IMF Executive Board Concludes 2008 Article IV Consultation with Namibia

Public Information Notice (PIN) No. 09/48
April 15, 2009

On February 27, 2009 the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Namibia.1


Real GDP growth is expected to moderate to about 3 percent in 2008 from 4.1 percent in 2007, reflecting a downturn in the mining sector owing to the global economic slowdown, and the lagged impact of monetary tightening in 2007. The external current account surplus is expected to fall to 2 percent of GDP in 2008 on account of declining terms of trade and substantial imports for mineral exploration and public infrastructure projects. Official international reserves have increased to an equivalent of 3.7 months of imports of goods and services in December 2008, up from 3 months at end-2007.

Large increases in international food and fuel prices pushed inflation into double digits in 2008. The 12-month inflation rate rose sharply during the first half of the year and remained at 10.9 percent in December, compared with 7 percent a year before. In line with the South African Reserve Bank (SARB) rate cut, the Bank of Namibia (BoN) reduced its repo rate by 50 basis points in December 2008. This left the rate at 10 percent, still 150 basis points below the SARB repo rate, after the BoN opted not to follow three SARB rate increases in 2007–08. Mirroring the weakening of the South African rand, the Namibian dollar depreciated by 26 percent against the U.S. dollar during 2008, roughly two-thirds of which took place during September-December.

The 2007/08 (April-March) fiscal balance recorded a much higher surplus than budgeted, reflecting stronger revenue performance driven by high commodity prices and an improvement in tax administration. Accordingly the 2008/09 budget envisages a large swing in the fiscal balance to a deficit, which would raise public debt close to the authorities’ target level of 25 percent of GDP.

Executive Board Assessment

Executive Directors commended the authorities’ sound macroeconomic management, which had contributed to solid growth and strong external and fiscal positions. The global economic and financial turmoil has, however, worsened the near-term outlook. In particular, the deterioration of the global economy has led to a downturn in the mineral sector, which could be more pronounced in the event of a prolonged global crisis. Directors recommended continued pursuit of sound macroeconomic policies and determined implementation of structural reforms to accelerate growth in the non-mineral sectors of the economy with a view to reducing unemployment and poverty.

Directors noted that the authorities’ prudent fiscal policies in recent years have created fiscal space to support growth and address infrastructure needs. They agreed that some loosening of the fiscal stance in 2008/09 was appropriate in view of the economic slowdown. At the same time, Directors cautioned that the planned fiscal expansion is sizable, and should not compromise the quality of spending. A less expansionary fiscal stance would allow for a more gradual increase in capital expenditure, while safeguarding fiscal sustainability. Directors welcomed the authorities’ intention to broaden the definition of the public debt target to include publicly guaranteed debt and central government deposits, while stressing the need to keep in place a strong and appropriately defined fiscal anchor. They encouraged the authorities to continue to strengthen public financial management and revenue administration.

Directors considered that the exchange rate peg to the South African rand continues to serve Namibia well in view of the large trade and capital flows between the two countries. They noted the staff’s assessment that the real effective exchange rate appears broadly in line with equilibrium. While the Bank of Namibia has found some room to deviate from the interest rate policy of the South African Reserve Bank, Directors considered that the peg and close financial links with South Africa are likely to constrain the scope for effective independent monetary policy over the longer-term. In this connection, they stressed the importance of maintaining sufficient international reserves and monitoring closely capital flows so as to adjust interest rates in a timely manner as necessary.

Directors noted that the turbulence in international financial markets has so far had little immediate impact on the banking sector, as banks remain well-capitalized with a low level of non-performing loans. Nonetheless, they urged the authorities to remain vigilant as the economic downturn advances in 2009, especially given a high concentration of real estate and consumer loans.

Directors encouraged the authorities to press ahead with their structural reform agenda so as to improve the country’s competitiveness, diversify the economy, and bolster growth prospects. They noted the authorities’ intention to phase in the tightening in domestic investment requirements for pension fund and life insurance companies, while monitoring the developments closely and making adjustments as necessary to mitigate the risks to institutional investors. Directors encouraged the authorities to implement the planned reforms of state-owned enterprises with a view to reducing their burden on the budget. Sustained further efforts are needed to address the high unemployment and HIV/AIDS challenges.

Namibia: Selected Economic Indicators

  2005 2006 2007 2008 Proj.

Change in real GDP

2.5 7.2 4.1 2.9

Change in CPI (end of period)

3.5 6.0 7.1 10.9
  (Percent of GDP)

Overall fiscal deficit/surplus1

-0.4 2.8 4.5 -2.6

Public debt 1

26.0 24.4 18.9 22.0
  (End of period; percent change)

Broad money

9.7 29.8 10.2 15.5

Credit to the private sector

20.1 14.8 12.9 6.1
  (Percent of GDP, unless stated otherwise)

Current account balance

4.7 13.8 9.2 2.0

International reserves (months of imports)

1.4 2.1 3.0 3.7

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

6.3 7.0 6.8 9.3

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.


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