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Standard Bank - Namibia’s 2006/07 budget

Africa market briefing

Jan Duvenage
Contact:

Standard Bank Group Economics

22 March 2006

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Background

The Minister of Finance, Saara Kuugongelwa-Amadhila, delivered Namibia’s 2006/07 budget to the National Assembly on 16 March. Last year’s budget was delayed until May due to the national and regional elections.

Economic overview of 2005

According to the minister, real GDP growth was 5.9% in 2004, which is significantly higher than the IMF’s World Economic Outlook of September 2005 figure of 4.2%, as shown in the graph below. The minister projected that growth will average 3.2% in 2005 (IMF: 3.6%); 3.9% in 2006 (IMF: 3.8%) and 4% in 2007. Inflation averaged 2.2% in 2005.

Real GDP Growth (%)

Namibia’s fiscal situation underwent a major improvement in 2005/06 from the previous fiscal years. In 2003/04 the budget deficit reached an unprecedented 7.2% of GDP. Namibia’s stated fiscal target is for the deficit not to exceed 3% of GDP. In 2003/04 government revenue declined, which was mainly due to the strong Namibian dollar’s negative impact on the export sector. Thus tax receipts were severely curtailed by the impact of the weak US dollar on export receipts.

In 2004/05 the fiscal deficit improved to 3.6% of GDP, halving the previous year’s deficit, as revenue collection improved and expenditure was better managed. The strong currency continued to erode government receipts, but increased deficit financing costs and extra medical aid expenses also affected receipts.

In 2005/06 the fiscal deficit is projected to amount to 1.05% of GDP. Domestic taxes are expected to increase by 22% through better revenue collection and a broader tax base. There was also a clampdown on tax evasion such as border round tripping. Expenditure increases were limited to necessary expenditure.

The reduction in the fiscal deficit over the past few years has caused the public debt to stabilise at about 33% of GDP. At the end of 2005/06 the debt stock was 32.3% of GDP. Between 2003/04 and 2005/06 revenues improved largely because of higher SACU receipts and more effective revenue collection. Over this period revenues were 26% higher, but expenditure rose by only 5%.



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