regard to the (i) proposed budgetary allocation priorities,

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(ii) the fiscal incidence on socio-economic development in

such fields as health, education, land-servicing and

housing, (iii) reviving the economy, supporting SMEs and

undertaking the necessary reforms such as agrarian and

land reforms, (vi) macro-fiscal projections and debt

management strategy and (iv) budget allocations to, and

allocative efficiency within the various Offices/Ministries

and Agencies, especially the allocations to the agricultural

sector.

7. As I respond to these broad thematic aspects raised, I may

not cover each detail pertaining to specific funding

proposals for programmes under the various Budget Votes.

I would rely on my Cabinet colleagues to provide specific

details on the various programmes at the Committee Stage.

8. Let me now go to the specifics of the main matters raised.

Budget Allocation Priorities

9. Input was provided that the allocation priorities of the

FY2020/21 Appropriation Bill do not reflect the

developmental objectives and the underlying theme of this

budget, that is, “Together Defeating COVID-19, Together

thriving again”. This input featured prominently in the

contribution by Honourable Members.

10. Honourable Speaker, while the relative budgetary

allocations are subject to realignment over time, it should

be noted that the key development priorities for Namibia

lie in balancing the needs of social sector and that of the

other sectors such as the economic sector to bring about

improved quality of life, economic diversification,

inclusive growth and shared prosperity within

environmentally sustainable manner.

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11. In the social sectors, human capital development, skills

formation and the provision of basic amenities are

fundamental to addressing the triple challenges of

unemployment, poverty and income inequalities.

12. There is, therefore, no contention that social sectors have

historically received, and continue to receive, the highest

share of the budgetary allocation. This priority allocation is

retained in this budget, whereby 49.5 percent of the total

non-interest expenditure is allocated to the social sectors.

This, among others, reflects the scaled-up allocations to the

health sector to enable us to better respond to the COVID-

19 pandemic. There is, therefore, no misstep in ensuring

that the largest share of the budget is accorded to

addressing challenges in the social sector.

13. The allocations to the social sector include, among others,

provisions for social safety nets, ranging from Old Age

pension grants, Orphans and Vulnerable Children grant.

Funding has also been provided for Mass Land Serving,

sanitation and affordable housing.

14. We continue to make progress in this regard:

 Absolute poverty is more than halved, from 41

percent in early 2000s to 17.4 percent of the

population by 2015/16. Extreme poverty has reduced

to 10.7 percent.

 The Gini Coefficient ratio is estimated at 0.56,

compared to 0.70 in the 1990s. However, we

acknowledge that the level of inequalities remains

high relative to aggregate income levels and requires

more concerted efforts to address it.

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 Access to education has increased to a large

percentage of the population and so does access to

primary health and potable water. Namibia is a

recognized globally for having responded

purposefully to the HIV and AIDS pandemic,

 Life expectancy of Namibians has improved to 59

years, reflecting dividends from investment made in

various dimensions of Human Development Index.

15. While unemployment and income inequalities still remain

structurally high, we have been able to roll-out an extensive

social safety nets program and improve incomes through

growth to propel Namibia into the legion of Upper Middle

Income Countries.

Honourable Speaker,

16. The economic and infrastructure sector is allocated the

second highest funding in this budget, at 23.2 percent of

total non-interest expenditure. This underpins the

importance placed on economic growth as a necessary

condition for poverty reduction and job creation. The

completion of the new Container terminal at the Port of

Walvis Bay has, for example, expanded the Port container

and cargo handling capacity, thus adding to our national

competitiveness and logistics hub advantage.

 On-going infrastructure projects are funded within the

Development Budget,

 Off-budget project financing is deliberately undertaken to

invest in growth enhancing infrastructure in the rail, road

and port infrastructure. This is, for instance, with particular

reference to the AfDB-funded projects for agricultural

mechanisation program, rail and road infrastructure

rehabilitation, public schools renovation and the bulk

water infrastructure rehabilitation program. In addition,

this budget avails an amount of N$929.2 million to the

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water sector to complement AfDB (N$1.8 billion and the

envisaged KfW funding amounting to N$800 million).

 In the energy sector, Nampower has unveiled its

investment program in wind and solar energy generation

and distribution, with investment of no less than N$10

billion envisaged over the next three years.

 Specific funding continues to be made to elevate the role

of the SME sector in the economy, job creation and wealth

generation. Following the closure of the SME Bank, the

SME window was transferred back to the Development

Bank of Namibia. An SME Financing Strategy was also

rolled-out last year to provide for the Credit Guarantee

Facility, Mentoring and Coaching Program and eventually

the Venture Capital Fund. These suites of SME product

offerings are targeting youth entrepreneurs covering both

professionals and artisans. Funding and Government

guarantees are provided in this budget to support DBN

loan book offerings to the SME sector and arrangements

for the implementation of this programme is at an

advanced stage.

17. Some Honourable members are concerned about the

relative allocations to the agricultural sector. I would like

confirm that over the years, Government has invested

heavily in this sector. For example, the amount of money

invested in the green schemes and the recently completed

Neckartal Dam, an investment of N$5.6 billion, are cases in

point, just to mention a few. What needs to happen now is

to ensure that these assets are functioning at full capacity

for the country to reap the necessary benefits of these

investments.

18. I should also mention that although more governments

investment in agriculture are needed to unlock private

sector investment and domestic productive capacity, we

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should not lose sight of the fact that agriculture is a

commercial activity and therefore greatly benefits from

commercial funding through Agribank and commercial

banks. Hence, one may not see the whole picture if the

focus is only on the budget of the Ministry of Agriculture,

Water and Land Reform.

19. In this regard, increased funding and a Government

guarantee package is deployed to AgriBank to support

activities in the agricultural sector. Over the past three

years, AgriBank has extended up to N$1.0 billion of loans

to farmers in various regions of the country, thus greatly

enabling economic activity in the agricultural sector.

Drought relief disbursements amounting to N$245 million

has also been provided by AgriBank over the past year. I

should hasten to say that those who are enjoying these

loans have a fiduciary and moral duty to pay back these

loans because a failure to do so would weaken the very

institution we created to support agricultural production

and agronomy in general. Honourable speaker, such people

will not enjoy my support.

20. Equally commercial bank loans to Agriculture over the

past five years have averaged in excess of N$4 billion,

indicating a healthy flow of funds to this sector

Reviving the economy and implementing structural

reforms

21. As I stated in the Budget Statement, it is material that we

identify evidence-based high growth investment

opportunities in various sectors of the economy to be

incorporated in the next Medium-Term Expenditure

Framework and articulated in the 2020 Mid-Year Budget

Review Policy Statement. His Excellency, The President

has provided high-level policy guidance on the building

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blocks of the medium-term Economic Recovery Plan in his

State of the Nation Address yesterday to include “regaining

fiscal stability, structural economic reforms, public sector

reforms and improving productivity”.

22. I have alluded to such reforms in the Budget Statement,

taking into consideration the work done by the High-Level

Panel on the Economy. We have, therefore, not missed the

opportunity for the reform. A considerable body of reforms

have been articulated, for which practical considerations

have to be made to enable implementation.

23. The contributions made during the Second Reading of this

Bill are welcome input in the reforms ahead. We, however,

need to quantify these proposals and package these for

implementation.

24. On the question for how long must the fiscus continue to

experience funding erosion through PSEMAS before

something tangible is done, we are taking steps to reform

PSEMAS as announced in the budget statement, but proper

consultation is needed before these reforms are considered.

MACROECONOMIC-FISCAL PROJECTIONS

25. Honourable Speaker, let me now address the concerns

raised about the macro-fiscal projections underpinning the

budget and the plausibility of the assumptions thereof.

26. In this respect, I wish to state that the detailed assumptions

underpinning macroeconomic and revenue assumptions are

published in the Fiscal Strategy for the MTEF. Such

assumptions are informed by rigorous assessment of the

domestic economy, input by industry and professional

bodies and take into account regional and global economic

assessments.

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27. The revision of the economic outlook and the

corresponding revenue envelope are not only specific to

Namibia.

28. All economies are affected by the fallout from COVID-19,

adversely impacting on nominal GDP, real GDP growth

and revenue outturn and necessitating periodic review:-

 Globally, what was anticipated to be 3.4 percent

growth has turned into a contraction and economic

slump only last seen during the Great Depression in

1930s,

 At home, given the openness of the domestic

economy and the subdued economic activity over the

past three years, GDP and revenue growth are

accordingly revised downwards for this year and over

the medium-term,

 The determining factors on the GDP outturn relative

to forecasts over the previous MTEF are explained by

the revisions made to the National Accounts as well

as the current impact arising from COVID-19.

 For instance, the Preliminary National Accounts for

2018 placed nominal GDP for 2017 at N$180.6

billion and for 2018 at N$192.1 billion. These

estimates were 5 to 7 percent better than the budget.

However, the subsequent downward revisions in the

National Accounts necessitated corresponding

review, including downward revisions in the revenue

outlook.

29. Honourable Swaartbooi has raised a concern on the

relevance of establishing the Namibia Revenue Agency.

This is, Honourable Speaker, a macro-critical institutional

reform for the country which will underpin the revenue

mobilization strategy for Namibia going forward. The

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essence is to bring about operational efficiency in the

revenue administration function through attraction of

specialized skills, a speedy provision of taxpayer service

and the implementation of the revenue reform agenda.

Most countries in the SADC region have moved in this

direction and they are reaping the fruits of more revenue

and better provision of taxpayer services.

Budget Allocations to Various Budget Votes

30. Honourable Speaker, various observations were made on

the appropriateness of proposed allocations to various

Offices/Ministries and Agencies.

31. Such allocations are for current programs which have not

yet reached completion stage. Over time, allocation to new

and existing priorities will be strengthened as fiscal space

emerges.

32. Honourable Murorwa, while applauding the Emergency

Income Grant as we all do, has raised what appears to be a

gap in the number of beneficiaries relative to the payment

made and suggested an audit be made.

33. First, I wish to indicate that among the private sector

partners we are co-operating on this intervention is Deloitte

Namibia, whose primary role is to audit the transactions

and systems. At the same time, the Auditor General has

also commenced with the audit of the EIG. We have made

these arrangements to ensure that the processes and

spending of taxpayers’ money is transparent and beyond

reproach.

34. With regards to the number of beneficiaries and amounts

paid, while the total of N$561.96 million is paid, about

N$1.5 million was still not claimed from the bank wallets

due to technical aspects of the SIM Cards used. This is not,

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in actual fact, an over payment. The total number of paid

beneficiaries would rise to 749,280 Namibians once all

disbursements made to date are claimed.

Budget Deficit and Public Debt Management

35. Honourable Speaker, let me end my response with

considerations on the budget deficit financing and public

debt management strategy:-

 The anticipated budget deficit of 12.5 percent of GDP

is a once-off peak, reflecting the needed policy stance

to maintain spending commitments on social and

economic sectors as well as to provide scaled-up

funding to the health sector,

 financing for the budget deficit is through a

combination of own savings, domestic and external

borrowing. Indeed, we have savings that were

earmarked for the repayments of future debts and

those who are doubting can easily reconcile this

information by looking at the movements in the debt

stock during this fiscal year.

 No doubt, we have to stabilize the growth in public

debt and reduce public debt now estimated at 68.7

percent of GDP.

 Debt stabilization will be achieved through a

combination of measures, mainly through growth of

the economy, revenue mobilization, leveraging state

assets and expenditure containment measures. These

are the important intervention measures over the

medium to long-term.

Honourable Speaker,

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36. With these remarks, I wish conclude my response by

sharing my recent experience with some Namibian youths.

I had a long conversation with the youth, representing

different ethnic languages in Namibia. We engaged on a

number of topics, including what it means to be a

productive member of Parliament. Needless to say, I

walked away from that conversation with a loud and clear

message, which is as follows: As members of Parliament:

 We have a moral duty to propel Namibia into a better

future;

 We have a parental duty to be good role models to our

children and the youth in general and;

 We, indeed, have a patriotic duty to unite all Namibians.

I now seek your support for the proposed Appropriation Bill and

the Expenditure Framework.

I thank you