Namibia - Mid-year Budget Review 2019/2020

Making an impact that matters

Namibia Budget 2019/20 | Deloitte Commentary

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Mid-year Budget Review 2019/2020

"We have endured pain and we will have to remain determined to see through the very necessary economic transformation to bring about sustainable and inclusive growth.”

Minister of FinanceHon. Calle Schlettwein, 22 October 2019

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Economic context

The Minister tabled the fifth mid-year budget review on 22 October 2019.

The aim of the mid-year review is to improve effectiveness of resource allocation during the fiscal year.

The Minister tabled his mid-term budget review against the global, regional and domestic markets and events. Some of the areas he highlighted were -

- A slow-down of the global economic growth to 3%, with lower economic activities in advanced, emerging and developing economies. - Projected slow-down of the Chinese economy to 6.1% in 2019 with a further expected slow down below 6% in 2020;- Growth in the Sub-Saharan African Region estimated to remain flat at 3.2%, with growth in non-resource intensive countries to have a higher average growth rate (about 6%) and resource-intensive countries projected at 2.7%- Growth in South Africa and Angola is projected to remain restrained. Projected GDP rate for South Africa is estimated at 0.7% and 1.2% in 2019 and 2020, while Angola is predicted to have a negative growth of 0.3%; - Tension in the Middle-East; and- Effect of climate change.

Tax revenue for 2018/2019 made up 93% of Namibia’s total revenue of N$56 billion. Total revenue for 2018/2019 is 1.4% less than the budgeted amount of N$57 billion. According to the Minister, the preliminary revenue outturn for 2019/2020 is N$29 billion, being 50% of the budgeted revenue, and is about 2% better than the average half-year collection rate.

Revenue for the FY2019/20 is estimated to remain unchanged at the budgeted amount of N$58 billion based on the half-year outturn, the downside risks on economic growth and the domestic and SACU revenue streams. Total revenue for 2019/2020 is projected to average around 29% percent as a proportion of GDP, reflecting the lagged effect of recessionary pressures, volatility on SACU revenues and the expected weak domestic economic growth.

The budget deficit for 2018/2019 was 4.8% of GDP, compared to the budgeted 4.5% due to lower revenue outturn.

Revenue collection

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Expenditure and debtTotal expenditure including interest payments amounted to N$65.1 billion against N$65 billion budgeted.

Operation budget implementation rate was 99.5% while the development budget execution rate was 94.8%.

Aggregate expenditure over the MTEF is expected to increase from N$66.6 billion in 2019/2020 to N$67.1 billion in 2020/2021, N$67.8 billion in 2021/2022 and reach N$69.5 billion by 2022/2023.

Public debt is estimated at 49% of GDP for 2019/2020 as the impact of fiscal consolidation emerges.

For the 2018/19 Financial Year End, total debt stood at N$ 87.5 billion, which equals 45.2% of GDP.

Total debt is expected to remain at the budgeted level of 48.9% of GDP for 2019/2020 and is expected to increase to 51% in 2020/2021 and stabilize at about 53.1% by 2022/2023.

Reallocation of fundsA total of N$1.18 billion was freed up through expenditure cuts during the Mid-Year Budget Review process. From the operational budget a total of N$176.32 million was freed up through management of the wage bill and vacancy freeze measuers. A further N$ 999.59 million was freed up from the Development Budget due to slow implementation pace or yet to be implemented capital projects.

Funds were reallocated as follows:

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Tax proposals

Tax proposal for tabling

The Minister proposed various tax amendments in recent budget speeches which are yet to be tabled. A draft set of amendments were provided by the MInistry in 2018 which was followed by consultation with various stakeholders.

As of now the table below summarises the amendments that have been announced over the past few budget cycles, with an indication of those that are still going ahead, those still under consideration and those that are not going ahead anymore.

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Integrated Tax Administration System (ITAS)

The Minister mentioned further digitalisation of the tax system by leveraging ITAS.

Namibia Revenue Agency (NamRA)

The launch of NamRA is rescheduled for March 2020.

Growth stimulus packageThe Minister of Finance discussed an economic recovery and growth stimulus package comprising of four interdependent components

over the short and medium-term term. The target areas are public expenditure, private sector direct investment, partial listing of state

assets and structural policy reforms. More details of what each of these areas entail are provided below.

Public expenditure

Increasing the development expenditure with about N$8 billion, including the roll-out of the N$4 billion AfDB funded project financing

for agricultural mechanization, rail and road infrastructure and educational facilities rehabilitation programme. This will be supported by

the water infrastructure rehabilitation and expansion programme, to the value of N$2.5 billion in the initial roll-out phase. Furthermore,

the roll-out of the SME financing facilities at the Development Bank of Namibia, will commence with the launch of the Credit Guarantee

Scheme, Mentorship and Training Programme, and the Skills-based lending facility for the youth.

Private sector direct investment

Enabling the policy framework for implementation of the N$20 billion private sector investment commitments made at the 2019

Economic Growth Summit. Private sector development activity will be enhanced with targeted capitalization of the Development Bank of

Namibia, AgriBank and the Equipment Aid Scheme at the Ministry of Industrialization, Trade and SME Development.

Partial listing of state assets and PPP projects

Creating investment space through leveraging and partial listing of state assets (starting with the telecommunication sector) and

bringing PPP project proposals to the market.

Structural policy reforms

Implementing priority structural policy and related reforms raised at the 2019 Economic Summit to promote the ease of doing business

and business confidence across various parameters.

Other considerations

Accelerating the turnaround time for public procurement project adjudication and award.

Protecting allocations to the development budget.

Effective revenue mobilization strategy, encompassing tax administration reforms and increasing digitalization of the tax system. Lifting

the threshold for unlisted investments in phases from 5%, 7.5% and ultimately to 10%, subject to performance criteria.

Tax Administration

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"The cost of inaction and the slow pace of implementation of announced

measures will continue to weigh heavily on economic activity and requires a

new and robust approach for better results to be achieved, including

effective management and mitigation of State liabilities and fiscal risks."

Ministry of Finance Hon. Calle Schlettwein, 22 October 2019

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For more information, contact your nearest Deloitte tax office.

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This guide is based on the Mid-year budget review tabled in Parliament by the Minister of Finance on 22 October 2019. These proposals are, however, subject to approval by Parliament. The information contained in this guide is for general guidance only and is not intended as a substitute for specific advice in considering the tax effects of particular transactions. While every care has been taken in the compilation of the information contained herein, no liability is accepted for the consequences of any inaccuracies contained in this guide.

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