The positive effect on Revenue was evident from an improving economy. However, it was whittled away by a gross underestimation of the interest bill, as well as other “unforeseen and unavoidable” emergency expenditures. The latter was attributable to SOE’s (TransNamib and MeatCo), PSEMAS, NSFAF and drought relief.
- Macroeconomic assumptions: This was in line with our expectations. Nominal GDP growth was revised substantially – for FY23 and FY24 to +11% pa and for the next few years to an average of 7.5%. For the first two quarters of calendar 2023 (CY23), it grew by an average of 15.4% yoy.
- Revenue from domestic sources: Personal Income Tax (PIT) should be up by 9.4% according to the MoF and Corporate Income Tax (CIT) by 14.7% in FY24. VAT, which, including the Fuel Levy, makes up 23% of Total Revenue, is now estimated to jump by 17.2%. PIT and CIT together make up 34% of total Revenue.
- Revenue from the SACU pool: The amount to be received in FY24 is fixed at N$24.3bn, which is about a third of Total Revenue. It is up from around N$14bn pa over the past two years. The MoF expressed reservations regarding the outlook. He is budgeting for it to decline, but to remain around N$21bn pa over the next three years.
- Total Revenue: In FY24, the upshot is that it will amount to just about N$4bn better than Budgeted in February 2023 for a total of N$78.6bn, a 22% increase over FY23. However, for FY25 (+0.5%) and FY26 (+3.9%), virtually no growth in Total Revenue is expected, only to pick up to +10% in FY27, by which time it should amount to N$90bn.
- Expenditure: Unfortunately, there is an overrun of N$4.5bn on this side of the equation, this means that the total for FY24 comes to N$88.9bn. N$1.5bn is ex-Budget and funded by grants and African development bank loans. The Interest Bill exceeds estimates by N$1.7bn and the rest is made up as mentioned above. The one outstanding feature that is noteworthy is the discipline in the Wage Bill. The MYBR has virtually the same number as that of the Budget, namely N$32.8bn for FY24. It will mark six years of extraordinary containment – it grew an average of 2% per annum over this period. The acid test is to come in the 2024 election year.
- Deficit and debt: The bottom line is that the deficit at N$10.4bn amounts to 4.5% of GDP which is still too high. For FY25 it is envisaged to expand to 5.4% of GDP and then to fall to 2% by FY27. It remains to be seen whether this is actually the target of the MoF, or whether it is just illustrative. As it stands it means that the debt trajectory has improved. It should however stabilise at 66% of GDP and decline to 62% by FY27, whereas until recently 70%+ was envisaged. Following the next fiscal year, FY25, which starts with the Budget in March 2024, there is only one year left to the maturity of the $750m Eurobond, at the current exchange rate, equivalent to N$14,250m – an amount that exceeds the annual Budget Deficit. This was not addressed explicitly yet. The sooner the fiscus demonstrates credible preparations for this maturity, the better.
- Creditworthiness: Credit ratings, currently at BB- were, once again, not mentioned. It had been deteriorating after we had long since lost our investment grade. Over the past ten years, the Debt-to-GDP ratio climbed from 27% to 66% currently - double the ratio that the fiscus once used to regard as healthy and sustainable in their benchmarking. Targeting a maximum of 3% deficits to achieve a declining Debt-to-GDP trajectory is the only way of recovering an investment grade. It will take great determination and several years.
The MYBR is not the forum where tax changes or major policy shifts are announced. However, the MoF made mention of a newly formed Tax Policy Unit within the Ministry, as well as the new SOE policy being hammered out. Overall, the indicative numbers set out in the MYBR for the upcoming budget of February 2024 and the following two fiscal years are quite “soft”, therein that Revenue is, once again very conservatively estimated, while very low growth rates are envisaged for Expenditure. Nevertheless, it amply illustrates the possibility that the deficit and debt ratios to GDP could shrink quite fast – the former to 2% and the latter to 62%.
