The Namibian Budget Presented by Klaus Schade At the ... · The bigger picture ••Vision 2030 Vision 2030 ––A prosperous and industrialised A prosperous and industrialised

The Namibian Budget The Namibian Budget

Presented by Klaus SchadePresented by Klaus Schade

Institute for Public

Policy Research

Presented by Klaus SchadePresented by Klaus Schade

At the NANGOF At the NANGOF –– IPPRIPPR

PrePre--budget hearingbudget hearing

2 March 20102 March 2010

The bigger pictureThe bigger picture•• Vision 2030 Vision 2030 –– A prosperous and industrialised A prosperous and industrialised Namibia, developed by her human resources, Namibia, developed by her human resources, enjoying peace, harmony and political stabilityenjoying peace, harmony and political stability

•• NDPs NDPs –– Medium Term Plans implementing Medium Term Plans implementing VISION 2030VISION 2030

2 March 20102 March 2010 [email protected]@gmail.com 22

VISION 2030VISION 2030

•• MTEF MTEF –– ThreeThree--year rolling budget financing year rolling budget financing NDPsNDPs

Budget documentsBudget documents•• Budget Statement Budget Statement –– Speech delivered by the Finance Minister when Speech delivered by the Finance Minister when

tabling the budget (contains main fiscal highlights and policy tabling the budget (contains main fiscal highlights and policy announcements)announcements)

•• Estimates of Revenue and Expenditure Estimates of Revenue and Expenditure –– responsible MoF: lists all responsible MoF: lists all expenditure by vote and main divisionexpenditure by vote and main division

•• MediumMedium--Term Expenditure Framework Term Expenditure Framework –– threethree--year rolling budget year rolling budget containing the Medium Term Plan of each Vote:containing the Medium Term Plan of each Vote:–– Objectives, NDP target, ministerial targetsObjectives, NDP target, ministerial targets–– Result of programme budgeting (since 2005)Result of programme budgeting (since 2005)

•• Macroeconomic Framework Macroeconomic Framework –– prepared by MoF and NPCS outlining prepared by MoF and NPCS outlining


•• Macroeconomic Framework Macroeconomic Framework –– prepared by MoF and NPCS outlining prepared by MoF and NPCS outlining the underlying economic conditions of the budgetthe underlying economic conditions of the budget

•• Fiscal Policy Framework Fiscal Policy Framework –– prepared by MoF: Overlapping with prepared by MoF: Overlapping with macromacro--economic framework, but focus on fiscal policy stance, fiscal economic framework, but focus on fiscal policy stance, fiscal risks etc.risks etc.

•• Accountability Reports Accountability Reports –– prepared by ministries: compares targets to prepared by ministries: compares targets to actual outputactual output

•• Budget at a glance Budget at a glance –– twotwo--page summarypage summary•• Development Budget Development Budget –– responsible NPCS: describes development responsible NPCS: describes development

projects and fund allocationprojects and fund allocation►►Documents available onDocuments available on--line line –– www.mof.gov.nawww.mof.gov.na

Budget cycleBudget cycle•• Budget preparations start in June / July with preparation of Budget preparations start in June / July with preparation of

the Macroeconomic Frameworkthe Macroeconomic Framework

•• up to Dec. / Jan. budget hearings up to Dec. / Jan. budget hearings –– expenditure proposals expenditure proposals (based on MoF ceilings) of O/M/A discussed in detail with (based on MoF ceilings) of O/M/A discussed in detail with MoF; completion of macroMoF; completion of macro--economic frameworkeconomic framework

•• Jan. / Feb. submission of draft budget to Cabinet Treasury Jan. / Feb. submission of draft budget to Cabinet Treasury Committee and afterwards to CabinetCommittee and afterwards to Cabinet


Committee and afterwards to CabinetCommittee and afterwards to Cabinet

•• Feb. / Mar. Feb. / Mar. –– Budget presentation to Parliament (Budget Budget presentation to Parliament (Budget Speech)Speech)

•• March to May March to May –– Budget debate in ParliamentBudget debate in Parliament

•• May May –– Signing of Appropriation Act by PresidentSigning of Appropriation Act by President

•• Since April Since April –– Budget implementationBudget implementation

•• August following year August following year –– submission of accounts to OAGsubmission of accounts to OAG

•• Presentation of Auditor General’s report to Parliament at the Presentation of Auditor General’s report to Parliament at the end of the following Financial Yearend of the following Financial Year

Main expenditure itemsMain expenditure items

•• PersonnelPersonnel

•• Goods and other servicesGoods and other services

•• Subsidies and other current transfersSubsidies and other current transfers

•• Capital expenditureCapital expenditure


•• Capital expenditureCapital expenditure

•• Statutory expenditure Statutory expenditure

Main expenditure itemsMain expenditure items

30%

40%

50%

Personnel Expenditure Goods and ServicesSubsidies and Other Current Transferers Total CapitalStatutory


0%

10%

20%

30%

1997

/98

1998

/99

1999

/200

020

00/0

120

01/0

220

02/0

320

03/0

420

04/0

520

05/0

620

06/0

720

07/0

820

08/0

920

09/1

0

Budget allocation to selected votesBudget allocation to selected votes

15%

20%

25%

Police Defence Finance Education Health and Social Services


0%

5%

10%

1997

/98

1998

/99

1999

/200

020

00/0

120

01/0

220

02/0

320

03/0

420

04/0

520

05/0

620

06/0

720

07/0

8a20

08/0

9e20

09/1

020

10/1

120

11/1

2

Budget allocation to selected votesBudget allocation to selected votes

Budget allocation to votes depend on vote’s Budget allocation to votes depend on vote’s responsibilities:responsibilities:

•• Basic and Higher Education merged, while Sport Basic and Higher Education merged, while Sport and Culture moved to ‘Youth, National Service, and Culture moved to ‘Youth, National Service, Sport and Culture’Sport and Culture’


Sport and Culture’Sport and Culture’

•• Responsibility for social grants moved from Responsibility for social grants moved from Health to LabourHealth to Labour

•• Allocation to Finance strongly influenced by Allocation to Finance strongly influenced by Statutory ExpenditureStatutory Expenditure

Major divisionsMajor divisions

6%

8%

10%

12%

14%


0%

2%

4%

2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08a 2008/09e 2009/10

Primary education Secondary educationHigher education Regional health services

Medical aid scheme (Public sector empl.) Air Namibia

Social grantsSocial grants

3%

4%

5%

Maintenance Grant and Foster Parent Allowance Social Pension Veterans Grant


0%

1%

2%

2000

/01

2001

/02

2002

/03

2003

/04

2004

/05

2005

/06

2006

/07

2007

/08a

2008

/09e

2009

/10

2010

/11

Disaggregation of statutory expenditureDisaggregation of statutory expenditure

60%

80%

100%

Interest payment - domestic Interest payment - foreign Guarantees


0%

20%

40%

60%

2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10

ExpenditureExpenditure

Shift from focus on inputs to outputs / Shift from focus on inputs to outputs / outcomesoutcomes

•• Introduction of Performance and Effectiveness Introduction of Performance and Effectiveness Programme (PEMP)Programme (PEMP)

••


•• MediumMedium--Term PlansTerm Plans

►►Identification and monitoring of output indicators Identification and monitoring of output indicators (often too many indicators)(often too many indicators)

Main revenue categoriesMain revenue categories

•• Income tax on individualsIncome tax on individuals

•• Company tax Company tax

•• ValueValue--Added Tax (VAT)Added Tax (VAT)

•• SACU transfers (tax on international trade)SACU transfers (tax on international trade)

••


•• NonNon--tax revenuetax revenue

–– Mineral royaltiesMineral royalties

–– DividendsDividends

•• External Grants (< 1% of total revenue)External Grants (< 1% of total revenue)

Main tax categoriesMain tax categories

30%

40%

Income Tax on individuals Company taxes VAT Taxes on international trade and transactions


0%

10%

20%

1997

/9819

98/99

1999

/0020

00/01

2001

/0220

02/03

2003

/0420

04/05

2005

/0620

06/07

2007

/0820

08/09

2009

/1020

10/11

2011

/12

Mineral royaltiesMineral royalties

3%

4%

5%

Diamond royalties Other mineral royalties


0%

1%

2%

1997

/9819

98/99

1999

/0020

00/01

2001

/0220

02/03

2003

/0420

04/05

2005

/0620

06/07

2007

/0820

08/09

2009

/1020

10/11

2011

/12

Budget surplus / deficitBudget surplus / deficit

•• Budget surpluses in 2006/07 and 2007/08 due Budget surpluses in 2006/07 and 2007/08 due to:to:

–– Improved revenue collectionImproved revenue collection

–– Increased transfers from SACU CRPIncreased transfers from SACU CRP

•• Increased deficit since then due to economic Increased deficit since then due to economic


•• Increased deficit since then due to economic Increased deficit since then due to economic crisis, financed throughcrisis, financed through

–– Domestic borrowing (TreasuryDomestic borrowing (Treasury--Bills, Bonds)Bills, Bonds)

–– Foreign borrowing (lower interest rates but Foreign borrowing (lower interest rates but exchange rate risk)exchange rate risk)

Debt stockDebt stockTotal amount of government debt dropped:Total amount of government debt dropped:

•• as a ratio over GDP since 2004/05 (economy as a ratio over GDP since 2004/05 (economy grew faster than debts)grew faster than debts)

•• in absolute terms in 2007/08 (from 13.6 bn to in absolute terms in 2007/08 (from 13.6 bn to 11.9 bn), but foreign debts constantly rising11.9 bn), but foreign debts constantly rising


11.9 bn), but foreign debts constantly rising11.9 bn), but foreign debts constantly rising

Increase in absolute terms as well as a ratio over Increase in absolute terms as well as a ratio over GDP since then GDP since then

Budget deficit and debts Budget deficit and debts -- trendstrends

20%

25%

30%

35%

Budget Balance to GDP ratio Budget DeficitTarget

Debt to GDP ratio Debt StockTarget


-10%

-5%

0%

5%

10%

15%

20%

1998

/99

2000

/01

2002

/03

2004

/05

2006

/07

2008

/09

2010

/11

2012

/13

Pros and cons of budget deficitsPros and cons of budget deficitsPro:Pro:•• Stimulate economy in times of depressed private demandStimulate economy in times of depressed private demand•• Address country’s development needs such as Address country’s development needs such as

infrastructure, schools, clinicsinfrastructure, schools, clinics•• Address social issues such as unemployment, poverty Address social issues such as unemployment, poverty

and income inequalityand income inequalityContra:Contra:•• Reduces fiscal space in following years since statutory Reduces fiscal space in following years since statutory


•• Reduces fiscal space in following years since statutory Reduces fiscal space in following years since statutory expenditure have to be honoured firstexpenditure have to be honoured first

•• Increases burden on future generation (repayment of Increases burden on future generation (repayment of debts including interests)debts including interests)

•• Can creates macroCan creates macro--economic instability (inflation, economic instability (inflation, currency depreciation)currency depreciation)

•• Can result in lack of fiscal disciplineCan result in lack of fiscal discipline•• Crowd out private investmentCrowd out private investment

Expectations Expectations -- 2010/11 budget2010/11 budget•• Corporate taxes from diamond mining companies Corporate taxes from diamond mining companies drop to zero, but royalties recoverdrop to zero, but royalties recover

•• Increased revenue (tax and royalties) from other Increased revenue (tax and royalties) from other mining companies (uranium)mining companies (uranium)

•• Decline of SACU transfers by some NAD3.1 billionDecline of SACU transfers by some NAD3.1 billion

•• Excise duty increase in line with RSA / SACUExcise duty increase in line with RSA / SACU

••


•• Introduction of Environmental Tax (as announced in Introduction of Environmental Tax (as announced in last year’s speech, but revenue impact unknown)last year’s speech, but revenue impact unknown)

•• Implementation of lower company taxesImplementation of lower company taxes

•• Expenditure increase most likely lower than Expenditure increase most likely lower than economic situation would require economic situation would require

•• No increase in social grantsNo increase in social grants

•• Deficit widening but within manageable rangesDeficit widening but within manageable ranges

Policy challengePolicy challengeHow to balance fiscal prudence with stimulating How to balance fiscal prudence with stimulating economic growth and addressing social challengeseconomic growth and addressing social challenges

•• Achieve fiscal targets (budget deficit, debt to GDP ratio, Achieve fiscal targets (budget deficit, debt to GDP ratio, expenditure to GDP ratio)expenditure to GDP ratio)

•• Achieve higher economic growth (result in increased tax Achieve higher economic growth (result in increased tax revenue and perhaps job creation)revenue and perhaps job creation)

•• Address unemployment (>52%), poverty and income Address unemployment (>52%), poverty and income


•• Address unemployment (>52%), poverty and income Address unemployment (>52%), poverty and income inequalityinequality

►► Set clear policy prioritiesSet clear policy priorities►► Identify programmes / projects with high economic returns Identify programmes / projects with high economic returns

(crowd in / attract private investment, improve (crowd in / attract private investment, improve competitiveness and business climate)competitiveness and business climate)

►► Assess programmes’ impact on job creation and poverty Assess programmes’ impact on job creation and poverty (beneficiaries)(beneficiaries)

Thank you for your attentionThank you for your attention

For further information contact:For further information contact:

Klaus SchadeKlaus Schade


Klaus SchadeKlaus SchadeTel.: 061 22 07 25Tel.: 061 22 07 25

Mobile phone: 081 360 8232Mobile phone: 081 360 8232Email: [email protected]: [email protected]