The 2024 National Budget, which sets out expected revenues and key national spending priorities, will be tabled to parliament on 28 February 2024. According to Ruusa Nandago FNB Namibia Economist, this is an important budget as it will be tabled ahead of an election period, amid an ongoing drought, sluggish non-mining growth and a less supportive global backdrop.
Given this context, Nandago presents what to expect in this year’s budget:
Positive news on tax policy adjustments
Firstly, tax relief for individuals and corporates is expected, which will comprise increasing the tax exemption threshold for individuals from NAD50,000 to NAD100,000. The tax relief for individuals will be a welcomed development as it will ease the pressure on lower income households from the accelerated inflation seen over the past two years. Secondly, there is an expectation of reducing the corporate tax rate from 32.0% to 31.0%. This is a good first step to making Namibia a more competitive environment for investment.
Weaker domestic revenue growth in the short term
In the mid-term budget tabled in November 2023, the Ministry forecasted revenues to increase only marginally by 0.5% y/y from NAD78.6bn in FY23/24 to NAD78.9bn in FY24/25. This is in line with our view for slower revenue growth given a weak underlying economy outside of the mining sector and lower diamond related revenue due to a softening of the international diamond market. The tax policy adjustments for individuals and corporates will also cause a temporary dip in revenue in the short term. While revenue growth is expected to be slower in the current fiscal year, we are positive on more efficient revenue collection in the medium term due to ongoing efforts by the Namibia Revenue Agency (NamRa) to enhance domestic revenue mobilisation.
Weaker SACU revenue growth in the medium term
Southern African Customs Union (SACU) receipts will remain a key anchor for fiscal revenue, constituting 27.2% of total revenue. Beyond 2024, these revenues will slow as the South African budget tabled on 23 February 2024 shows a decline in transfers to SACU member countries, compared to the Mid-Term Budget Policy Statement tabled in 2023. The budget initially estimated SACU revenue transfers at NAD85.6bn, but this has now been lowered to NAD77.2 billion.
Higher expenditure growth
Expenditure growth will likely exceed that of revenue largely on the back of higher interest payments on government debt. The Ministry’s forecasts for expenditure growth at 4.0% y/y from NAD89.0bn to NAD92.4bn exceed those of revenue growth. There is a risk that expenditure growth overshoots this target as there could be higher election related expenditure such as welfare spending, grants, and drought relief. Furthermore, the civil servant wage increases announced post the tabling of the mid-term budget in 2023 will also feature in higher expenditure numbers.
Upward pressure on debt
Given the revenue and expenditure dynamics, the budget deficit will widen which will exert upward pressure on domestic debt levels. Total government debt is currently estimated at NAD165.7 billion for FY24/25. This implies higher interest payments for government which diverts resources away from more productive expenditure. Encouragingly, the government will continue to source most of its funding needs from the domestic market, thus limiting currency risk on debt.
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