The budget for fiscal year 2011/12 (April-March) due to be delivered on March 8th will contain measures to boost employment through public- and private-sector initiatives, implying higher government spending levels than projected in the current medium-term expenditure framework (MTEF). The new MTEF-covering 2011/12-2013/14-to be published with the budget will also have to factor in a steeper decline in Namibia's share of receipts from the Southern African Customs Union (SACU), due to the impact of reduced trade with the rest of the world during 2008-09 (payments lag by two years). The current MTEF projects that the deficit will widen from 7.1% of GDP in 2010/11 to 8.2% of GDP in 2011/12 owing to lower SACU receipts, although following estimated real GDP growth of 4.6% in 2010, income tax receipts are likely be revised upwards. Expenditure in 2011/12 was projected-implausibly-to increase by only 0.6% in nominal terms, representing a cut in real terms. However, in the light of the promised employment-creation measures, this will be far exceeded. The Economist Intelligence Unit therefore forecasts a deficit of 8.7% of GDP.

The new MTEF is expected to raise substantially the current government projection of a narrowing of the fiscal deficit to 4.4% of GDP in 2012/13, owing to a 24% increase in revenue, mainly resulting from a doubling of receipts from SACU, whereas spending is forecast to rise by 7%. As inflation is likely to be around 5.5%, this still represents almost no increase in real terms, so we forecast another overshoot. In addition, we expect a smaller increase in SACU receipts, although this may again be partly offset by a larger-than-forecast increase in income tax revenue. This is projected to rise by 14%, the same as in 2011/12. However, tax receipts should grow faster than this, owing to higher profits generated by mining firms in particular. In summary, revenue will be lower and expenditure higher than the MTEF projects, resulting in a deficit of 4.7% of GDP.

To cover the deficits, the government currently expects to increase its debt by nearly 50% to N$26.5bn (US$3bn) by March 2012, and by 21% to N$32bn (29% of GDP-just below the 30% ceiling set in 2010) by March 2013. If higher deficits require additional borrowing, then these targets are likely to be increased in the new MTEF.