Steeling for the Next Pandemic Through Fiscal Responsibility: The Bank of Namibia as Fiscal Council

Abstract

In light of the ongoing COVID-19 pandemic and future pandemics, this chapter mounts a fiscal responsibility framework to enable developing countries, Namibia in particular, to strike the delicate balance between easing short-term liquidity crises and preserving their country’s long-term development. The COVID-19 pandemic has created manifold pandemonium, affecting the economy, the healthcare system, and state finances. Inexorably, most governments will have to borrow money if they genuinely wish to pull through COVID-19, the world’s worst economic crisis since the Great Depression.

Disasters such as the latest coronavirus cause government spending to shoot up as the authorities need to spend huge sums to engage in relief activities, recover losses suffered or repair damage caused, and shore up the economy. Crucially, however, these disasters tend to push up public debt to unsustainable levels.

While economists and economically-oriented lawyers spoke about this thorny dilemma, the legal literature has remained silent as to how developing countries could use or tweak their budget system laws to tackle this singular and multi-faceted crisis. The time is therefore opportune to ponder on budget system laws in developing countries and reflect on how governments can adapt to suit the unique and uncertain circumstances brought about by the COVID-19 pandemic and the ensuing Great Lockdown. This holds especially true given the evidence that this pandemic may be one only of several pandemics to come.

By relying on international best practices in budget system laws, the chapter outlines and assesses the framework for a fiscal responsibility law (FRL) that a developing country such as Namibia could pass to safeguard debt sustainability. I advance the thesis that Namibia’s legal system can most effectively balance the liquidity-strategy dilemma by enabling the Bank of Namibia (BON), the central bank, to act as a fiscal council. BON stands in a better position than other national bodies to function like a fiscal council because BON enjoys a legally-protected independence, in a country with a sterling reputation for its strict adherence to the law; and because it has greater expertise and more resources in matters pertaining to the macroeconomy and system-wide risks.

The Southern African Development Community (SADC) appears to have carved out a fiscal council role for central banks in the region. In 2009 SADC adopted a model law that Namibia utilised to enact a new law in 2020 which makes it possible for the central bank to act as a fiscal council. In that capacity, the Bank of Namibia can guide the government in fixing the appropriate level of public debt that Namibia can take on. This level strikes a balance between the two poles of the dilemma mentioned above – a dilemma that pits short-term emergency against long-term strategy.