Press Release No. 08/313

Press Release No. 08/313

An International Monetary Fund (IMF) mission, headed by Ms. Wipada Soonthornsima, visited Windhoek to conduct the 2008 Article IV consultation discussions. Meetings were held with Prime Minister Nahas Angula, Minister of Finance Saara Kuugongelwa-Amadhila, Bank of Namibia Governor Thomas Alweendo, senior government officials, members of parliament, the private sector, labor unions, and the academic and donor communities.

The mission issued the following statement in Windhoek today:

"The discussions with the Namibian authorities took place against the backdrop of the global financial crisis and economic slowdown-with important repercussions also for Namibia. After several years of solid economic growth, real GDP growth in Namibia is expected to moderate to about 3 percent in 2008 and to some 2 percent in 2009. The large decline in world fuel prices in recent months should help to moderate inflation in 2009 to single digits, notwithstanding the impact on import prices of the marked depreciation of the Namibian dollar (in tandem with the South African rand). A deterioration in the terms of trade has contributed to a large reduction in the current account surplus in 2008.

"The macroeconomic outlook faces significant risks. A more pronounced global downturn could further weaken export demand, with adverse implications also for fiscal revenues. Moreover, a protracted global liquidity shortage could pose a threat to investment projects that are expected to be key drivers of medium-term output growth.

"Against this background, a counter-cyclical fiscal stance is appropriate in the fiscal year 2008/09 (ending March 31), and sound fiscal management in recent years provides scope for some fiscal easing to allow for increased outlays in priority areas such as rural infrastructure, education, and poverty reduction. However, the magnitude of the easing implied by the 2008/09 budget-the fiscal balance would swing by some 6.5 percentage points of GDP-seems considerably larger, even given counter-cyclical considerations. Moreover, the projected large increase in expenditures raises concerns about the ability to ensure high quality of spending. It will be important to integrate the annual fiscal programs into sustainable multi-year budget expenditure plans.

"The mission shares the view that further development of the domestic financial sector would facilitate broad-based economic growth, but is concerned that the new pension fund and insurance company regulations would be difficult to implement and risk distorting capital flows at the expense of lower returns and higher risk to domestic savings. Consideration could be given to a greater focus on market-based alternatives to financial market development, including a broadening of the range of available domestic assets. More broadly, it is important to preserve the stability of the financial sector and the mission welcomes the Bank of Namibia's prompt steps to curb and control non-licensed deposit taking operations and pyramid schemes.

"The National Development Plan 3 provides a helpful framework to achieve high sustainable growth, and to reduce poverty and inequality. Continued improvement in labor productivity and private sector competitiveness will be critical in order to facilitate economic diversification and lower the high unemployment rate.

"The mission welcomes ongoing efforts to improve quality and dissemination of statistics, including a major revision of the national accounts and poverty profile. Further improvements in balance of payments statistics should focus on accurate measurement of capital flows."