Public Information Notice: IMF Executive Board Concludes 2007 Article IV Consultation with Namibia

February 15, 2008

Public Information Notices (PINs) form part of the IMF's efforts to promote transparency of the IMF's views and analysis of economic developments and policies. With the consent of the country (or countries) concerned, PINs are issued after Executive Board discussions of Article IV consultations with member countries, of its surveillance of developments at the regional level, of post-program monitoring, and of ex post assessments of member countries with longer-term program engagements. PINs are also issued after Executive Board discussions of general policy matters, unless otherwise decided by the Executive Board in a particular case.

Public Information Notice (PIN) No. 08/18
February 15, 2008

On January 18, 2008 the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Namibia.1


Namibia's real GDP has remained robust, broadly matching regional peers. For 2007, a modest strengthening of real GDP growth in part reflects buoyant diamond production. Namibia's external current account surplus has risen to high levels in 2006 and 2007, reflecting strong diamond exports, high global prices for other mineral exports, and large receipts from the Southern African Customs Union (SACU). Namibia's strengthened balance of payments position has accommodated a doubling of its international reserves since 2005. Portfolio and other capital investments abroad have also remained at high levels.

Inflation pressures intensified through the first half of 2007, reflecting increases in global food prices. After rising 7.2 percent in the year to July 2007, inflation declined to 6.6 percent in the year through October 2007. Consistent with Namibia's currency peg to the rand, the Bank of Namibia has, except for the rate increase in December 2007, matched interest rate increases by the South African Reserve Bank, with an increase of 350 basis points since early 2006. Namibia's exchange rate was broadly stable, in nominal effective terms, in 2007.

The fiscal balance moved into surplus in the fiscal year 2006/07 (ending March 31, 2007), reflecting tight expenditure management and strong SACU receipts. Based on a further fiscal surplus projected for 2007/08, public debt should fall below the government's target ceiling of 25 percent of GDP.

Executive Board Assessment

Executive Directors commended the authorities' sound macroeconomic management, which, together with a favorable external environment, has led to robust economic growth, subdued inflation, large current account surpluses, and a strengthened foreign reserve position. Directors also welcomed the progress toward achieving the Millennium Development Goals, while noting that much remains to be done to lower the high unemployment and poverty rates and the economy's vulnerability to shocks.

Directors noted that the overall outlook for Namibia is positive. Potential downside risks arise mainly from uncertainties regarding the global environment and slow progress in economic diversification. In particular, the key mining sector is vulnerable to a deterioration in the terms of trade. Directors also stressed that reforms to accelerate growth in the non-mineral sectors of the economy will be crucial to reduce unemployment and poverty. They emphasized the importance of further progress in addressing the HIV/AIDS pandemic. Directors encouraged the authorities to take advantage of the current favorable economic climate to build the necessary political support for key pending reforms.

Directors considered that the exchange rate peg to the South African rand remains appropriate. They stressed the importance for policy interest rate differentials with South Africa to be limited to levels that do not destabilize capital flows or official reserves. Directors were of the view that, despite large current account surpluses, there is no evidence of significant currency under-valuation.

Directors commended the authorities for their continuing sound fiscal policies. They welcomed the decision to use part of the recent strong receipts from the Southern African Customs Union (SACU) to reduce public debt through fiscal surpluses. Directors agreed that Namibia's strengthened fiscal position and the projected decline in public debt creates fiscal space for additional expenditure to upgrade infrastructure. Directors stressed, however, that improved expenditure prioritization is needed within the context of the new medium-term expenditure framework. They noted that personnel expenditure remains high by regional standards, and should be reduced in the context of a comprehensive reform of the civil service. Directors underlined the importance of reducing risks to the budget through strengthened oversight of public enterprises, and commended the approval of the State-Owned Enterprise Act while urging quick action to bring the Act into effect.

Directors welcomed the authorities' intention to strengthen tax administration and increase revenue collection from the non-mining sectors, noting the importance of maintaining fiscal sustainability in light of the projected decline in SACU receipts over the medium term. Directors attached high priority to strengthening the Inland Revenue Department, including by building its audit capacity, establishing a large-taxpayers' office, and improving administration of the value added tax.

Directors welcomed the favorable performance of the financial sector and the progress in strengthening regulatory oversight in line with FSAP recommendations. They encouraged efforts to foster competition in the banking sector. Directors noted that the authorities' intention to require higher levels of domestic investment by the pension and insurance industries should be carried out in a way that ensures that financial institutions can continue to invest safely and productively in order to generate favorable returns for savers. They welcomed the authorities' intention to implement any reforms to the regulatory regime cautiously, and to closely monitor the financial sector impact while working to broaden the range of domestic investment options.

Directors placed particular emphasis on reforms to reduce unemployment and poverty. They welcomed steps to strengthen labor relations through arbitration and conciliation services, and the plans to promote labor productivity and upgrade civil service skills. They encouraged the authorities to consider also further initiatives to liberalize the trade regime, improve the business environment, and speed up education reform to rapidly narrow the skills gap. Directors emphasized the importance of improving governance, and encouraged the authorities to join the Extractive Industries Transparency Initiative.

Namibia: Selected Economic Indicators

  2004 2005 2006 2007 Est.


Change in real GDP

6.6 4.8 4.1 4.4

Change in CPI (end of period)

4.3 3.5 6.0 6.7
  (Percent of GDP)

Overall fiscal deficit/surplus 1

-3.4 -0.5 3.4 2.6

Public debt 1

33.7 30.2 28.2 22.8
  (End of period; percent change)

Broad money

16.2 9.7 29.8 18.8

Credit to the private sector

19.4 20.1 14.7 11.2
  (Percent of GDP, unless stated otherwise)

Current account balance

8.2 5.5 15.9 18.5

International reserves (months of imports)

1.7 1.4 2.1 2.8

Exchange rate (Namibia dollar/U.S. dollar, end of period)

5.6 6.3 7.0 6.8

Sources: Namibian authorities; and IMF staff estimates.

1 Figures are for fiscal year, which begins April 1.

1 Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board. At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. This PIN summarizes the views of the Executive Board as expressed during the January 18, 2008 Executive Board discussion based on the staff report.


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