We're not broke - but SACU is broken !

‘We’re not broke’- but SACU is broke(n)!

Last week at the 17th Annual Bank of Namibia Symposium, the Governor of the Bank of Namibia Mr Ipumbu Shiimi, in response to a question from the media emphasized that ‘Nambia is not broke’. For those skeptical souls in the audience who don’t immediately believe everything they are told by people in authority this of course raised the question  of what  does ‘broke’ actually mean. This is especially relevant  when the country is running a record budget deficit of 8.3% GDP and has a current account deficit of what is above 13%.  Normally, ‘broke’  means that you have no more money left and you cannot spend any  more. On that basis Namibia is not broke, it can continue to spend for a while as long as the government continues to borrow in the domestic economy or from the foreign markets as it  did with such a vengeance in the last quarter of 2015. The Governor is right, we are not broke but we are certainly digging an ever bigger hole for us to climb out of when someone in government finally realizes the basic truth that small developing countries cannot indefinitely spend more than they earn.

The Governor defended the government’s position by saying, quite correctly,  that the current budget deficit is a result of a decline in SACU revenue and that government will need to rein in spending temporarily. But even I, a mere professor,  knew in the middle of last year that this decline in SACU revenue was coming this year and certainly if I knew, Mr Schlettwein, the Finance Minister  knew more and knew even earlier. And yet government spending did not decline  to deal with the loss of revenue. 

SACU revenues are what economists call ‘pro-cyclical’ which means that  they fluctuate in line with  the trade cycle and the revenues are paid two years in arrears so anyone who knows what is happening in South Africa will be aware of what Namibia has in store two years later. We are now desperately dependent on the transfers we get from Pretoria through SACU– 33% of Namibian government comes from the largesse of South Africa because the Namibian government could not readily make up the lost customs revenues if SACU collapsed and it had to impose duties on everything coming into the country.

 

This is by no means the first time  as we have had one of these cyclical downturns in SACU several years ago . In 2011 SACU revenues owed to the four BLNS countries ( Botswana. Lesotho Namibia and Swaziland) dipped disastrously as a result of the decrease in the size of the SACU customs pool. This was caused by the global economic crisis of 2009. Swaziland, arguably the country that is most dependent upon SACU  went into  an economic tail spin. What we are seeing now in 2016/17 is a repetition of 2011 with a decline in South African imports which contributes approximately 80% of the revenue  to the customs pool but South Africa being by far the biggest member of SACU only gets 20% of the revenue the share of the pool depends upon the share of intra-SACU imports and South because it imports so little from the smaller SACU countries. The decline in the size of the pool is a result of economic events around the world but also because of South Africa’s very slow growth rate.

Normally well informed sources say that by 2018 the SACU customs pool will have rebounded strongly to ZAR60 billion and, , we in Namibia will be able to go on spending beyond any sustainable levels as we have up to now. Namibia’s fiscal position is now precarious. It has, as its biggest source of revenue, the SACU revenue sharing formula which is not only opposed by the government in  South Africa and has created serious fluctuations in government revenue. The down-side is that if South Africa had its druthers we certainly would be getting much less than we are getting now.

While reforming the basis upon which SACU revenues are distributed amongst its members is politically fraught and will still take a number of years there is another task that finance ministers should address and that is, at least in theory, politically easier. There is a need to for MrSchlettwein and his other ministerial colleagues to reform SACU and iron out the huge year-to year fluctuations of customs receipts by creating a revenue stabilization fund within SACU. That would mean that members would get only a portion of what is owed them in good years and this would be made up in bad years from the Fund. Even if other SACU members did not accept such a proposal there is nothing stopping Namibia from developing a stabilization fund unilaterally.

 

These are the views of Professor Roman Grynberg and not necessarily those of UNAM where he is employed.