Is Economic Stimulus the Solution or the Problem in Namibia?

Over the New Year period arguments have been made in the local  Namibian media suggesting that the government needs to implement a stimulus package to put the economy back on track.  Mr Milner Siboleka, an economist at First Capital Treasury Solutions was quoted as saying “What we need now in Namibia is stimulus expansionary fiscal policy (increase government spending) to reverse the recession and keep the economy afloat. For as long as we borrow for a good cause to invest in the growth we want for our economy, then accumulated debt will be sustainable”.This is a useful argument of only to help explain why Namibia is in its current economic mess and why most of 2017, will at least from an economic standpoint will almost certainly look as bad as 2016, if not worse.

The problem it can well be argued is that the stimulus that has been provided by government has been not only excessive but has failed to focus on solving Namibia’s fundamental barriers to its economic development and transformation. A stimulus package in the usual sense of the word means an expansion of government spending often also associated with a decrease in government revenue collection or, more commonly, an increase in debt. Everything about the Namibia’s public accounts suggests that this is precisely what has been the problem to date. Government expenditure grew rapidly from  25% of GDP in 2007 to over 40% GDP in 2016. While expenditure expanded enormously, often for good reason to deal with poverty, government revenue did not and over the same period  was almost totally flat at around 30-31% of GDP. The widening deficit has been what has caused the current crisis and so the advice to have even more stimulus at this point is economic folly. This unprecedented expansion in the size of government, combined with a decline in SACU revenues is what has created the current fiscal crisis that we are now in. It is not an absence of stimulus but an excess of unsustainable spending that has brought Namibia to its current situation.

The government revenue and expenditure figures speak for themselves and if they do not their mirror, the balance of payments also speaks precisely the same language. Namibia’s balance of trade has worsened at an exponential rate with the trade deficit rising from a small and easily manageable N$375 million in 2007 to N$ 40 billion in 2015. The deficit has eased in 2016 but still remains at worrying levels.

The government has been the main source of economic growth in the country and it has reached the limits that the current development model permit. There are simply not enough mineral exports to cover the increased imports that stem largely from increased government spending. The government also remains highly dependent upon SACU transfers from Pretoria which declined in 2016 and on the mineral sector where commodity prices have yet to recover to pre-recession levels. Given the constraints of borrowing from either the domestic or foreignmarkets that are imposed by the continual scrutiny of the ratings agencies there is no reason to believe that at the present the government has much room for further increases inexpansionary fiscal policy. It has reached the end of the very short leash that the international banks will allow and calls for more stimulus are wrong headed.

Mr Siboleka is right to suggest there is nothing wrong with government debt so long as it goes to infrastructure and development projects that stimulate growth and are hence repayable. One is however obliged to ask what there is in the choice of government projects for development that gives anyone such confidence in the wisdom and prudence of officials and policy makers to rank these projects according to their benefit to Namibia’s growth and not some other objective. What the country needs are infrastructure projects in power, water and transport and an accompanying pricing policy that will lower business costs and make investment in Namibia more profitable. But such arguments fall on deaf ears in government circles where the choice of which project goes ahead is not based on net economic benefit.

The cause of the current crisis comes not from insufficient stimulus but a massive expansion in spending which is in large part aimed in no small part at poverty alleviation. The government is to be congratulated for trying to alleviate poverty but condemned for its haste and the resulting financial excesses of the last few years. It took many years of hard work for the German colonial and apartheid regimes to create the levels of poverty we see in Namibia and it will not be eliminated overnight but Namibia’s financial stability might. The next step by government will almost inevitably be a Solidarity tax to help balance the books and fund the expansion in poverty programs. How can any person who believes in poverty alleviation and justice disagree? While the objective is right the government needs to focus, not on itself as a solution to the nation’s problems but on the development and transformation of the private sector which needs a policy context where it can play its proper role in economic growth and poverty alleviation.

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