Namibia's fiscal deficit to narrow on rising mining production, spending cutbacks – BMI

Rising mining production and cutbacks on nonessential spending will see Namibia's fiscal deficit narrow in the coming months, says BMI Research, which is part of Fitch Group.

BMI points out in a new report that Namibia's fiscal balance will begin to narrow over 2017, after widening substantially this year, on the back of improving revenues from the mining sector and government paring back spending.

The budget deficit will narrow from 8.2% of gross domestic product this year to 7.4% in 2017 after four consecutive years of growth.

While global commodity prices will remain structurally low compared with the commodity boom years, government revenues will receive a boost as the Husab uranium mine begins production in the first quarter of 2017, doubling the country’s uranium output.

“This will provide a buffer to waning Southern African Customs Union (Sacu) revenues as the country becomes the third-largest uranium producer in the world,” BMI says.

BMI's mining team forecasts mining production for Namibia's key mineral exports, which include diamonds, copper, zinc and uranium, to register positive growth.

Increasing activity in the mining sector will provide a boost to government coffers through increased company tax collections and mining royalties.

“That said, revenues from [Sacu], which have historically accounted for a large proportion of Namibia's government revenues will grow at a sluggish pace.”

Sacu member States include Botswana, Lesotho, Namibia, South Africa and Swaziland and sluggish growth in the largest member, South Africa, will see Namibia's customs revenue remain subdued over 2016 and 2017.

The report points out that Namibia's Sacu revenues, which have accounted for around 30% of total government revenues in recent years, will remain tepid over the next 18 months.

The impact of strong revenues will be further bolstered as the Namibian government begins paring back nonessential spending.