Government’s over-expenditure on debt interest payments which has seen actual spending on interest payments for FY2022/23 surge massively beyond budget warrants further scrutiny, research experts Simonis Storm have said.
In an environment characterized by high-interest rates, Namibia’s actual spending on interest payments for FY2022/23 surged to N$9.5 billion, an amount that exceeded the revised budget estimates by N$144 million.
“The over-expenditure on interest payments contrasts with a total expenditure of N$74.4 billion, slightly below the revised budget estimate of N$74.9 billion. The discrepancy warrants further scrutiny to ascertain its origin,” Simonis Storm said.
Notably, Namibia’s debt service burden is intensifying, with interest payments now revised upwards to N$11.8 billion for FY2023/24, constituting a significant 15.0% of projected revenues.
“This surge in debt service obligations is particularly concerning as it threatens to crowd out critical social expenditures, such as those in health and social protection sectors, which are pivotal for the nation’s long-term development,” further stated Simonis Storm.
In the fiscal landscape of Namibia, debt management emerges as a critical concern that warrants immediate and strategic attention. As of the close of the fiscal year 2022/23, the total public debt stock stood at N$142.7 billion or 67.9% of GDP, and this number escalated to N$149.3 billion or 64.1% of GDP as of September 2023, with the expectation to escalate to N$ 153.7 billion for the FY2023/24 or expected 66.0% of GDP.
Domestic debt forms the bulk of Namibia’s obligations, standing at N$108.02 billion or 74.2% of total central government debt as of September 2023. Treasury bills accounted for N$36.46 billion or 33.7% of this. Foreign debt was N$37.55 billion, approximately 25.8% of total debt. For Q1 of 2023/24, domestic debt service was N$1.7 billion, while external debt service was N$996m. The total debt service cost was N$2.7 billion for the same period. The stability in the proportion of domestic to foreign debt suggests a balanced portfolio.
“However, rising domestic service costs emphasize the need for effective debt management. Additionally, the weakening Namibian Dollar, with a USD/N$ rate of 18.75 in Q1 2023/24 from 16.25 in Q1 2022/23, exacerbates foreign debt service costs.
“In sum, Namibia is grappling with a pressurized debt situation characterized by escalating interest payments and a growing public debt stock relative to GDP. Nevertheless, there are glimmers of hope in the form of robust revenue collections and a declining budget deficit. The central challenges that remain lie in the realm of debt servicing and contingent liabilities, necessitating prudent fiscal policy and structural reforms to ensure long-term fiscal sustainability,” Simonis Storm explained.
For the Fiscal Year 2023/24, the Namibian government has secured a loan of N$204m from KfW, a German government-owned development bank. This funding is part of a broader financial strategy that also includes N$629 million from the African Development Bank (AfDB). Consequently, foreign debt is anticipated to marginally rise from N$37.5 billion to N$37.9 billion during the period. The inflow from KfW will be allocated to ongoing projects and represents a diversified approach to external funding. This diversification may mitigate some risk, although it also calls for vigilant monitoring given the broader context of rising debt servicing costs in a high-interest rate environment.
“Therefore, KfW’s involvement is a significant aspect of the debt portfolio that should be carefully managed within the country’s fiscal sustainability framework.”
Turning to the budget deficit, the picture for FY2022/23 appears somewhat brighter. The actual deficit was recorded at N$10.1 billion or 4.8% of GDP. This marks a significant improvement over both the revised projection of 5.3% and the previous year’s 7.9%. However, the burden of debt remains a significant concern. The total debt stock rose to N$142.7 billion, equating to 67.9% of GDP. Notably, this rate of debt growth, at 13.5%, is outpacing the nominal GDP growth recorded of 11.1%, signalling an unsustainable fiscal trajectory that requires immediate policy intervention.
Revenue collections stood at N$40.1 billion, or 53.7% of the initial revenue projections, outperforming the historical mid-year collection rate by 6.6 percentage points. On the flip side, the execution rates for operational and development expenditure were 50.6% and 37.7% respectively, aligning with historical trends. Yet, the increasingly weighty debt servicing costs, which have started to eclipse key social services expenditures, add another layer of complexity to fiscal policy management.
This challenge is compounded by additional fiscal risks stemming from government-guaranteed loans for entities like MeatCo and Seaflower Whitefish Corporation. For the fiscal year 2023/24, the budget deficit is pegged slightly higher at N$9.7 billion, influenced by elevated borrowing costs and calls on government guarantees. The domestic debt has been revised upwards to N$8.7 billion, while foreign debt has been scaled down to N$2.3 billion. Amidst these dynamics, the government aims to focus its fiscal policy on economic growth and macroeconomic stability, targeting a reduction in the budget deficit to stabilize debt levels.