Public debt more than doubles in 7 years under Shiimi

Namibia’s national debt has gone up by more than half in relation to gross domestic product (GDP) in the last seven years.

Minister of finance and public enterprises Iipumbu Shiimi recently told Namibia Media Holdings’ ‘Evening Review’ show that public debt used to be around 20% of GDP, but has ballooned to 70%.

He said this is due to a decline in economic activity and no reduction in expenditure.

In the current financial year, Shiimi has set aside close to N$10 billion to cover some of this debt.

“When your economic activities decline it’s not always easy to reduce expenditure, because you are spending money on hospitals and civil servants,” he said.

Shiimi said this leads to borrowing more to fill the gap.

“So revenue will fall, but expenses still remain high. How do you fill the gap? You borrow more. And that is what has happened since 2015 and before,” he said.

Shiimi said the number of public servants has decreased, which is the government’s way of trying to reduce expenditure. “The government’s travel expense was N$600 million before and has now come down significantly to about N$300 million,” he said.

According to Shiimi, this is not creating more employment opportunities, because the economy is going back to pre-Covid-19 levels, although it is growing,

“. . . because this is the old engine of growth coming back,” he said. This means those who have lost their jobs during the pandemic may be getting their jobs back in, for example, the tourism sector, he said.

Shiimi said the government has been working on not increasing expenditure, although there has been additional revenue to the government.

He said the ministry is currently considering ways to refresh Epangelo Mining Company.

“Epangelo is a shareholder in Swakop Uranium and it costs money to be a shareholder. This means the government would have to invest in activities and that is not really the government’s job,” Shiimi said.

He said the company is looking for ways to redefine its role.

“Some of the investments they have made in the past, like in the Navachab mine, will now start yielding some dividends, which will provide Epangelo with cash flow,” the minister said.

Epangelo is a private company with the government as sole shareholder.

The mining company has 10% shares in Swakop Uranium through Epangelo Husab Uranium and another 7,5% in QKR Namibia through JG Investments (Two).

QKR owns Navachab Gold Mine.

‘GOOD’ AND ‘BAD’ DEBT

Meanwhile, economist Omu Kakujaha-Matundu says debt in itself is not bad, depending on what the money has been used for.

He says good debt involves money used for capital projects.

“Unfortunately, most of the Covid-19 borrowing was for consumption. Although it served some purpose, these loans/debt won’t pay for itself,” he says.

Kakujaha-Matundu says when one considers the decline in economic activities and no reduction in public expenditure, servicing such a high public debt could displace some essential services.

“The government has to cut its spending somewhere to pay back the borrowed funds. Although I am not for austerity measures, which in themselves are bad for the economy, the government should be more prudent in its borrowing and investment decisions,” he says.

Another analyst, Josef Sheehama, says the country’s debt obligation is significant but manageable and its debt-to-GDP ratio is declining, in contrast to other highly indebted nations.

“Repaying costly loans has reduced the amount available for national development projects. Because more revenue is being diverted from other sources to debt servicing, rising debt means fewer economic opportunities for Namibians and more projects pertaining to development will be delayed.

“Growing debt retards economic growth by discouraging business investment,” Sheehama says.

He says a balanced approach to fiscal policy would include strategies for raising revenue, maintaining budgetary discipline and would avoid taking on additional borrowing.

“Therefore, long-term debt should only be used to finance infrastructure rather than continuing operations consumption.

“To demonstrate that the authority is committed to long-term capital planning for development rather than consumption or operation, it is crucial that the debt policy consider the capital improvement plan,” he says.