Time for policymakers to take tough decisions
… as public debt rises above expectations
The World Bank in its latest report noted that emerging markets and developing economies (EMDE) policymakers will need to tackle the challenge of avoiding premature fiscal tightening in the short-term by unwinding fiscal support measures and ensuring fiscal sustainability over the medium term.
This will be especially difficult for some countries, given the substantial deterioration of fiscal positions that have occurred in the past year, warned the World Bank.
The bank in its 2021 January global outlook said there is a pressing need for EMDEs to improve domestic revenue mobilisation and to prioritise expenditures that yield large growth dividends.
Additionally, “the erosion of public balance sheets may call for the global community to assist in some cases including immediate debt relief for hardhit fiscally constrained EMDEs to support their most vulnerable populations through the crisis,” reads the outlook.
EMDE policymakers will also need to make sustained efforts to attenuate the pandemic’s long-term damage to underlying growth and incomes.
Addressing the recent increase in food insecurity and safeguarding access to education, the bank stated that it is essential to promote the development of human capital. Simultaneously, it said far-reaching investment in digital and green infrastructure can facilitate sectoral reallocation while enhancing environmental resilience.
It further advised that improved governance and reduced corruption can lay the foundations for higher long-run growth. “Increased debt transparency will be key to mitigate the risk of sovereign debt and financial crises, one of the most pressing threats to growth prospects.”
In light of substantial fiscal constraints and high debt levels, globally coordinated debt relief, predicated on debt transparency, could help many economies, particularly lower-income countries, and provide much-needed fiscal resources to support social protection programs.
According to a local economist, Robert McGregor, fiscal sustainability was a serious concern before the pandemic in Namibia, driven by the large deficits and rapid ramp-up in public debt from 2010-2019.
Additionally, “Namibia did not have a revenue problem before 2020 – rather, Namibia’s revenue relative to the size of its economy means that we have typically been one of the bestresourced countries (again, relative to size),” he stated.
Instead, McGregor said Government had been spending beyond its means for most of the last decade, during the initial years of strong growth and continuing as the economy slowed, leading to the worsening fiscal metrics.
“Given that the Namibian economy began faltering several years before the pandemic indicates that the measures we urgently need to return to strong, sustainable growth are not direct fiscal support measures, but rather broader economic reforms to improve the ease of conducting business (including reducing bureaucracy), as well as fostering a competitive and hospitable investment environment,” McGregor elaborated.
According to him, this should, in turn, lead to improved employment and household incomes as business activity picks up, which in turn also leads to improved government revenue through higher tax collection over a larger tax base.
On Namibia’s fiscal front, Emma Haiyambo, Director of Strategic Communications and Financial Sector Development at the Bank of Namibia said the central government’s debt stock rose notably over the year to the end of September 2020.
The total Government debt stock stood at N$106.6 billion at the end of September 2020, representing a yearly increase of 16.6%. As a percentage of gross domestic product (GDP), government debt rose by 9.7 percentage points to 60.7% compared to a year ago.
However, total loan guarantees as a ratio of GDP declined by 0.3 percentage points over the past year to 6.2% and remained within the government’s set ceiling of 10%.