The central bank last week said the government needs to address the causes of the increase in the wage bill through structural reforms.
In its 2017 annual report, the Bank of Namibia advised the government to implement several short-term measures among them freezing salary increases, hiring and implementing an effective tax collection system.
Although the government is not recruiting, it promised to pay teachers and civil servants a 9% salary increase for the 2017/18 financial year. The agreement was made when teachers went on strike demanding a salary increase in 2016 when the government effected a 5% increase across the board.
Currently, Namibia's public sector wage bill amounts to 50% of revenue and is one of the highest in the world. Budget allocation for this financial year indicated that government would spend N$28,9 billion on personnel expenditure.
The bulk of the government's money is allocated to personnel expenditures with a reported N$28 billion spent last year - out of the N$62,5 billion national budget - on approximately 119 000 civil servants' salaries and benefits. Personnel expenditure showed a 15% increase over the N$24,4 billion of the 2016 financial year.
Presenting the 2018/19 budget in the National Assembly in March, finance minister Calle Schlettwein said measures would be instituted to bring down the wage bill from 16% of GDP to about 12% of GDP over the next five years, through a combination of natural attrition and below-inflation wage adjustments.
The central bank said although structural wage bill reforms require time, administrative capacity and political will, they generate significant and lasting savings.
"A comprehensive review of government programmes can help identify areas of understaffing and overstaffing," the report stated, adding that this can be done by strategically placing state workers based on objectives required, job profiles and capabilities, enhanced employee mobility across the sectors and their training.
According to the central bank, international experience suggests that while effective in the short run, such measures may affect service delivery and are difficult to sustain.
The bank's report said Namibia's public wage bill has been increasing over the past five years compared to that of its counterparts in southern Africa.
Another suggestion by the bank is to focus towards addressing the reduction of tax exemptions and broadening the tax bases.
"The ongoing tax administration reforms need to prioritise the operationalisation of the Revenue Authority and also the review of current taxes, to conform to current business practices," the report said.
The Namibia Revenue Agency which is predicted to start operating this year will be an independent agency which will assess and collect taxes on behalf the government.
"Namibia should not miss the opportunity to introduce structural economic reforms that could unlock the country's potential to achieve its National Development Plan goals," the report stated.
The country should also capitalise on growth at home programmes that will, in the long run, create employment, reduce imports and contribute to economic growth.
The central bank advised the government that if it continues to scale down debt, increases the revenue base and boosts foreign reserves, there will not be a need for foreign financial assistance.
The bank gave an example of how Latvia came out of financial troubles.
According to the Bank of Namibia's deputy governor, Ebson Uanguta, Namibia's economic growth is estimated to have reduced in 2017 compared to the previous year, with declines mostly in construction, wholesale and retail trade and the public sector.
"Other sectors such as manufacturing, electricity and water, transport and communication also slowed," Uanguta stated.
However, the mining and agriculture sectors have produced good results and if sustained, can create better prospects and help with the recovery going forward.
The bank also announced that it paid N$213 million for the 2017 financial year in dividends to the government.
