Analysing the effects of debt financing on fiscal sustainability of the City of Windhoek

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University of Namibia
Municipalities' capacity to stay financially viable will determine their long term viability. Well-managed municipalities provide evident positive outcomes that are critical to guaranteeing the continued provision and maintenance of high-quality, affordable services for all residents in their jurisdiction. Municipalities that rely heavily on transfers and grants from the federal government are unlikely to run up huge debts. As a result, they are exposed to financial and sustainability hazards. However, the mounting debt levels reported in the Municipality of Windhoek financials is a source of concern since it may eventually reach unsustainable levels. This study's main objective was to investigate the impact of debt financing on the City of Windhoek's fiscal sustainability. Accordingly, the study explored the factors that influence fiscal sustainability in Windhoek in order to understand the underlying causes of the Windhoek Municipality's rising debt burden. The study adopted a quantitative explanatory research design that used secondary data from financial audit reports for the period 2008 to 2019. The data was then computed into indicators based on literature and transformed into logarithmic ratios using Principal Component Analysis (PCA) and Dendrograms. The study then used temporal causal modelling and ARDL model estimation to establish the nature of relationships between fiscal sustainability and debt burden indicators within the context of financial independence. The study found evidence of both long-term and short-term relationships between fiscal sustainability, debt burden, and financial independence. However, the long-term relationships were not statistically significant. The study concludes that fiscal sustainability in the City of Windhoek is dependent on expenditure coverage ratios, debt burdens related to non-statutory funds, budget deficits, and employee benefit liabilities. The study recommends that the municipality must focus on diversifying their revenue streams and revise their long-term investment strategy.
A thesis submitted in partial fulfilment of the requirements for the Degree of Master of Business Administration (Management Strategy)
Fiscal sustainability, Debt burden, Financial independence, Municipality, Windhoek