Press Release No. 18/415

IMF Staff Concludes Visit to Namibia

November 9, 2018

• The economy has entered a recession phase and is expected to recover gradually.
• Namibia’s key challenges are to continue implementing fiscal consolidation plans to contain public debt dynamics and preserve macroeconomic stability, and pursing reforms to raise long-term growth and job creation.

An International Monetary Fund (IMF) team, led by Geremia Palomba, visited Windhoek during November 2–9, 2018 to discuss recent developments, the economic outlook and related policies, in the context of its regular Article IV discussions.

At the conclusion of the visit, Mr. Palomba made the following statement:

“After years of robust growth, the economy has entered a recession phase. GDP declined in 2017, as the temporary stimulus from large constructions in the mining sector dissipated, and the government continued consolidating to stabilize public debt dynamics.

“IMF staff anticipates that the economy will recover gradually. Real GDP is projected to contract in 2018, albeit at a lower rate, and turn positive in 2019, supported by strong mining production and a rebound in construction activities. Growth is expected to strengthen over time, and converge to a long-term rate of about 3 percent, below the average of recent years, held back by low productivity growth and stagnant competitiveness. Downside risks to this outlook include lower than expected revenue from the Southern Africa Customs Union (SACU), slower growth recovery, and fiscal slippages that could undermine policy credibility and debt sustainability.

“Namibia’s key challenges are to continue implementing fiscal consolidation plans to contain public debt dynamics and preserve macroeconomic stability, and pursing reforms to raise productivity, long-term growth, and job creation.

“The recent commitment to deliver this year fiscal deficit target and further deficit reductions over the next years is a welcome step. The adjustment is warranted due to rising public debt and to preserve macroeconomic stability. In preparation of next year budget, the strategic policy decisions and specific measures to deliver the planned adjustment should be clearly identified. Policies should address the sources of recent deterioration, particularly public wage costs and transfers to public entities. Moreover, they should combine expenditure and revenue measures to contain the short-term impact on growth, while safeguarding critical social and capital spending.

“There is significant room to undertake supply-side reforms to strengthen productivity and potential growth, and support job creation, in parallel with fiscal adjustment policies, As the government adjusts, special emphasis should be placed on strengthening the market operations of key public enterprises to improve the efficiency of the economy, and on establishing a well-structured wage policy for the public sector to better align wage dynamics with productivity growth. Over time. it is important to remove obstacles to exports, reduce market barriers, and streamline business regulations that contribute to high business costs, while addressing the shortage of skilled workers.

“The financial sector remains sound, although economic slowdown has started affecting it. . The authorities are taking steps to curb possible risks and advance key reforms, such as strengthening bank’s asset classification, and upgrading the non-bank regulatory and supervisory frameworks. These actions should help address macro-financial and structural vulnerabilities, including banking and non-banking sector weaknesses.

“Discussions held with the authorities have set the stage for the upcoming 2019 Article IV consultation with Namibia planned to take place in early 2019.

“The mission thanks the authorities for their hospitality and productive discussions.”