Press Release No. 17/485

IMF Staff Completes 2017 Article IV Mission to Namibia

December 12, 2017

• After years of exceptional growth, the economy has entered an adjustment phase.

• Namibia’s key challenges are to manage the ongoing adjustment process and preserve macroeconomic stability, while reducing unemployment and income inequality.

An International Monetary Fund (IMF) staff team led by Mr. Geremia Palomba, IMF Mission Chief for Namibia, visited Windhoek during November 30-December 12, 2017 to conduct the 2017 Article IV Consultation with Namibia.

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

“After years of exceptional growth, the economy has entered an adjustment phase. Growth is expected to turn slightly negative in 2017, compared to a growth of 1.1 percent in 2016, as large constructions in the mining sector have been completed and the government continues consolidating. Growth is projected to resume in 2018 and accelerate thereafter to about 4 percent as production from new mines ramps up and manufacturing and retail activities recover. Downside risks to this outlook include volatile Southern African Customs Union (SACU) revenue, subdued commodity prices, and fiscal slippages that could undermine policy credibility.

“Namibia’s key challenges going forward are to manage the ongoing adjustment process and preserve macroeconomic stability, while reducing unemployment and income inequality. The government and the Bank of Namibia have already taken steps to reduce the fiscal deficit and preserve financial stability. However, fiscal and external vulnerabilities are rising and call for additional action.

“With SACU revenue declining, significant fiscal adjustment is needed to ensure debt sustainability and macroeconomic stability. Policies need to address the sources of recent deterioration, including public wage costs, and combine expenditure and revenue measures that can support long-term growth, while safeguarding critical social and development spending. Strengthening revenue administration, improving budget formulation and expenditure controls, and carefully managing extra-budgetary entities and public enterprises are critical steps to consolidate the fiscal accounts and secure a more equitable burden sharing. Avoiding risk taking from off-budget operations is also essential to the credibility of the adjustment. To this end, the mission welcomes the authorities’ commitment to undertake additional measures to reduce the fiscal deficit, as stated in the recent Mid-Year Policy Statement.

“The financial sector remains sound. The authorities are taking steps to manage possible risks and advance key reforms, such as strengthening bank’s liquidity monitoring and asset classification, introducing a bank resolution regime, expanding the macroprudential toolkit, and upgrading the non-bank regulatory and supervisory framework. These actions should help address macro-financial and structural vulnerabilities, including some banking and non-banking sector weaknesses, rising real estate prices, relatively high household indebtedness, and complex linkages across financial institutions.

“The government has taken actions to support growth, tackle high unemployment, particularly among the youth, and reduce income inequality. Reforms targeted at addressing the shortage of skilled workers, better aligning wage dynamics to productivity trends, and simplifying business regulations have the potential to significantly boost employment and deliver more inclusive growth.”

“The mission met with Prime Minister Saara Kuugongelwa-Amadhila, Minister of Finance Calle Schlettwein, Bank of Namibia Governor Ipumbu Shiimi, other senior officials, and financial market, business and union representatives. The mission would like to express its gratitude to the authorities and their staff for the productive and open discussions.”

The findings of the mission will be reflected in the 2017 Article IV staff report. This report, together with the joint IMF-World Bank Financial Sector Assessment Program (FSAP) report, is expected to be discussed by the IMF Executive Board in early 2018.