Civil servants to drive demand side inflation


The rise in civil servant wages and the tax reforms enacted on 1 March are likely to support disposable income and increase consumer spending, which will potentially drive demand-side inflation.

In the 2024/25 budget, the government has budgeted N$35,4 billion for wages and benefits and this also includes a 5% increase for civil servants. The country has about 107 000 civil servants.

“The downside risk to this view is the elevated interest rate environment which may dampen the impact of these demand-side inflationary pressures,” FNB Namibia economists Ruusa Nandago and Helena Mboti disclosed this week.

The economists noted that FNB Namibia has revised its inflation forecast for Namibia anticipates a 4.9% headline inflate rate in April 2024 (previously 4.8%), with a 12-month average of 4.7% for 2024 (unchanged).

In the 2024/25 budget, Minister of Finance and Public Enterprises, Ipumbu Shiimi announced that the FY2024/25 budget has made provision to provide tax relief to low-income earners.

In this regard, the government increased the threshold for income tax on Individuals from N$50 000 to N$100 000. This action will result in an injection of N$646 million directly into the pockets of taxpayers. Effectively, all individual taxpayers were exempted from paying tax on the first N$100 000 of their income as from 1 March 2024. Furthermore, the government has made provisions in the two outer years of the Medium Term Expenditure Framework to adjust all tax brackets for inflation creep. In this regard, a total of N$712.9 million per annum in direct relief to taxpayers has been provided for by the government.

Shiimi said the government has maintained a policy stance to not consider new tax policy proposals specifically those with potential to stifle economic recovery and compromise the emerging growth prospects.

The tax policy proposals are aimed at providing some relief to taxpayers with the aim to boost domestic demand and broaden the tax base to improve revenue mobilisation.

The IMF has said Namibia has shown resilience to global shocks, but growth continues to rely on the mineral sector, with a high public wage premium undermining private sector job creation and economic diversification.

The Fund said the fiscal stance in FY23/24 has been appropriately tightened, with part of the SACU revenue windfall used to expand social programs and part saved as a precautionary buffer.

The IMF said although this tightening helped contain the rise in public debt, the public sector wage bill and debt service still consume the bulk of the budgetary resources, despite the measures taken since FY21/22 to contain public wage bill expansion.

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