Honourable Members of Parliament,
1. I have the honour to table the FY2016/17 Budget, a second under the Presidential administration of His Excellency, President Hage Geingob.
2. Allow me, Honourable Speaker, to use this opportunity to once again wish you and the Honourable Members a prosperous and, indeed, a productive year ahead.
3. I wish to thank His Excellency, the President and the Right Honourable Prime Minister for the guidance during the budget formulation process. Equally, I thank my Cabinet colleagues for the support they have rendered me and for the common commitment to implement spending allocation measures that support our fiscal consolidation stance.
4. Honourable Speaker, our country and people have rallied behind the common aspiration for achieving shared prosperity for all. The Government has articulated this policy agenda and as Jacob Lew said “The budget is not just a collection of numbers, but an expression of our values and aspirations.”
5. Honourable Speaker, this budget is underpinned by two fundamental and mutually-reinforcing policy objectives. The first objective is to reassert and re-establish a sustainable path for public finance, thereby maintaining macroeconomic stability as a basic enabler for future sustainability and socio-economic development. The second objective is to redirect increasingly scarce financial resources to the priority areas of national development; with the objectives of unlocking potential economic growth, job creation and poverty eradication towards the achievement of shared prosperity for all.
6. These objectives are premised against the backdrop of significant developments in the external economic environment on the one hand, and on the other hand, the urgency with which the Government has undertaken to promote and advance the national development agenda.
7. Honourable Speaker, a fortnight ago, when His Excellency the President opened the Third Session of the Sixth Parliament, he implored all of us collectively, to decisively move faster ahead when he stated: “ in 2016, it is time to turn words into reality, it is time to implement and, therefore, this is the year of implementation”.
8. This budget, therefore, gives scope for the implementation of national priorities commensurate with the available resource envelope.
9. This budget proposes the commencement of a growth-friendly fiscal consolidation, anchored on the reduction of public expenditure. It proposes the targeting of resources to the productive sectors of the economy, solidifying gains in the social sectors and instituting measures to improve the quality of spending.
10. Honourable Speaker, We aim to achieve the dual objective of aligning the future fiscal policy trajectory to the changing macroeconomic environment, whilst giving precedence to the implementation of priority development programmes for continued progress on the economic and social fronts. Hence the theme of this budget is: “Towards Pro-growth Fiscal Consolidation”.
This theme and fiscal policy stance are necessary for the future sustainability of positive development outcomes. And it requires that we innovate, improve returns on our investments and implement policy reforms to optimise outcomes that will lead to timely, reliable and affordable quality service delivery to the nation.
11. When addressing the last Session of Cabinet in December 2015, His Excellency President Geingob articulated the four pillars for accelerated socio-economic development agenda, to be enshrined into the high-impact
“Harambee Prosperity Plan”. These are the pillars of economic and infrastructure development, social development, and effective governance and service delivery.
12. These overarching pillars of the medium-term policy focus resonate well with our national development goals and constitute the key levers for the transition to the Fifth National Development Plan.
Honourable Speaker, Honourable Members;
13. In this context and, in terms of Article 126(1) of the Namibian Constitution, I have the honour to table for the favourable consideration of this House, the following documents:
a. The Appropriation Bill, 2016/17; and
b. the Estimates of Revenue, Income and Expenditure for the Financial Year 2016/17 and the corresponding Medium-term Expenditure Framework (MTEF) for the financial years 2016/17 to 2018/19;
14. Additionally, Honourable Speaker, I present the Fiscal Strategy Policy Framework, the Development Budget and the Accountability Report as important policy information and public accountability documents.
II. BUDGET POLICY PRIORITIES – PROGRESS ON OUTCOMES AND THE
MTEF COURSE OF ACTION
15. Honourable Speaker, when I tabled the FY2015/16 Budget and MTEF, I laid out the budget priorities. These priorities have been reiterated in the 2015 Mid-Year Budget Review.
16. Namibia’s economy is small and open and, therefore, vulnerable to volatility from external factors including, trade volumes between SACU and the rest of the World. Whilst we shall continue to use the MTEF as tool for sound expenditure planning, we need to recognise that this is a framework of what
we expect to happen and not what will actually happen. Therefore, in the medium-term, we shall revisit the MTEF forecasts on an annual basis to see if we need to rebalance our budget proposals on what we know are the financial resources and policy space available to us at that point in time. To ensure that our budgets are realistic, credible and targeted; we shall continue with the Mid-Term Review of the annual budget as a means of assessing what we have achieved in the financial year to date and where we need to redeploy our resources to those activities that are identified as national policy objectives.
17. We have set forth four priority focus areas for the budget, namely; economic growth and sustainable development, poverty eradication and the improvement of social welfare, progress towards prosperity and; lastly, improved delivery of timely, reliable and affordable services to the public.
18. Given this set of broader national priorities, I wish to emphasize the indispensable need for continuing to entrench macroeconomic stability. This is a non negotiable basic enabling factor for ensuring a sustainable path for the efficient management of public finance.
19. The implementation of interventions in these core priorities has progressed, thus demonstrating Government’s commitment to achieve accelerated results that will lead to shared prosperity for all Namibians.
20. Within the inclusive growth and sustainable development agenda;-
reforms to draw more Namibians into the mainstream economic activity.
allocated to improve access to tertiary education, vocational training, as well as funding for innovation and Research & Development.
Public Enterprises. This priority objective will be pursued over the MTEF, with priority funding for road, rail, water, energy and ICT infrastructure so as to make the goal of a logistics hub a reality.
further scale-up support to SMEs. The Investment Bill is due for tabling in Parliament and a reviewed set of investment incentives is being formulated as we prepare for the National Investment Conference in May this year.
The roles of the Development Bank, AgriBank and SME Bank have been delineated in relation to their lending portfolio and client-base, and
added window for private sector development and infrastructure development through PPPs, with a pilot project proposal for developing affordable housing units in urban areas, and
21. In respect to the priority on poverty eradication and the improvement of social welfare;-
· The tax policy reform agenda will continue over the MTEF, with key amendments having already been approved and implemented last year. Our focus is not only to broaden and deepen the tax base, but also to make the tax system more progressive, so that it contributes positively to the social objectives of reducing income inequalities. We understand that the proposed Solidarity Tax is not fully understood by various sections of society. Therefore, this and other high-impact programmes for targeted funding from this Tax need to be well defined. We shall therefore continue to engage the public on the specific tax proposal for a broader understanding on the benefit, principles and administrative arrangements for this national intervention.
22. Honourable Speaker, we recognize the income inequalities and skewed ownership of sources of income that we have inherited from many years of divisive policies and exclusion prior to the independence of our country still exist. We have made positive progress in addressing these structural challenges. And more still remains to be done. Hence, the budget avails resources to specific interventions to tackle the persistent high inequality through the promotion of wealth creation and shared prosperity:-
23. In this respect:-
· The Public Procurement Act has been promulgated last year and the subordinate regulations are due for development content of the Public Procurement Act will draw more enterprising Namibians into the mainstream economic activity, while increasing the public procurement multiplier effects in the economy.
affordable and sustainable access to the means of production, while maintaining responsible lending,
24. Lastly, the Government has assigned great priority to increased delivery of public services through a performance-oriented and results-based work culture. To this effect;-
III. ADDRESSING MACRO-CRITICAL RISKS, ANCHORING MACRO-
25. Honourable Speaker, on the 3rd of November 2015, I had the privilege to table the first Mid-Year Budget Review for Namibia. On that occasion, I laid out the medium-term policy framework and fiscal stance, which will underpin the FY2016/17 Budget and the coming MTEF.
26. The Mid-year Review critically highlighted the key macro-critical policy issues to be addressed over the next MTEF, namely
developmental intervention measures. Multi-pronged interventions, better targeting and more urgency are required to make a meaningful impact on these structural challenges.
27. Honourable Speaker, we made notable progress in addressing some of these challenges. We have been able to earn and retain our sovereign credit rating and implement policy advice from the Article IV Consultations, thanks to our common commitment to implement timely and credible policy measures to mitigate downside risks to our economy. Through this budget, we reiterate our commitment to address the sovereign credit risks and implement policy measures set forth in the ratings recommendations.
IV. WHAT DOES THIS BUDGET OFFER?
28. This budget and the Medium-term Expenditure Framework provide resources and funding strategies aimed at tackling the structural challenges that affect the development potential of our economy and improving the welfare of Namibians in an inclusive and sustainable manner. It is a consolidation budget with a pro-growth dimension.
29. As such:-
30. More importantly, Honourable Speaker, “not everything that counts can be counted, and not everything that can be counted counts” . More funding therefore does not necessarly guarantee greater success. Policy reforms, innovation, intergrity of institutions, internal efficiency and implementation capacity are critical determinants of successful outcomes and accelerated results. This should form the main defining strategy for Offices/ Ministries and Agencies in this new paradigm of executing our sectoral mandates
31. Before I proceed to the specific elements of the medium-term budget policy stance and budget allocations, allow me to highlight the economic context under which this budget and MTEF come into operation.
V. GLOBAL AND REGIONAL ECONOMIC AND FINANCIAL CONTEXT
32. This budget is presented against the backdrop of highly uneven and fragile global economic growth. Global economic growth is estimated at 3.1 percent in 2015, representing a slowdown from the growth rate of 3.4 percent witnessed in 2014. The International Monetary Fund (IMF) projects a pickup in the growth trajectory to 3.4 percent in 2016 and 3.6 percent by 2017.
33. However, considerable asymmetry and downside fragilities underpin this growth trajectory. While growth for the Advanced Economies is projected to be firmer and more broad-based, Emerging Markets and Developing Economies which account for about 70 percent of global growth continue to face a more challenging outlook. Three transition forces underpin the growth prospects for this group of economies. These are in regard to the normalization of monetary policy in the World’s largest economy, the United States of America, the slowdown and internal rebalancing in the World’s second largest economy, China, and the prevailing lower prices across a broad range of commodities.
34. The combined effect of these factors has triggered net capital outflows from Emerging Markets and Developing Economies and sharp volatilities in financial and capital markets across the globe, including excess volatility in exchange rates and currencies, with implications on the external position and sovereign debt financing position for these economies.
35. Indeed, Namibia is no exception to these developments. The Namibia Dollar, through the currency peg mechanism as well as the domestic interest rate environment has not been spared from these excess volatilities.
36. The Sub-Saharan African region has also taken a knock from the generalized slowdown in Emerging Markets economies. In fact, the soft landing for the Chinese economy has resulted in a much harder landing for Sub-Saharan African economies through the trade channel.
37. Closer to home, the South African economy, which is closely linked to Namibia through strong trade, monetary and financial ties, is projected to grow at a rate of about 0.9 percent in 2016, which represents a further slowdown from 1.3 percent in 2015. This low growth trend for the South African economy holds negative implications for Namibia through trade and financial linkages as well as revenue derived from SACU.
VI. DEVELOPMENTS IN THE DOMESTIC ECONOMY
38. Honourable Speaker, the above developments in the global and regional economies have inescapable direct and indirect consequences for our economy.
39. Domestic economic growth for 2015 is estimated at 4.5 percent, reflecting a deceleration from the growth rate of 6.4 percent posted in 2014. This is lower than the 5.7 percent growth rate anticipated in the previous budget, as well as the revised 5.1 percent envisaged in the Mid-Year Budget Review. However, this pace of growth mirrors the historical average growth rate for Namibia and signals a readjustment from the boom years of expansionary fiscal and monetary policies. It is a paradigm which calls for supportive policy and structural reforms in the medium-term to realise a more robust and inclusive growth trajectory.
40. On the demand side, high investment especially in the minerals and retail sectors normalized as most of the recent investment projects reached completion stage. Final consumption demand also softened, reflecting effects of monetary and fiscal policy tightening, while export growth moderated, mainly due to subdued commodity prices in the minerals sector.
41. On the supply side, mining output for some of the major commodities was weaker due to low prices and weak external demand which, together with the effects of the drought in the agricultural sector, resulted in the estimated reduction in output from the primary industries. On the other hand, activity in the secondary and tertiary industries lent support to growth during 2015, though retail growth slowed from recent high rates as growth in credit extension began to subside.
Inflation and Monetary Policy
42. Honourable Speaker, domestic inflationary conditions were stable during 2015, with consumer price inflation reaching its lowest level since 2010 at 3.4 percent, thanks to lower oil prices and its concomitant positive effects on transport related cost prices.
43. However, the effects of high household credit extension and monetary policy normalization in major economies as well as continued weakening of the South African Rand in 2015, necessitated gradual domestic monetary policy tightening by a cumulative 75 basis points to date since February 2015.
44. Through the Mass Urban Land Servicing and the Mass Housing Programs, we are tackling the prime cause of price escalation in the housing sector.
45. Currency depreciation is expected to drive up the price level of imported goods in the coming months, which will combine with drought-related food price increases to lead to higher inflation.
Balance of Payments and Foreign Reserves
46. Honourable Speaker, one of the macro-fiscal structural challenges that we should overcome in the medium to long-term is the reversal of the twin deficits for the budget and the current account.
47. There have been positive developments in this regard. The Overall Balance of Payments returned to a surplus of N$12.6 billion during 2015, compared to a deficit of N$1.8 billion in 2014. This was primarily due to the capital and financial account surplus from the Eurobond issuance in the last quarter of 2015. The current account deficit widened further to an estimated 9.7 percent of GDP (from 8.8 percent in 2014) as a consequence of a negative trade balance. This is to say that measures to improve the productive and exporting capacity of the economy and a stronger fiscal balance should assume policy prominence during the ensuing period.
48. Honourable Speaker, for the greater part of 2015, we have had to contend with decreasing levels of foreign international reserves to as low as 1.3 months of import cover, seen against the international benchmark of three months of import coverage. Significantly high imports of machinery and luxury goods continued to erode the reserves stock. Low levels of official reserves constitute sovereign credit rating weakness.
49. As such, Government has utilized a portion of the Eurobond issuance last year in combination with Rand denominated domestic asset swap in order to defend the reserve position. Through this intervention, we have been able to rebuild the reserves to 3.4 months of import cover. In absence of this timely intervention, the reserves would have been below one month of coverage by this date. Going forward, there is confidence that export growth from the major investment undertakings in the mining sector, supported by domestic policy response, will form a sustainable basis for enhancing the external position.
Exchange Rate and Currency Movements
50. With respect to the exchange rate, we have witnessed excess volatility during 2015 and the year-to-date. The South African Rand, to which the Namibia Dollar is pegged on parity, has depreciated against the US Dollar, by over 30 percent since September 2015. The sharp depreciation of the Rand reflects external volatilities in the international financial markets, subdued commodity prices and economic challenges in South Africa.
51. The deterioration in the currency has immediate implications for our economy. While depreciation confers competitiveness to the exporting sector, it has immediate effects on raising sovereign debt and debt servicing as well as a higher import bill and, consequently, inflationary costs.
52. Honourable Speaker, I am aware that there have been mixed public reactions regarding the relevance of the currency peg to the South African Rand. Let me use this opportunity to reassure the public that due to the significant trade linkages, the currency peg to the South African Rand remains a relevant policy and a credible anchor of domestic price stability and trading for Namibia. Such relevance only gets eroded if imported inflation and excess volatility becomes a permanent occurrence and fundamental macroeconomic imbalances emerge.
Capital Market Developments
53. Government’s borrowing strategy continues to promote domestic capital market developments. During 2015, a total amount of N$5.1 billion or some 63.0 percent of the expected borrowing requirements was sourced locally, with concerns about tight liquidity levels in relation to placements on bonds and treasury bills being evident. As such, the rest of the financing requirements, mainly the US$750 million and R870 million were sourced from the international market and the Johannesburg Stock Exchange listing. Out of the proceeds of the Eurobond listing, US$250 was used to finance development budget spending, US$300 million was set aside to defend the reserve position and will serve as a source for Eurobond debt servicing, while US$190 million was set aside for financing the deficit in the coming year.
54. This recourse to international funding sources demonstrates clearly the importance of Namibia’s diversification in terms of debt instruments. Further prudent management of public finances and a measured consolidation in the coming MTEF will safeguard the country’s investment grade credit rating, allow for the fiscal space needed to fund policy priorities and to respond quickly to future economic developments.
Regional economic integration
55. In terms of the regional integration agenda, progress has been achieved to unlock gridlocks in reviving the SACU institutional arrangements. The meetings of SACU institutional bodies are expected to return to normalcy, with the decisive SACU Council retreat scheduled for April this year.
56. Namibia believes that SACU has an important role to play as the engine of regional integration and industrialization. We believe that SACU revenues are currently broadly shared in a manner that reflects the realities of the SACU economies.
57. In regard to SADC, the Tripartite Free Trade Agreement between and among the Common Market for Eastern and Southern Africa (COMESA), East African Community (EAC) and the Southern African Development Community (SADC) was launched in June 2015. The Free Trade Area is an opportunity for unlocking intra-African trade. Namibia thus needs to establish a market share in this greater continental trading arrangement, while improving her productive capacity.
58. Honourable Speaker, following a protracted period of resolving the outstanding issues the EU-SADC-EPA negotiations have been successfully concluded. The Partnership Agreement is expected to come into force early this year.
59. It should be recalled that Namibia had only initialled, but not signed the SADC-EU Agreement nearly a decade ago. As a nation, we raised and persisted on matters of domestic industrial development, which were not fully addressed in the Agreement. This is especially in regard to infant industry protection, taxes to promote industrial development and the Most Favoured Nation clauses. It is pleasing to note that all SADC Member States, which had ratified the Agreement by then, had joined forces in a constructive engagement with the EU for an all-encompassing Agreement. Together with other SADC Member States, we have prevailed in our negotiated settlement and now look forward to ratifying the Agreement.
60. Honourable Speaker, the Mid-Year Budget Review provided details of the revenue and expenditure execution in respect to the most recent actual year as well as estimates for the current year. The total revenue for 2014/15 stood at N$49.93 billion, this being 4.8 percent lower than the budgeted revenue, but a 19.1 percent increase from the previous year.
61. The preliminary revenue outturn for the FY2015/16 is estimated at N$56.76 billion, which is 4.6 percent lower than the budget estimates of N$58.44 billion, due to adjustments for shortfalls from the previous year and a lower than anticipated economic activity.
62. Total spending for the FY2014/15 amounted to N$58.70 billion, reflecting a spending rate of 97.5 percent, compared to 98.2 percent in the previous year. Operational expenditure execution rate was 97.5 percent, and the corresponding utilization rate for the development budget was 90.1 percent.
63. For the FY2015/16, total expenditure by Mid-February is estimated at N$53.08 billion, representing 79.1 percent of the N$67.08 billion budget. This comprised 80.8 execution rate for operational budget and 71.6 percent for the development budget. The Mid-Year Appropriation Amendment Bill proposed a reallocation of N$4.01 billion within and across programmes and maintained the overall expenditure ceiling of N$67.08 billion. It is expected that the budget execution rate would approximate historical spending rates by the end of the financial year.
64. For the FY2014/15, the budget balance stood at a deficit of 6.0 percent of GDP, an upward revision from the 5.5 percent budgeted deficit, given the shortfalls in revenue as a result lower economic growth outturn. A similar trend prevailed during FY2015/16, with downward adjustments in revenue, as announced in the Mid-Year Budget Review. Sufficient financing has been secured during the year to fully fund this deficit level and no funding shortfall is experienced. However, a policy stance to reduce the budget deficit and stabilize growth in public debt is necessary.
65. As a result of increasing financing needs, the total debt stock has risen from N$35.95 billion in FY2014/15, to an estimated N$59.79 billion by the end of FY2015/16 and stands now at about 37 percent of GDP. While this level of debt is well below the median of 40 percent for Namibia’s sovereign rating peer group of BBB-, it is, in effect, estimated to have exceeded the national cap of 35 percent in the current financial year. The fiscal consolidation stance proposed in this budget and MTEF is aimed at stabilizing this growth in public debt and bringing the proportion of public debt within the threshold level.
66. The depreciation of the Namibia Dollar in recent times has increased debt servicing cost for the foreign debt portfolio. Total interest payments have increased to N$3.13 billion in FY2015/16, from N$2.52 billion in FY2014/15. As a ratio of revenue, debt servicing stood at 5.5 percent by FY2015/16, while contingent liabilities is estimated at 3.8 percent of GDP in FY2015/16, both of which are below the ceilings of 10 percent of revenue and GDP respectively.
67. The Government Accountability Report gives a detailed account of achievements by Votes and Programmes. I will rely on my Cabinet colleagues to expand on the key achievements by programmes under their institutional mandate during the Committee Stage.
68. Let me now to turn to the details of the FY2016/17 Budget and the medium-term outlook.
VII. THE MEDIUM-TERM ECONOMIC OUTLOOK
69. Honourable Speaker, in spite of a particularly challenging external economic and financial landscape, our economy is projected to grow by 4.3 percent in 2016. This growth trajectory is further projected to improve to 5.9 percent by 2017 and average around 4.9 percent over the MTEF, in spite of headwinds from the subdued regional economic and financial environment, weak commodity prices and subdued trade environment.
70. These projected growth rates are above global averages and consistent with historical performance of our economy. It is a growth outlook that outstrips the projected Sub-Saharan Africa average growth levels of 4.1 percent over the medium term.
71. On the demand side, increased exports from the recent investment projects in the minerals sector as well as steady private sector investment are expected to anchor the growth outlook.
72. On the supply side, increased output from the mining sector is expected to lead recovery in the primary sector, amidst the adverse impact of the poor rainfall conditions in the agricultural sector due to the prevailing El Nino event affecting the Southern African sub-region. Continued growth in the tertiary industries is also expected to support the outlook, as tourism benefits from the depreciation of the Namibia Dollar and the logistics sector is boosted by new port infrastructure. For the coming financial year, the gradual pace of fiscal consolidation demonstrates Government’s commitment to growth-friendly fiscal policy, to cushion the tapering off of boom cycles in the construction and retail sectors.
73. Revenue for the 2016/17 budget year is projected at N$57.84 billion, an increase of 2 percent over the previous year, given the sharp reduction in SACU receipts. For the MTEF, revenue is projected to increase at a moderate pace of about 7.2 percent, to reach N$69.82 billion by the end of the MTEF or about 27.5 percent of GDP. This projected annual growth rate in revenue is lower than the actual average growth of about 14.0 percent observed in the last three years due to the projected decline in SACU revenues and an adverse external environment.
74. The major drag and significant risk for revenue growth is the projected reduction of SACU revenues, on account of lower growth outlook for the South African economy. In the coming financial year, Namibia has to repay a total of N$2.96 billion back to the SACU Common Revenue Pool due to the deficit experienced in the Pool as a result of the factors I alluded to above and ex-ante payments made to Member States. Continued implementation of domestic tax policy and administrative reform agenda as well as the industrial development capacity will contribute to increasing the increasing contribution of revenue from own source.
The FY2016/17 Budget and Expenditure Outlook for the MTEF
75. I table before you a N$66.00 billion budget, equivalent to 34.9 percent of GDP. This expenditure outlay represents a 1.6 percent reduction from the previous year’s budget and a 7.3 percent cut from the indicative ceiling for FY2016/17 proposed in the previous MTEF.
76. Of this N$66.00 budget, the total non-interest expenditure for 2016/17 amounts to N$61.12 billion, a reduction from N$63.22 billion in 2015/16 and averaging around N$64.91 billion over the MTEF, in line with the fiscal consolidation stance.
77. Over the MTEF period, total expenditure is proposed to increase by an average of 3.8 percent annually, ushering in a period of fiscal consolidation over the entire MTEF, in line with the proposed policy stance.
78. The key levers for fiscal consolidation are the non-essential operational expenditure items such as materials and supplies, subsistence travel, overtime, furniture and office equipment and vehicles, as well as the postponement of other non-productive capital spending on office buildings in respect of the development budget. Thus, non-interest operational expenditure for FY2016/17 is reduced by N$106.9 million relative to its FY2015/16 level, while the development budget in respect of non-productive undertakings is reduced by N$1.99 billion.
79. Interest payments, which represent the Government obligations to debt servicing, are budgeted at N$4.88 billion in FY2016/17 or some 8.5 percent of revenue, seen against the statutory cap of 10 percent of revenue.
80. Non-interest operational expenditure for the budget year is set at N$52.06 billion or 27.5 percent of GDP, representing a 0.1 percent nominal reduction over the previous financial year and taking into consideration Government contractual commitments, remuneration adjustments and the provision of critical public services.
81. The recent trend in growth in remuneration expenditure and related budget subdivisions has been a cause for concern. Whilst these categories of expenditure support gainful employment and opportunities for many Namibians, we must seek to ensure that recurrent expenditure is not funded in the long-term at the expense of other public investments to improve the productive capacity of the economy.
82. In this regard, and in keeping with Government’s commitment to ensuring that all public institutions become more effective in what they do; more efficient in how they do things; and, more economic in the use of public funds, a realignment of growth of remuneration expenditure in line with inflation is currently under consideration. We are proposing that any public sector wage increases should be capped to a maximum of the annual inflation rate. We would further propose that there should be no net increase in the current size of the civil service. Both of these proposals should remain in place for the MTEF.
83. As part of the consolidation stance, the development budget is also reduced, but such cuts mainly lie in the postponement of the construction of office blocks for various Offices, Ministries and Agencies which are non-productive investments. Taking into consideration these effects, the total development budget has been reduced to N$9.06 billion in FY2016/17 and rises moderately over the MTEF to reach N$11.01 billion by FY2018/19.
84. In addition to the development budget allocation, budgetary allocations are made under the operational budget for targeted transfers to Public Enterprises for investment in strategic infrastructure projects. Among the key off-budget infrastructure projects are railway works, the rehabilitation of several national road projects, energy and water infrastructure development projects.
85. Going forward, Government must seek a better alignment of the development budget to our economic priorities, industrialization policy and our Growth at Home Strategy. This alignment would further be optimized through leveraging local sourcing requirements, PPPs, improved Namibian ownership and the development of value chains across the development initiatives.
Budget Balance and Financing Options
86. In line with the projected revenue and consolidated expenditure outlook for the MTEF, the budget deficit is projected at 4.3 percent of GDP in the budget year and is expected to average around 3.0 percent over the MTEF. For policy consistency purposes, this deficit outlook trajectory defines the fiscal consolidation path over the MTEF as a means to stabilize growth of the public debt.
87. Total debt is now estimated at about 37 percent of GDP. For the FY2016/17, this proportion is projected to reduce to 34.6 percent and is forecast to average around 30.6 percent over the MTEF, thanks to the consolidation phase and better improvements in the pace of economic activity. Given the downside risks to growth and revenue, continued measures to curtail significant growth in public expenditure will augur well with the lasting effects of stabilizing public debt levels within the threshold of 35 percent. Within this framework, no significant additional expenditure is anticipated over the next two years.
88. In nominal terms, total debt is projected to increase to N$63.73 billion in FY2016/17, from N$61.32 billion in FY2015/16, and to average around N$68.22 billion over the MTEF. This forecasted annual growth in public debt is offset by a relatively healthy Year-on-Year growth in nominal GDP.
89. Government intends to finance the substantial component of the deficit from the domestic and regional capital markets. Contingent liabilities are projected to increase to an average around 9 percent over the MTEF, as Government extends support to SOEs for project financing on the strength of their balance sheets.
VIII. EXPENDITURE PRIORITIES AND INTERVENTIONS FOR MTEF
90. Reasserting a credible path for the sustainability of public finances is but one objective of the budget that I lay before this honourable House. The growth and social development dimension, which comes about by virtue of deliberately directing increasingly scarce resources to the priority areas of national development, is yet another important objective.
91. These overarching pillars of the medium-term policy focus, resonate well with our national development goals and constitute the key levers for the transition to the Fifth National Development Plan.
92. Let me now give a synopsis of the main budgetary provisions made in this budget and over the MTEF.
Economic and Infrastructural Development
93. The budget proposes an allocation of 22.2 percent of total non-interest expenditure or some N$13.56 billion to the economic and infrastructure sectors, for investment in growth enhancing infrastructure, including in the logistics, water and energy sectors. Over the MTEF, this allocation amounts to as much as N$44.75 billion, equivalent to 23.0 percent of total non-interest expenditure.
94. In addition, an amount of N$17.23 billion is allocated as targeted subsidies and other current transfers to Public Enterprises for targeted development of key national infrastructure projects.
95. The key projects are the rehabilitation of the national railway, the on-going expansion of the Port of Walvis Bay, several national roads, water infrastructure, the Mass Housing Programme and increased funding to the Public Financial Institutions for private sector support and SME development.
96. Honourable Speaker, over 46 percent of total non-interest expenditure is allocated to the social sectors to protect and improve on the achievements we have made in the areas of education, health, poverty eradication and social welfare as well as the housing sector. Thus, a total of N$28.53 billion is allocated to the social sector in FY2016/17 and an average of N$91.41 billion over the MTEF
97. Honourable Speaker, these are substantial allocations which, in themselves, do not buy success. Efficiency gains and improvement in the quality of outcomes are increasingly needed to realize value for money.
· Out of this allocation, the Ministry of Basic Education, Arts and Culture receives N$12.79 billion in the budget year or 79.0 percent of the total allocation to the education sector.
Public Safety and Order
98. The public safety sector is allocated an amount of N$13.01 billion for FY2016/17, and some N$41.02 billion is made available over the MTEF, representing the continued investment in peace, public safety and rule of law.
99. A total allocation of N$6.03 billion is made to the public administration sector to support effective governance and efficient administration of the public sector and functional realignments to the structure of Government. Over the MTEF, this allocation amounts to N$17.55 billion.
100. An amount of N$200 million is allocated to the Contingency Provision for the budget year and N$278 million for the following year to cater for unforeseen emergencies such as drought relief and others. In respect of the previous financial year, a total of N$499,29 million was allocated to the Contingency Fund and the total amount has been committed. I have distributed the information regarding the use of the Provision in the last financial year.
IX. POLICY INTERVENTIONS FOR THE MTEF
101. Doing more with less requires that we implement administrative, structural and policy reforms to make efficiency gains and optimize outcomes. It is, therefore, important that implementation of key policy reforms is accelerated in various sectors of the economy under the mandate of Offices/Ministries and Agencies.
Tax Policy Proposals
102. In regard to tax policy, the following measures, some of which were announced previously, will be undertaken during the budget year and over the MTEF:-.
increasingly leverage international tax cooperation on matters of illicit trade flows and transfer pricing will continue and driven to finality,
§ we will continue to finalize the consultation on the proposed introduction of Solidarity Tax during the course of the coming year, with the view to develop the tax proposal. While we have made progress to reduce income inequalities from the Gini Coeffient of 0.70 to 0.597 by 2009/10, Namibia remains one of the countries with significantly high income inequalities with highly concentrated wealth. The Solidarity Tax will be a progressive, redistributive tax which will contribute to the reduction of income inequalities and take into consideration the income levels and the ability to pay. Thus, it is not a tax base-broadening measure, but a redistributive tax with a relatively high tax threshold. As I have stated, the proceeds of the tax will accrue to a designated fund which attracts a separate audit and Parliamentary approval. I have established a Task Team that will also comprise independent tax experts to formulate a White Paper on the specific tax proposal and its modalities. This concept Paper will form the basis for finalizing the consultations and formulating the tax proposal.
Honourable Speaker, Members of the House,
103. Taking into account sales volumes and targets set for the total tax burdens on respective excisable commodities, the following Sin tax percentage increases have been agreed upon to become applicable retrospectively with effect from 24 February 2016 as is required under the SACU Agreement:-
§ Ciders & alcoholic fruit beverages
These amended rates of duty are set out in more detail in the Taxation
Proposal which I am tabling today in terms of section 65(1) of the Customs and Excise Act, 1998 and which will be deemed to have come into operation as from midnight 24th February 2016. A Government Notice to this effect will be tabled in the National Assembly within the period prescribed in section 65(8) of the Act.
Public Finance Management Reforms
105. In the realm of Public Finance Management, we have made progress on some of the key reforms.
X. Financial Sector Law Reforms
106. The financial sector is a key catalyst for investment and wealth creation through its intermediation role and provision of access to finance. Several policy reforms have been initiated to elevate the role of the sector in the economy. Most of these reforms are being undertaken within the framework of the Financial Sector Strategy and the Financial Sector Charter.
in respect of microfinance and second-tier banks, provisions for financial stability as well as promoting Namibian ownership in the sector, and
107. National consultations on the New Equitable Economic Empowerment Framework (NEEEF) are now underway under the Office of the Prime Minister. The empowerment provisions proposed in the Framework will provide the necessary catalyst for more Namibians to participate in mainstream economic activity and support the financial sector development agenda.
108. In the non-banking financial sector:-
109. Honourable Speaker, these are only some of the policy measures and interventions. Sectoral policy and legislative reforms aimed at improving the general business environment and administrative efficiency across the spectrum of the public sector are also being spearheaded under the various O/M/As.
110. The budgetary allocations and other policy intervention measures set out in this budget represent the Government’s resolve to address the socio-economic challenges that we face in a more targeted manner.
111. There is, therefore, more to this Budget than the tightening of the fiscal purse. The budget gives scope to maintain the provision of essential services. It calls for greater resource prioritization and quality of spending which Offices/Ministries and Agencies have to embrace.
112. Let me extend my gratitude to the Minister of Economic Planning and Director General of the National Planning Commission and his staff for his supportive role throughout the budget formulation process.
113. I thank the Governor of the Bank of Namibia and his staff for the stewardship of the banking sector and for routine policy coordination and initiative. Equally, I thank Namfisa for the sterling efforts and the regulatory reforms to improve supervision and compliance in the non-banking financial sector.
114. I am indebted to my Deputy Minister of Finance, Honourable Natangue Ithete for the all-round support in the day-to-day execution of our mandated responsibility. I thank my Permanent Secretary, the Management and the Budget Team at the Ministry of Finance for the hard work and selfless efforts devoted in the preparation and finalization of this budget. I equally extend my sincere gratitude to the staff of the Receiver of Revenue and Commissioner of Customs and Excise and their staff for the revenue management and collection activity which enables the state to increasingly fund the socio-economic development needs of the country.
115. Honourable Speaker, it will be remiss of me if I did not express our sincere appreciation for the financial and technical support we continue to receive from our development partners. These have gone a long way to make a meaningful impact on lives of ordinary Namibians.
Honourable Speaker and Members of the National Assembly,
116. Joseph Stiglitz said that, and I quote “macroeconomic policy can never be devoid of politics: it involves fundamental trade-offs and affects different groups differently”
117. We are experiencing such trade-offs vividly, hence our emphasis on stability and inclusivity and pro poor policies for a prosperous Namibia.
118. In this Budget, we have undertaken to:-
119. Targeted resource allocation proposals have been made. What matters is effective implementation and results-based management. And we need to act decisively. I thus seek for your support and insights going forward.
120. I conclude my 2016 budget statement with a quote from the renowned black American athlete Jesse Owens. He said “We all have dreams. But in order to make dreams come into reality, it takes an awful lot of determination, dedication, self-discipline and effort.” We will need all of these attributes in the years ahead if we are to make Namibia the country we all desire to see.
121. It is now my distinguished honour to submit for your favourable consideration the Appropriation Bill 2016/2017, the Estimates of Revenue, Income and Expenditure and the 2016/17 – 2018/19 MTEF.
I thank you.