Govt to borrow to meet civil servant wage deal

The Namibian government might have to borrow to meet the funding requirements of the N$924 million last-minute deal struck with civil servants to avert an imminent nationwide strike.

Simonis Storm Economist Theo Klein said the government might find it difficult to accommodate the additional cost to its wage bill amid lower projected Southern African Customs Union (SACU) revenue. The resulting adjustments could also lead to lower budget allocations to some state institutions.

“Tax revenue is under pressure as the economy is not growing at the required rates to see a material improvement in job creation and establishment of new businesses. SACU revenue will be lower this year because Namibia was overcompensated in the previous financial year. This implies that it will be very difficult for the government to accommodate higher salaries in its budget going forward,” he told The Brief.

“A further implication is that we might see certain sacrifices on other services or priorities that form part of the government's expenditure bill. This could potentially also lead to lower budget allocations to state institutions, which could further hamper their activities, effectiveness and the services they provide to society and the economy. As a result, the government might have to increase other sources of revenue (such as increasing tax rates) or borrow more from local or foreign investors to pay its bills.”

IJG Head of Research Danie van Wyk concurred that the government will only be able to fund any civil servant wage increases through additional debt issuance, a reduction in the already slim development budget or reallocations within the operational budget.

“Each option presents its own challenges. A further increase in government debt (over and above the currently planned issuance) will result in debt-servicing costs taking up an even larger portion of the budget (currently at around 16% of revenue), pushing the country closer to a debt spiral. The development budget already makes up less than 10% of statutory spending, and further cuts to this allocation, especially for ‘unproductive’ purposes, will hamper economic growth in the long term. The wage bill already takes up 53% of the operational budget, meaning that cuts to other segments of the operational budget will be challenging for the government.”

The wage agreement struck between the government and the Namibia Public Workers’ Union (Napwu) and Namibia National Teachers Union (Nantu) comes after Finance minister Iipumbi Shiimi previously maintained that government could not afford any increment. He warned that only through borrowing could the government meet the increase, a position that could negatively impact the economic recovery of the country.

“If the government continues to increase civil servant salaries, mind you, the government is going to borrow this money. This is just going to complicate the economic situation going forward. If we do not allow the economy to recover, there will be no additional revenue coming in and it is going to create a lot of uncertainty, leading to a slowdown in economic activity,” Shiimi then said.

The new offer announced on Thursday saw an exponential increase from the initial offer of N$334 million only on benefits. With parties agreeing on a 3% salary adjustment across the board, an 11% increase in the housing allowance for employees below management level and a 14% transport allowance hike, the bill now amounts to N$924 million.

According to the Ministry of Finance projects, the country’s debt is expected to balloon to N$140 billion, with the interest on the national debt expected to be N$9,2 billion.

Namibia has a civil servant workforce of over 108 000, which costs the government about N$2.4 billion monthly in salaries.

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Last modified on Thursday, 11 August 2022 06:28

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