## 1. The Impact of the COVID-19 Pandemic and Start of the Recovery ## Source details **Canonical URL:** [1. The Impact of the COVID-19 Pandemic and Start of the Recovery](https://www.imf.org/-/media/files/publications/cr/2022/english/1namea2022001.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2022/english/1namea2022001.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2022/english/1namea2022001.pdf.json) --- ### Context and background - National response and epidemiology: - National state of emergency declared; borders closed; country-wide lockdown in early 2020. - Severe second and third waves in late-2020 and mid-2021; omicron surge in December 2021; most COVID-19 restrictions lifted in mid-March 2022. - About 7 percent of the population was infected; fatality rate described as "very contained." - Vaccination: about 24 percent of the targeted population is fully vaccinated. Campaign targets people aged 12 and above (about 1.8 million or 68 percent of the population). - Pre-pandemic weaknesses (2017–19): - Real GDP contracted by 0.3 percent; per capita GDP contracted by -3.5 percent (y-o-y, average). - Decelerating private and public investment, fiscal consolidation, severe drought, weak SACU tax revenues, large fiscal imbalances, increasing public debt; high unemployment and pervasive income inequality. - Authorities’ fiscal and policy response: - Economic Stimulus and Relief Package in FY20/21: scaled up health and education spending; targeted cash transfer program; wage subsidy program; accelerated repayment of government arrears; temporarily eased banks’ regulatory requirements. ### Immediate socioeconomic impact - Output and labor: - Real GDP contracted by 8 percent in 2020. - Unemployment rose to 22 percent (40 percent among youth). - Fiscal and debt: - FY20/21 overall fiscal deficit widened to 8.8 percent of GDP. - Public debt reached 66 percent of GDP. - Poverty and food security: - Poverty rate estimated at 20.2 percent in 2020 (15.9 percent in 2019). - Income inequality worsened. - Food insecurity: more than a quarter of the population estimated food insecure at end-2021 (16 percent prior to the pandemic). - Namibia depends on imported food for more than half of calories consumed and imports about 60 percent of its wheat from Russia. ### IMF and external support - IMF emergency financing: - RFI approved on March 31, 2021: SDR 191.1 million (about US$270.8 million; 100 percent of quota), in the form of budget support. - General SDR allocation: - SDR 183.2 million on August 23, 2021. ### Recent economic and financial developments (select) - Growth and sectoral drivers: - Real GDP growth: 2.7 percent in 2021 after the 2020 contraction. - Recovery strengthened in H1 2022 with real growth at 6 percent, driven by mining and manufacturing. - Inflation: - Headline inflation averaged 3.6 percent (y-o-y) in 2021. - Average headline inflation rose to 5.8 percent at end-September 2022. - Core inflation: 3 percent (y-o-y). - Food inflation: about 7 percent. - Transport inflation: about 17 percent. - Fuel levies reduced by 50 percent during May-July; associated loss in tax revenues estimated at 0.2 percent of GDP. - External sector and reserves: - Current account deficit of 9.6 percent of GDP in 2021. - Gross international reserves: 5 months of import coverage in 2021; 4.8 months of import coverage at end-September 2022. - REER: appreciated by 5.5 percent in 2021; depreciated by 2.5 percent during January-August 2022. NEER depreciated by 2.3 percent. - Fiscal developments: - FY21/22 overall fiscal deficit: 8.7 percent of GDP, with SACU tax revenues contracting by 4.7 percent of GDP. - Non-SACU tax revenues strengthened, supported by economic recovery and tax arrears collection (1.4 percent of GDP). - Public spending reduced by 3.5 percent of GDP as the 2020 COVID-19 fiscal package was unwound. - Large financing needs covered by external financing, IMF emergency assistance and SDRs allocation, AfDB budget support, and sizable domestic borrowing. - Monetary policy and financial sector: - BoN policy rate: lowered from 6 to 3.75 percent in 2020; then gradually raised by a cumulative 250 basis points (to 6.25 percent) during January-October 2022. - Banking sector (end-June 2022): liquid, well-capitalized, profitable. Non-performing loans slightly increased to 6.0 percent. - Banks’ net claims to the government increased by 51 percent in 2021 and by a further 30 percent (y-o-y) at end-September 2022. - Private sector credit growth: slowed to 1 percent (y-o-y) in 2021; strengthened to 4.6 percent at end-August 2022. - Household mortgages reached about half of banks’ total private sector loans at end-August 2022. - Banks’ wholesale funding exceeds a third of banks’ deposits. ### Outlook and risks - Growth projections: - Real GDP growth projected at 3 percent in 2022 and 3.2 percent in 2023. - Real GDP expected to reach pre-pandemic level in 2023. - Medium-term real GDP growth expected to stabilize at 2.6 percent. - Near-term drivers: robust diamond, gold, and uranium production; favorable export commodity prices; a new vessel for diamond mining. Manufacturing and tourism would gradually recover. Agricultural growth constrained by higher fertilizer and animal feed prices due to the war in Ukraine. - Inflation and external outlook: - Headline inflation expected to rise to 6.4 percent in 2022. - Current account deficit expected at 9.5 percent in 2022. - International reserves expected to decline to 4.4 months of imports in 2022, slightly below IMF reserve adequacy metrics. - 2022 IMF reserve adequacy metrics for Namibia estimated equivalent to 4.5–6.7 months of imports and 20.2–30.3 percent of GDP. - Current account analysis points to a moderate overvaluation of the REER. - Risks (selected): - Downside: stronger spillovers from the war in Ukraine (higher fuel and food prices), slowdown in global economy and trading partners, weakening commodity export prices, resumption of lockdown measures, tighter global financial conditions leading to capital outflows, and delays in planned fiscal consolidation worsening debt dynamics. - Upside: acceleration of investments in oil and gas and green hydrogen; higher-than-anticipated SACU revenues reducing financing needs. - Gradual accumulation of international reserves anticipated to reach ARA metrics by 2023; anticipated reduction in external debt to improve the NIIP. ### Policy discussions and recommendations (summary) - Key priorities: - Implement medium-term fiscal consolidation to preserve debt sustainability and support the external position and the currency peg. - Maintain the currency peg to anchor inflation. - Strengthen financial sector resilience and manage macro-financial risks. - Advance structural reforms and address food security to foster sustainable and inclusive private sector-led growth. - Staff recommendations: - Continue orienting macroeconomic policies towards preserving stability while protecting the most vulnerable. - Implement planned medium-term fiscal consolidation while protecting social spending and growth-supporting capital spending. - Keep the policy rate broadly in line with the SARB’s rate to anchor inflation, maintain adequate reserve levels, and support the peg. - Strengthen financial sector resilience and manage macro-financial risks. - Protect vulnerable households from higher food and fuel prices and address food insecurity and poverty. ### A. Preserving Fiscal and Debt Sustainability — measures and calibration - Authorities’ fiscal adjustment package over FY2021/22–25/26: 6.7 percent of GDP (cumulative). - Key consolidation measures: - Containing the wage bill. - Improving SOEs performance and management and divesting from selected entities to reduce budgetary transfers. - Reducing the costs of the Public Service Employee Medical Aid Scheme (PSEMAS). - Mobilizing tax arrears and one-off exceptional revenues. - Fiscal consolidation measures (Text Table 1, Percent of GDP): - SOE Reform cumulative: 2.1 (2021/22: 0.0; 2022/23: 1.8; 2023/24: 0.2; 2024/25: 0.1; 2025/26: 0.0). - Public Service Medical Aid Scheme Reform cumulative: 0.4 (2023/24: 0.2; 2024/25: 0.2). - Wage Reform* cumulative: 1.9 (2021/22: 0.7; 2022/23: 0.3; 2023/24: 0.6; 2024/25: 0.1; 2025/26: 0.1). *Note: Net of severance pay. - Revenue Mobilization cumulative: 2.2 (2021/22: 1.3; 2022/23: 0.9). - TOTAL: cumulative 6.7 (2021/22: 2.1; 2022/23: 3.0; 2023/24: 1.1; 2024/25: 0.5; 2025/26: 0.1). ### Debt outlook and risks - Public debt-to-GDP expected to gradually decline over the medium-term but risks are significant. - Public debt and gross financing needs increased sharply during FY20/21–21/22 due to the pandemic. - Gross financing needs expected to gradually decline but remain large, with a spike in 2025 due to redemption of the US$750 million 2015 Eurobond. Authorities plan to cover the 2015 Eurobond repayment through borrowing in international markets. - Downside risks that could worsen Namibia’s debt dynamics: - Stronger-than-anticipated spillovers from the war in Ukraine. - Weaker commodity export prices. - Delays in planned medium-term fiscal consolidation. ### Fiscal consolidation: findings and recommended measures (additional details) - Wage bill and SOEs: - Implementing an early retirement scheme is key to sustainably contain the wage bill. Namibia’s wage bill represents about 45 percent of total public expenditures. - Preliminary staff estimate of the cumulative early retirement cost: about 0.8 percent of GDP. - Budgetary transfers to SOEs reached about 2.8 percent of GDP in FY21/22. - Key SOE measures taken: liquidation of loss-making national airline (March 2021); partial privatization of mobile telecommunications company (November 2021). Fiscal risks concentrated in ten SOEs; focus needed on remaining eight vulnerable SOEs. - Revenue mobilization: - Tax arrears reached 32 percent of GDP at end-August 2022. - Namibia Revenue Agency (NamRA) operationalized in April 2021; progress on operational targets, Strategic Enforcement Unit, audit capacity, and transfer pricing unit. - Recommended: develop tax arrears management strategy, compliance plan for tax and customs, and strengthen capacity with IMF technical assistance. ### Social safety nets and protection of the vulnerable - Social safety nets: - Namibia has a robust SSN system: old age and disability grants, child grants, veterans’ support, and food programs. - Adequacy of SSNs higher than comparators; unified social registry operationalization expected to enhance targeting. - Conditional Basic Income Grant (CBIG): - Introduced in March (replacing in-kind food assistance): CBIG provided N$500 per month to previous beneficiaries of in-kind support from the Food Bank; increased to N$600 in October 2022. - CBIG set 25 percent higher than in-kind support to mitigate higher food prices. - Staff called for further increasing CBIG and swiftly expanding coverage to eligible individuals currently excluded. - Staff welcomed CBIG increase by 20 percent from October 2022 and commitments to increase disability, old age and vulnerable children grants in FY23/24. - Emergency Income Grant (EIG) (COVID response): - Budgeted N$772 million (0.4 percent of GDP); targeted about 800,000 individuals (~35 percent of population). - One-off cash transfer: N$750 per person; actual beneficiaries ~769,000; fiscal cost N$576 million (0.4 percent of GDP, 72 percent of allocation). ### Public financial management, sovereign wealth fund, and governance - PFM: - Staff called for swift adoption of the PFM Bill to strengthen budget planning and execution, establish SOE financial oversight, and improve fiscal risks management. - Publish a fiscal risk statement alongside the annual budget statement; develop fiscal risk management framework for PPPs. - Welwitschia Fund (WF): - Established May 2022; initial seed capital N$262 million (0.1 percent of GDP). - Funding triggers: e.g., savings flow when public revenue reaches long-term average of 30.5 percent of GDP and expenditure falls below 33 percent of GDP ceiling; explicit rules for SACU receipts, divestitures, royalties, and surpluses. - Withdrawal rules: stabilisation account withdrawals when deficits exceed 8 percent of GDP over two years or revenue below long-term average; intergenerational account withdrawals only from returns and after accumulation to 20 percent of GDP with limits on withdrawals. - Staff recommendations: delay operationalization until public debt and borrowing costs decline and reserves strengthen; establish separate decision-making body, independent oversight, clear deposit and withdrawal rules; Auditor-General external audit explicitly in WF Act. - COVID-19 spending governance: - Most RFI governance commitments met; preliminary execution report published in FY21/22 budget; full audit conducted and published online. Final COVID-19 execution report and beneficial ownership information expected by end-2022. ### Monetary policy stance and preserving the currency peg - Policy stance: - Maintain policy rate broadly aligned with SARB’s rate and preserve adequate reserves to anchor inflation and preserve the currency peg to the South African rand. - Peg has anchored inflation expectations, credibility, and financial sector stability. - Implementing fiscal consolidation will bolster peg credibility. - Contingency responses if downside risks materialize: - Raise the policy rate above SARB’s rate. - Accelerate fiscal adjustment. - Mobilize additional external financing to support reserves and the peg. - Authorities reaffirmed commitment to the currency peg, policy rate alignment with SARB, preserving reserves, and emphasized contingency planning. ### Financial sector resilience and macro-financial risks - Progress on FSSA recommendations: - Explicit macroprudential mandate to BoN; FSMO Department and Financial Stability Committee established. - Banking Act adopted; strengthened bank reporting; risk assessment of two systemic banks. - NBFI supervision: NAMFISA and Financial Institutions and Markets bills developed. - Crisis management: BoN granted full resolution powers; deposit insurance operationalized. - Remaining priorities: - Operationalize FSMO with concrete tools; make risk assessments more forward looking; coordinate OAD and OED; operationalize NAMFISA and FIM bills; establish ELA framework. - Staff recommendations: - Allocate resources to FSMO; expand macroprudential tools including countercyclical capital buffer framework; data-driven analysis for debt service-to-income limits; update early warning indicators and stress testing. - Strengthen BoN–NAMFISA collaboration; operationalize BoN emergency lending assistance; caution against broad measures encouraging excessive credit risk (e.g., broad loan moratoria or delayed NPL classification). - Support lifting 2020 COVID-19 relief measures at expiration. - AML/CFT: - Regional assessment identified weaknesses; authorities developed action plan and revising legislation to present to Parliament by end-2022; strengthen implementation capacity with IMF and partners recommended. ### Financial inclusion and private-sector led growth - Access to finance: - Bank account ownership: 70 percent of adults. - Access to credit limited for firms, notably SMEs, and low-income/rural populations. - Authorities updating financial inclusion strategy. - Policy options: - Buttress micro-credit institutions; ease collateral constraints via collective schemes; increase bankability of projects; ensure reliable credit history and collateral information through credit bureaus and digital databases. - Growth strategy: - Foster private-sector led growth, diversify via green and blue economies, enhance productivity in high-employment sectors, particularly agriculture. - Green hydrogen: Namibia among most competitive potential producers; a large project (about 80% of GDP) awarded in 2021 with construction anticipated to start in 2025; a smaller project has started construction. - Promote private participation in agriculture (table grapes, blueberries), reduce export certification costs and establish export standards. ### Data, statistical capacity, and safeguards - SDDS progress: - Strengthened compilation and dissemination of government operations data, reserve assets, external sector, monetary and financial statistics with IMF TA. - Staff encouraged finalizing remaining steps to achieve SDDS by end-2022 and provide resources to NSA for census and surveys for GDP rebasing. - Safeguards: - First-time safeguards assessment of BoN underway; expected completion early-2023. ### Risk Assessment Matrix — selected risks and recommended policy responses - Intensifying spillovers from Russia’s war in Ukraine: - Likelihood: High; Expected impact: High. - Recommended response: Accelerate fiscal adjustment; raise policy rate above South Africa’s; seek affordable external financing; provide targeted support to vulnerable households. - Commodity price shocks: - Likelihood: High; Expected impact: High. - Recommended response: Accelerate fiscal adjustment; raise policy rate above South Africa’s; seek affordable external financing; provide targeted support to vulnerable households. - Systemic social unrest: - Likelihood: High; Expected impact: High. - Recommended response: Accelerate fiscal adjustment; raise policy rate above South Africa’s; seek external financing; accelerate structural reforms. - Abrupt global slowdown: - Likelihood: Medium; Expected impact: High. - Recommended response: Accelerate fiscal adjustment; raise policy rate above South Africa’s; seek affordable external financing; accelerate structural reforms. - Local COVID-19 outbreaks: - Likelihood: Medium; Expected impact: High. - Recommended response: Provide targeted and temporary fiscal support to most vulnerable households. - Domestic policy implementation risk: - Likelihood: Medium; Expected impact: High. - Recommended response: Identify permanent spending reductions and revenue measures; accelerate reforms of extra budgetary entities; restrain wage bill; implement mitigating measures for vulnerable groups. ### External sector assessment (select) - 2021 external position: assessed as moderately weaker than fundamentals and desirable policies (EBA-lite). - Drivers of 2021 weakening: rebounding imports, sharp temporary decline in SACU transfers, COVID-19 impact on tourism. - Exceptional financial inflows (RFI, SDR allocation, AfDB support) strengthened reserves in 2021. - Policy responses suggested: - Medium-term growth-friendly fiscal consolidation to support external position and accumulate reserves to achieve ARA metrics. - Gradual accumulation of reserves to support the currency peg. - Structural reforms to attract sustainable financial inflows and diversify external funding sources. - NIIP: - NIIP improved to -2.9 percent of GDP in 2021 from -4.4 percent in 2020 and -8.0 percent in 2019. - Under baseline, lower current account deficits and decline in external debt would help contain NIIP deterioration. - Reserves adequacy: - Reserves: 5 months of imports and 22.5 percent of GDP at end-2021 (above IMF metric). - Staff baseline projects reserves decline to 4.4 months of imports (20.8 percent of GDP) at end-2022, slightly below adequacy; expected to reach adequacy by 2023. ### Debt and external stress tests (selected findings) - External debt outlook: - Total external debt (percent of GDP): 2017: 64.9; 2018: 61.7; 2019: 66.4; 2020: 77.3; 2021: 66.5; projected decline thereafter to 53.1 in 2027. - Stress-test results (selected): - Current-account shock (widening by 6.4 percent of GDP) could raise external debt to 86 percent by 2027 (vs 53 percent baseline). - 30 percent one-time depreciation in 2023 would increase external debt by about 9 percentage points of GDP. - Combined shock increases external debt to 87 percent (scenario outputs). - Policy implication: elevated baseline debt and gross financing needs imply vulnerability to adverse shocks; continued fiscal adjustment and strengthening SACU revenue realization and export recovery would support declining external debt ratios. ### Food insecurity, agriculture, and climate risks (select) - Food insecurity: - Number of people suffering food insecurity increased by 53 percent during COVID to more than a quarter of the population. - FAO: food prices rose by 34 percent (y-o-y). - For low-income households, food can absorb up to 65 percent of earnings. - Staff estimate: for every 1 percent increase in the price of food, there is a 1.9 percent reduction in the welfare of low-income households. - Namibia has a 34.4 percent prevalence of stunting among children under five years. - Structural vulnerabilities: - As of 2017, 54 percent of crop production was rainfed. - 81 percent of the population dependent on a semi-arid environment. - Agriculture: 7.4 percent of GDP; direct/indirect source of income for 70 percent of population. - Namibia is 96 percent import dependent for wheat; wheat imports from Russia represent 60 percent of total wheat imports. - Food inflation accelerated to 9.3 percent as of September 2022. - Policy recommendations: - Short-term: targeted cash and in-kind transfers. - Medium/long-term: invest in climate-smart infrastructure (micro-irrigation, climate-resilient seeds), increase market and credit access, develop weather insurance, attract private sector investments in high-value crops, scale School Feeding Program, increase strategic food reserves. - Fiscal/program efficiency: increase agricultural spending while improving targeting; phase out inefficient general subsidies; review NAB and AMTA policies. ### Capacity development and technical assistance priorities - Fiscal/P F M: - Strengthen NamRA capacity; address ITAS and ASYCUDA; consolidate exemptions; set up Tax Policy Unit; PFM reforms and macro-fiscal forecasting; perform PIMA; review PPP framework. - Macroprudential/financial stability: - Operationalize macroprudential framework; expand toolbox; develop ELA framework; support stress-testing and CCyB framework; mitigate cyber-risk; TA on CBDC and virtual assets regulation. - Central bank forecasting: - ICD multi-year TA: Phase 1 delivered database, forecasting training, inflation models, GDP nowcasting; Phase 2 to develop semi-structural core model accounting for SACU transfers and peg. - Statistics: - STA support to reach SDDS by end-2022; strengthen national accounts rebasing, household surveys, and fiscal/statistical coverage. ### Structural reforms, business environment, and labor market - Business environment: - NIPDB advancing digitalization: centralized e-service and electronic customs clearance; one-stop physical center; start-ups support facility. - Priorities: accelerate one-stop e-services; simplify business start procedures; strengthen coordination with private sector. - Skills and labor market: - High unemployment among advanced-education individuals (~13 percent in 2018); high return to advanced education (~79 percent wage premium). - Actions: skills audits, expand internships/apprenticeships, ease restrictions to hire skilled foreign workers. - Governance and anticorruption: - Continue improving accountability and transparency; subscribe to EITI; advance Anticorruption Strategy and revise legislation. ### Distributional analysis and fiscal consolidation scenarios (model results) - DIGNAR and MIMMI model simulations: - Fiscal consolidation package calibrated consistent with baseline. - Alternative scenarios: - Spending substitution (protect capital, reduce current spending): marginal yearly average growth gain of 0.10 percentage points. - Investment efficiency (10 percent permanent efficiency gain): average yearly growth pickup of 0.02 percentage points. - Revenue administration reforms: yearly average gain of 0.10 percentage points. - Equal distribution of adjustment: 0.00 change. - Backloaded curve adjustment: -0.08 change; Less backloaded: 0.02 change. - Key policy insight: pair revenue-enhancing measures (VAT, CIT compliance) with targeted social transfers to avoid worsening poverty and inequality. - VAT and CIT efficiency gaps (illustrative): - VAT C-efficiency fell from 62 percent (FY2013/14) to 49 percent (FY2019/20) and 34 percent (FY2020/21). Potential VAT revenue in FY2019/20 estimated at 8.2 percent of GDP vs actual 6.4 percent of GDP. - CIT efficiency: potential CIT revenue in FY2019/20 estimated at 5 percent of GDP vs actual 4 percent of GDP; indicators show low filing and payment timeliness and high arrears (stock of CIT arrears: 11.1 percent of GDP in FY2020/21). - Recommendation: use part of additional revenue from compliance gains for targeted transfers to offset regressive impacts. ### Financial sector—growth nexus and policy options - Systemic linkages: - Large budgetary financing needs may crowd out private sector credit; public sector role increases fragility and affects loan concentration in construction/real estate. - More than 70 percent of construction projects receive banking credits through government contracts. - Policy options to foster private-sector credit: - Enhance credit bureaus; digital databases; strengthen contract enforcement; support micro-credit institutions; collective collateralization schemes. - Reduce crowding out by diversifying government funding and reducing domestic financing pressure. - SME support facilities: - Credit Guarantee Scheme: seed capital N$98 million from Government and BoN; provides 60 percent collateral cover. - Catalytic First Loss Venture Capital Fund and mentoring programs. - Implementation challenges: limited take-up due to low credit demand and bankable projects. - Market infrastructure and digital finance: - Introduce Single Central Securities Depository (CSD); demutualize NSX; FinTech regulatory framework; digital transformation strategy. - Macroprudential tools: - Consider DSTI and LTVR; balance risks and procyclical impacts; facilitate targeted access to sustainable housing credit. ### Staff appraisal and priorities (summary) - Macroeconomic outlook: - Gradual recovery underway; Real GDP expected to recover to pre-pandemic level by 2023. - Recovery drivers: mining production, manufacturing and tourism recovery. - Short-term risks: - War in Ukraine spillovers, global slowdown, lower commodity prices, tighter global financial conditions, and delays in fiscal consolidation. - Policy priorities: - Continue medium-term fiscal consolidation while protecting vulnerable households. - Strengthen reserves and adjust monetary policy / mobilize external financing if needed. - Strengthen financial sector resilience and macroprudential frameworks. - Advance structural reforms to diversify the economy, increase productivity, foster inclusive private sector-led growth, improve access to finance, and reduce skills mismatches. - Address food insecurity to foster inclusion and protect human capital. *Italic: Source: IMF staff report (Namibia), chapter excerpt.* ### 1. The Impact of the COVID-19 Pandemic and Start of the Recovery ____________________________ 22 ### 1. The Impact of the COVID-19 Pandemic and Start of the Recovery ### Context and background - Following the outbreak in early 2020, a national state of emergency was declared, borders were closed, and a country-wide lockdown introduced. Severe second and third waves hit Namibia in late 2020 and mid-2021. In December 2021, the omicron variant led to a surge in new cases; most COVID-19 restrictions were lifted in mid-March 2022. - About 7 percent of the population was infected; the fatality rate was described as "very contained." - Vaccination: about 24 percent of the targeted population is fully vaccinated. The vaccination campaign targets people aged 12 and above (about 1.8 million or 68 percent of the population). - Pre-pandemic weaknesses (2017–19): real GDP contracted by 0.3 percent; per capita GDP contracted by -3.5 percent (y-o-y, average). Decelerating private and public investment, fiscal consolidation, and a severe drought contributed to weak performance. Weak SACU tax revenues led to large fiscal imbalances and increasing public debt. Unemployment remained high and income inequality pervasive. - Authorities’ fiscal and policy response: an Economic Stimulus and Relief Package in FY20/21 scaled up health and education spending; introduced a targeted cash transfer program; implemented a wage subsidy program; accelerated repayment of government arrears; and temporarily eased banks’ regulatory requirements to support liquidity and credit. ### Immediate socioeconomic impact - Real GDP contracted by 8 percent in 2020. - FY20/21 overall fiscal deficit widened to 8.8 percent of GDP; public debt reached 66 percent of GDP. - Unemployment rose to 22 percent (40 percent among youth). - Poverty rate estimated at 20.2 percent in 2020 (15.9 percent in 2019); income inequality worsened. - Food insecurity: more than a quarter of the population estimated food insecure at end-2021 (16 percent prior to the pandemic). Namibia depends on imported food for more than half of calories consumed and imports about 60 percent of its wheat from Russia. ### IMF and external support - IMF emergency financing under the Rapid Financing Instrument (RFI): on March 31, 2021, approved emergency financial assistance under the RFI for SDR 191.1 million (about US$270.8 million; 100 percent of quota), in the form of budget support. - General SDR allocation: SDR 183.2 million on August 23, 2021. ### Recent economic and financial developments - Real GDP growth: 2.7 percent in 2021 after the 2020 contraction. Recovery strengthened in the first half of 2022 with real growth at 6 percent, driven by mining and manufacturing. - Inflation: - Headline inflation averaged 3.6 percent (y-o-y) in 2021. - Average headline inflation rose to 5.8 percent at end-September 2022. - Core inflation: 3 percent (y-o-y). - Food inflation: about 7 percent. - Transport inflation: about 17 percent. - Fuel levies reduced by 50 percent during May-July; associated loss in tax revenues estimated at 0.2 percent of GDP. - External sector and reserves: - Current account deficit of 9.6 percent of GDP in 2021. - Gross international reserves increased to 5 months of import coverage in 2021. - Reserves at 4.8 months of import coverage at end-September 2022. - Real effective exchange rate: appreciated by 5.5 percent in 2021; depreciated by 2.5 percent during January-August 2022. NEER depreciated by 2.3 percent. - Fiscal developments: - FY21/22 overall fiscal deficit: 8.7 percent of GDP, with SACU tax revenues contracting by 4.7 percent of GDP. - Non-SACU tax revenues strengthened, supported by economic recovery and tax arrears collection (1.4 percent of GDP). - Public spending reduced by 3.5 percent of GDP as the 2020 COVID-19 fiscal package was unwound; wage bill contained via no-inflation adjustment and natural attrition (except in priority sectors). - Large financing needs covered by external financing, IMF emergency assistance and SDRs allocation, AfDB budget support, and sizable domestic borrowing. - Monetary policy and financial sector: - Bank of Namibia (BoN) policy rate: lowered from 6 to 3.75 percent in 2020; then gradually raised by a cumulative 250 basis points (to 6.25 percent) during January-October 2022. - Banking sector at end-June 2022: liquid, well-capitalized, profitable. Non-performing loans slightly increased to 6.0 percent. - Banks’ net claims to the government increased by 51 percent in 2021 and by a further 30 percent (y-o-y) at end-September 2022. - Private sector credit growth: slowed to 1 percent (y-o-y) in 2021; strengthened to 4.6 percent at end-August 2022. - Household mortgages reached about half of banks’ total private sector loans at end-August 2022. - Banks’ wholesale funding exceeds a third of banks’ deposits. ### Outlook and risks - Growth projections: - Real GDP growth projected at 3 percent in 2022 and 3.2 percent in 2023. - Real GDP expected to reach pre-pandemic level in 2023. - Medium-term real GDP growth expected to stabilize at 2.6 percent. - Near-term drivers: robust diamond, gold, and uranium production; favorable export commodity prices; a new vessel for diamond mining. Manufacturing and tourism would gradually recover. Agricultural growth constrained by higher fertilizer and animal feed prices due to the war in Ukraine. - Inflation and external outlook: - Headline inflation expected to rise to 6.4 percent in 2022. - Current account deficit expected at 9.5 percent in 2022. - International reserves expected to decline to 4.4 months of imports in 2022, slightly below IMF reserve adequacy metrics. - 2022 IMF reserve adequacy metrics for Namibia estimated equivalent to 4.5–6.7 months of imports and 20.2–30.3 percent of GDP. - Current account analysis points to a moderate overvaluation of the REER. - Risks: - Downside: stronger spillovers from the war in Ukraine (higher fuel and food prices), slowdown in global economy and trading partners, weakening commodity export prices, resumption of lockdown measures, tighter global financial conditions leading to capital outflows, and delays in planned fiscal consolidation worsening debt dynamics. - Upside: acceleration of investments in oil and gas and green hydrogen; higher-than-anticipated SACU revenues reducing financing needs. - Gradual accumulation of international reserves anticipated to reach ARA metrics by 2023; anticipated reduction in external debt to improve the NIIP. ### Policy discussions and recommendations - Key policy priorities discussed: - Implementing the authorities’ medium-term fiscal consolidation to preserve debt sustainability and support the external position and the currency peg. - Maintaining the currency peg to continue to anchor inflation. - Strengthening resilience of the financial sector and managing macro-financial risks. - Advancing structural reforms and addressing food security to foster sustainable and inclusive private sector-led growth. - Staff recommendations: - Continue orienting macroeconomic policies towards preserving stability while protecting the most vulnerable. - Implement planned medium-term fiscal consolidation while protecting social spending and growth-supporting capital spending. - Keep the policy rate broadly in line with the SARB’s rate to anchor inflation, maintain adequate reserve levels, and support the peg. - Strengthen financial sector resilience and manage macro-financial risks. - Protect vulnerable households from higher food and fuel prices and address food insecurity and poverty. A. Preserving Fiscal and Debt Sustainability - Authorities have started implementing a package of fiscal adjustment measures over FY2021/22-25/26 (6.7 percent of GDP, cumulative) to preserve debt sustainability. The planned fiscal consolidation builds on mobilizing additional fiscal revenues and increasing spending efficiency, while preserving social spending and growth-supporting capital spending. - Key fiscal consolidation measures include: - Containing the wage bill. - Improving SOEs performance and management and divesting from selected entities to reduce budgetary transfers. - Reducing the costs of the Public Service Employee Medical Aid Scheme (PSEMAS). - Mobilizing tax arrears and one-off exceptional revenues. Text Table 1. Namibia: Fiscal Consolidation Measures (Percent of GDP) - SOE Reform: - 2021/22: 0.0 - 2022/23: 1.8 - 2023/24: 0.2 - 2024/25: 0.1 - 2025/26: 0.0 - Cumulative: 2.1 - Public Service Medical Aid Scheme Reform: - 2021/22: 0.0 - 2022/23: 0.0 - 2023/24: 0.2 - 2024/25: 0.2 - 2025/26: 0.0 - Cumulative: 0.4 - Wage Reform*: - 2021/22: 0.7 - 2022/23: 0.3 - 2023/24: 0.6 - 2024/25: 0.1 - 2025/26: 0.1 - Cumulative: 1.9 - *Note: Net of severance pay. - Revenue Mobilization: - 2021/22: 1.3 - 2022/23: 0.9 - 2023/24: 0.0 - 2024/25: 0.0 - 2025/26: 0.0 - Cumulative: 2.2 - TOTAL: - 2021/22: 2.1 - 2022/23: 3.0 - 2023/24: 1.1 - 2024/25: 0.5 - 2025/26: 0.1 - Cumulative: 6.7 *Source: IMF Staff Computations; Ministry of Finance* *IMF staff report: "1. The Impact of the COVID-19 Pandemic and Start of the Recovery" (excerpt).* ### 19. Under the baseline scenario, public debt-to-GDP is expected to gradually decline over ### 19. Under the baseline scenario, public debt-to-GDP is expected to gradually decline over ### Debt outlook and risks - Public debt-to-GDP is expected to gradually decline over the medium-term but risks are significant (Annex IV). - Public debt and gross financing needs increased sharply during FY20/21–21/22 due to the impact of the COVID-19 pandemic. - The planned medium-term fiscal consolidation and the recovery of the Namibian economy are expected to help put public debt-to-GDP on a downward trajectory. - Downside risks that could worsen Namibia’s debt dynamics: - Stronger-than-anticipated spillovers from the war in Ukraine. - Weaker commodity export prices. - Delays in the planned medium-term fiscal consolidation. - Gross financing needs are expected to gradually decline but remain large, with a spike in 2025 due to the redemption of the US$750 million 2015 Eurobond. The authorities plan to cover the repayment of the 2015 Eurobond through borrowing in the international markets. ### Fiscal consolidation: findings and recommended measures - Staff noted authorities’ progress in implementing their fiscal consolidation strategy and called for continuing to implement planned measures. - Key recommendations and observations: - Implementing the early retirement scheme is key to sustainably contain the wage bill. Namibia’s wage bill represents about 45 percent of total public expenditures (Figure 3). - Measures taken during FY21/22–FY22/23 include containing nominal wage dynamics and allowing for natural attrition (excluding in priority sectors). - Authorities are considering an early retirement scheme and assessing its potential fiscal costs. Preliminary staff estimate of the cumulative early retirement cost is about 0.8 percent of GDP. - No inflation adjustment to wages was provided in FY21/22. In FY22/23 a below-inflation adjustment was provided. While not foreseen in the FY22/23 budget, the additional cost (0.6 percent of GDP) is expected to be more than compensated by higher-than-budgeted revenues. - Finalizing the Public Asset Ownership Policy is pivotal to advance SOE reform. Budgetary transfers to SOEs reached about 2.8 percent of GDP in FY21/22—one of the highest among the SACU region (Figure 3). - Key measures to reduce SOE transfers taken: i) the loss-making national airline was liquidated in March 2021; ii) the mobile telecommunications company was partially privatized in November 2021. Fiscal risks were concentrated in ten SOEs; with Air Namibia liquidated and the telecommunication company privatized, efforts will have to focus on the remaining eight vulnerable SOEs. - Strengthening tax collection and enforcement will mobilize additional revenues. Tax collection efficiency in Namibia has been declining, with tax arrears reaching 32 percent of GDP at end-August 2022. - The Namibia Revenue Agency (NamRA) was operationalized in April 2021 to improve tax collection. Progress noted towards setting-up operational targets, establishing a centralized Strategic Enforcement Unit, building audit capacity, and setting-up a dedicated unit for transfer mispricing. - Moving ahead: develop a tax arrears management strategy, a compliance plan for tax and customs, and further strengthen capacity, with the support of IMF technical assistance. ### Social safety nets and protection of the vulnerable - Staff called for protecting the most vulnerable from the impact of higher food and fuel prices and addressing increased food insecurity and poverty. - Namibia has a robust and comprehensive social safety nets (SSNs) system that has contributed to reducing poverty. Several social assistance programs exist, including old age and disability grants, child grants, veterans’ support program, and food programs. - The adequacy of SSNs in Namibia is higher than its comparators; operationalization of the unified social registry is expected to further enhance targeting. - Conditional Basic Income Grant (CBIG): - Introduced in March, replacing in-kind food assistance with targeted monetary transfers to the poorest. - The CBIG provided N$500 per month to the previous beneficiaries of in-kind support from the Food Bank. It was increased to N$600 in October 2022. - The CBIG was set 25 percent higher than the in-kind support to mitigate the impact of higher food prices on the most vulnerable. - Staff called for further increasing the CBIG and swiftly expanding its coverage to include eligible individuals currently excluded from the program. - Staff welcomed the CBIG increase by 20 percent from October 2022, adopted in the mid-year budget review, and commitments to increase the disability, old age and vulnerable children grants in FY23/24. ### Authorities’ views on fiscal strategy - Authorities stress commitment to implement the medium-term fiscal consolidation strategy to preserve debt sustainability while protecting the most vulnerable. - Mid-year budget review targets a lower overall fiscal deficit than the initial FY22/23 budget: 7.1 percent of GDP compared to 7.7 percent of GDP, mainly driven by stronger-than-anticipated tax revenues, despite a higher-than-budgeted wage increase. - Authorities expect sizable tax arrears recovery in FY22/23 and commit to increase spending efficiency via wage bill and SOE reforms and reducing the costs of the PSEMAS. - Authorities are assessing avenues for an early retirement scheme, reforming the PSEMAS, and finalizing the Asset Ownership Policy; consultation with stakeholders will follow and related budgetary savings are likely to materialize in the medium-term. - They reaffirm commitment to protect the most vulnerable, noting the CBIG increase and plans to increase other social grants and strengthen SSNs’ targeting. ### Public financial management, sovereign wealth fund, and governance - Strengthening public financial management (PFM) would support the fiscal consolidation strategy. Staff called for the swift adoption of the long-standing PFM Bill to strengthen budget planning and execution, establish SOEs’ financial oversight by the Ministry of Finance through regular reporting and audits, and improve fiscal risks management. - As authorities seek to finance public investment through PPPs, staff underscored the importance of developing a comprehensive fiscal risk management framework, including any necessary legislation, and encouraged publishing a fiscal risk statement alongside the annual budget statement. - Welwitschia Fund (WF) — sovereign wealth fund in anticipation of oil and gas windfalls: - Authorities established the WF to foster macroeconomic stability and inter-generational equity (Annex VII). - Staff supported objectives but stressed risks of re-directing budgetary resources to the WF given sizable fiscal financing needs and the importance of maintaining an adequate level of reserves. - Staff called for delaying operationalization of the WF until public debt and borrowing costs decline and reserves strengthen. - Staff emphasized establishing a strong governance and management framework for the WF: separate decision-making body, independent oversight, and clear deposit and withdrawal rules. - COVID-19 spending governance commitments: - Most governance commitments on COVID-19 spending under the RFI were met; remaining ones are being finalized. - All COVID-19 spending was budgeted and a preliminary execution report was published in the FY21/22 budget. COVID-19 related procurement contracts were published but beneficial ownership information had not yet been published. - A full audit of COVID-19 spending was conducted by the General Auditor and published online. The final COVID-19 spending execution report and beneficial ownership information were expected to be published by end-2022. - Authorities noted the PFM Bill drafting is close to completion, aiming to present it to Parliament in 2024, and that the WF implementation will be over the medium-term once fiscal revenues revert to their long-term average. ### Monetary policy stance and preserving the currency peg - Maintain the policy rate broadly aligned with the SARB’s interest rate and preserve an adequate level of reserves to anchor inflation and preserve the currency peg to the South African rand. - The peg has provided an anchor to monetary policy, inflation expectations, credibility of policies and financial sector stability. - Implementing planned fiscal consolidation will bolster the credibility of the peg. - If downside risks materialize with further pressures on reserves, recommended responses include: raising the policy rate above SARB’s rate, accelerating the fiscal adjustment, and mobilizing additional external financing to support reserves and the currency peg. - Authorities reiterated commitment to the currency peg, alignment of policy rate with SARB, and preserving reserves; contingency planning was emphasized. ### Financial sector resilience and macro-financial risks - Progress in implementing 2018 FSSA recommendations: - Macroprudential policy framework: explicit macroprudential mandate attributed to BoN; Financial Stability and Macroprudential Oversight Department and a Financial Stability Committee established. - Banking sector oversight: Adoption of Banking Act; strengthened bank reporting requirements; risk assessment of two systemic banks. - NBFIs supervision: Development of risk-based supervision; adoption of NAMFISA and Financial Institutions and Markets bills. - Crisis management: BoN granted full resolution powers; deposit insurance scheme operationalized. - Remaining actions and priorities: - Operationalization of the Financial Stability and Macroprudential Oversight Department with concrete tools and frameworks. - Make risk assessments more forward looking; better coordination between off-sight Analysis Division (OAD) and on-sight Examination Division (OED) toward eventual phasing out of parallel frameworks for banking supervision. - Operationalization of NAMFISA and FIM bills. - Establish Emergency Liquidity Assistance (ELA) framework. - Staff recommendations: - Allocate appropriate resources to FSMO and expand macroprudential tools, including adopting a framework for a countercyclical capital buffer, conducting a data-driven analysis for adoption of debt service-to-income limits, and updating early warning indicators and stress testing. - Strengthen collaboration within BoN and between BoN and NAMFISA to enhance macro-financial analysis and monitoring of systemically important banks and NBFIs. - Operationalize BoN’s emergency lending assistance to strengthen crisis management and resolution. - Caution against measures that encourage banks to take excessive credit risk (e.g., broad loan moratoria or delayed NPL classification) as they could pose risks to financial stability. - Support lifting the 2020 COVID-19 relief measures at their expiration date. - AML/CFT: - Recent assessment by the Eastern and Southern Africa Anti-Money Laundering Group identified weaknesses in laws, regulations, and effectiveness. - Strengthening AML/CFT framework is pivotal to avoid reputational risks and possible grey listing by FATF. - Authorities developed an action plan and are revising key legislation to be presented to Parliament by end-2022; strengthening implementation capacity with IMF and partners is recommended. ### Financial inclusion and private-sector led growth - Improving access to credit, notably for SMEs and the most vulnerable, would support inclusive growth (Annex X). Bank account ownership is relatively high (70 percent of adults) but access to credit remains limited for firms, notably SMEs, and low-income and rural populations. - Authorities are updating the financial sector inclusion strategy. Staff noted policies to consider: - Buttressing micro-credit institutions. - Easing collateral constraints through collective schemes. - Increasing the bankability of projects to enhance access to credit. - Ensuring banks’ access to reliable credit history and collateral information through credit bureaus and digital databases. - Growth strategy: - Foster sustainable and inclusive private-sector led growth to reduce unemployment and inequality. - Implementation of Harambee Prosperity Plan II progresses, focusing on diversifying growth via private investment in green and blue economies and enhancing productivity in high-employment-potential sectors, particularly agriculture. - Development of green hydrogen industry is underway, with private sector investments having started and further investor interest heightened by the energy crisis in Europe. - Encourage private sector participation in agriculture, identify high-value products (e.g., table grapes, blueberries), and reduce barriers to export markets by establishing export standards and lowering costs of export certifications. *International Monetary Fund — Namibia country report excerpts* ### 36. Advancing structural reforms to support economic diversification and increase ### 36. Advancing structural reforms to support economic diversification and increase productivity ### Business environment and investment facilitation - Streamlining business regulations and procedures will improve the business environment. - Namibia Investment Promotion and Development Board (NIPDB), in coordination with government entities, is advancing measures including digitalization: - A centralized e-service for all government services and an electronic customs clearance process are being established. - A physical one-stop center for investors was launched to streamline procedures and reduce costs of doing business. - A start-ups support facility was established, with funding from the Development Bank of Namibia. - Moving ahead priorities: - Accelerating implementation of one-stop e-services. - Simplifying procedures to start a business and revising outdated requirements. - Strengthening coordination with the private sector and raising awareness about the start-ups facility. - Ensuring a predictable regulatory framework to support private investment. - Investment projects noted: - Namibia is one of the most competitive potential green hydrogen producers. - A large green hydrogen project investment (about 80% of GDP) was awarded to a private company in 2021, with construction anticipated to start in 2025. - A smaller-size project has already started the construction phase. ### Skills, labor market, and migration - Reducing skills mismatches will support the development of new engines of growth and job creation. - Key indicators and diagnostics: - High unemployment rate among individuals with an advanced education (about 13 percent in 2018). - High return to advanced education: empirical estimates show a wage premium of about 79 percent between individuals with a university degree compared to those with a secondary school degree (Namibia Growth Diagnostics, GrowthLab, 2022). - Ongoing and recommended actions: - Two audits are ongoing to assess skills at the higher education level and to develop the green hydrogen industry. - Conducting a skills audit at the economy-wide level to assess skills mismatches and align training with labor market demand. - Expanding internships and apprenticeships to help recent graduates gain industry-specific knowledge. - Easing regulatory restrictions to hire skilled foreign workers to fill the skills gap. ### Governance, anticorruption, and public financial management - Namibia’s institutional and governance framework is ranked as one of the strongest in Sub-Saharan Africa. - Staff-supported measures: - Continue to improve accountability and transparency and strengthen anti-corruption mechanisms. - Subscribe to the Extractive International Transparency Initiative (EITI) to further strengthen governance. - Advance the second Anticorruption Strategy and Action Plan (2021–25); anticorruption legislation is currently being revised to reflect international best practices. - Fiscal governance recommendations: - Implement the medium-term fiscal consolidation strategy to preserve debt sustainability. - Key fiscal measures: implement the early retirement scheme and continue SOE reform. - Improve tax collection and enforcement to mobilize additional revenues. - Strengthen public financial management to support the fiscal consolidation strategy. - Welwitschia Fund (WF) governance: - Ensure strong governance, management, and oversight of the newly established WF to mitigate risks. - Staff noted the risks of redirecting scarce budgetary resources to the WF in the short-term given sizable fiscal financing needs and reserve requirements. - Recommendation: delay operationalization of the WF until public debt declines and reserves strengthen. ### Food insecurity, agricultural productivity, and inclusion - Food insecurity has worsened due to the pandemic and the war in Ukraine, with potential scarring effects on the quality of human capital. - Nutrition and vulnerability indicators: - Namibia has a 34.4 percent prevalence of stunting among children under five years (World Bank Development Indicators, 2021). - Social protection and mitigation: - Staff welcomed the increase in the CBIG and other social grants to protect the most vulnerable. - Authorities’ initiatives: Food Bank, Drought Relief Program, School Feeding Program. - Agricultural resilience and productivity measures recommended: - Advance structural measures to increase productivity and resilience of the agriculture sector to weather shocks. - Foster access to mechanization. - Invest in climate-smart technologies and climate-resilient seeds. - Attract private sector participation to provide burden sharing for infrastructure costs. - Authorities’ initiatives: Namibia Agricultural Mechanization and Seed Improvement Project and the Green Schemes Initiative; working toward increasing strategic food reserves. ### Financial sector, reserves, and monetary policy - Maintain policy rate broadly aligned with the SARB’s rate and an adequate level of reserves to anchor inflation and preserve the currency peg. - If downside risks materialize with further pressures on reserves, recommended responses: - Raise the policy rate above SARB’s rate. - Accelerate planned fiscal adjustment. - Mobilize additional external financing to support reserves and the currency peg. - Financial sector resilience: - Financial sector remains stable but risks have increased. - Staff welcomes progress in establishing a macroprudential policy framework and recommends further expanding the macroprudential toolbox. - Operationalize Bank of Namibia’s emergency lending assistance to strengthen crisis management and resolution. ### Data, statistical capacity, and safeguards - Progress toward Special Data Dissemination Standards (SDDS): - Authorities have strengthened compilation and dissemination of general government operations data, reserve assets, and external sector and monetary and financial statistics with IMF technical assistance. - Staff encouraged finalizing remaining steps to achieve SDDS by end-2022 and allocating appropriate resources. - Staff encouraged providing the Namibia Statistics Agency (NSA) with adequate resources to conduct the population census, household income and expenditure survey, and other needed surveys for rebasing nominal GDP. - Safeguards: - A first-time safeguards assessment of the Bank of Namibia is underway and expected to be completed in early-2023. ### Staff appraisal: outlook, risks, and priorities - Macroeconomic outlook: - Namibia has started to gradually recover from the impact of the COVID-19 pandemic. - Real GDP would recover to its pre-pandemic level by 2023. - Recovery drivers: robust mining production and a recovery in manufacturing and tourism sectors. - Risks to the short-term outlook: - Stronger spillovers from the war in Ukraine (higher-than-anticipated fuel and food prices). - A global economic slowdown, lower export commodity prices, and further tightening in global financial conditions could exacerbate inflation, worsen external and fiscal positions, and undermine the recovery. - Delays in planned fiscal consolidation would increase financing needs and worsen debt dynamics. - Namibia's external position is assessed as moderately weaker than medium-term fundamentals and desirable policies. - Policy priorities: - Continue medium-term fiscal consolidation and protect vulnerable households. - Strengthen reserves and, if needed, adjust monetary policy and mobilize external financing. - Strengthen financial sector resilience and macroprudential frameworks. - Advance structural reforms to diversify the economy, increase productivity, foster inclusive private sector-led growth, improve access to finance, and reduce skills mismatches. - Address food insecurity to foster inclusion and protect human capital. *Source: IMF staff report (Namibia), chapter excerpt.* ### 49. Staff recommends that the next Article IV consultation with Namibia be held on the ### 1namea2022001 - 49. Staff recommends that the next Article IV consultation with Namibia be held on the ### Staff recommendation - Staff recommends that the next Article IV consultation with Namibia be held on the standard 12-month cycle. ### Impact of the COVID-19 pandemic and start of the recovery (Figure 1 — summary indicators) - Real GDP growth (annual percent change): 2018: 1.1; 2019: -0.8; 2020: -8.0; 2021: 2.7; 2022: 3.0; 2023: 3.2; 2024: 2.7; 2025: 2.6; 2026: 2.6; 2027: 2.6. - Consumer prices (average): 2018: 4.3; 2019: 3.7; 2020: 2.2; 2021: 3.6; 2022: 4.6; 2023: 4.9; 2024: 4.5; 2025: 4.5; 2026: 4.5; 2027: 4.5. - GDP deflator: 2018: 4.4; 2019: 0.9; 2020: 4.5; 2021: 1.7; 2022: 7.3; 2023: 5.7; 2024: 4.8; 2025: 4.5; 2026: 4.3; 2027: 4.4. ### Macro-financial risks (Figure 2 — summary indicators) - Domestic credit to the private sector (percent change): 2018: 7.2; 2019: 7.1; 2020: 2.4; 2021: 1.0; 2022: 5.2; 2023: 5.6; 2024: 6.7; 2025: 6.9; 2026: 6.9; 2027: 6.9. - BoN repo rate (percent): 2018: 6.75; 2019: 6.50; 2020: 3.75; 2021: 3.75. - Bank indicators (Table 5, select): - Nonperforming loans to total gross loans: 2013: 1.3; 2014: 1.2; 2015: 1.6; 2016: 1.5; 2017: 2.5; 2018: 3.6; 2019: 4.6; 2020: 6.4; 2021: 6.4; Mar-22: 5.9; Jun-22: 6.0. - Regulatory capital to risk-weighted assets: 2013: 14.4; 2014: 14.7; 2015: 14.3; 2016: 15.1; 2017: 15.5; 2018: 16.8; 2019: 15.3; 2020: 15.2; 2021: 15.7; Mar-22: 15.6; Jun-22: 16.5. - Return on assets (before taxes): 2013: 3.1; 2014: 3.4; 2015: 3.7; 2016: 3.5; 2017: 3.0; 2018: 2.9; 2019: 2.8; 2020: 1.8; 2021: 2.2; Mar-22: 2.1; Jun-22: 2.3. ### Fiscal developments and projections (Tables 1, 3a, 3b — key fiscal indicators) - Central government (fiscal year; N$ millions): - Total revenue and grants: 2018/19: 55,820; 2019/20: 58,525; 2020/21: 58,103; 2021/22: 55,365; 2022/23 (Prel.): 61,982; 2022/23 (Proj): 56,678; 2023/24 (Budget): 61,564; 2024/25 (Mid-Year): 69,201; 2025/26 (Proj): 76,713; 2026/27 (Proj): 81,066; 2027/28 (Proj): 87,023; 2028/29 (Proj): 93,317. - Expenditure and net lending: 2018/19: 65,939; 2019/20: 68,571; 2020/21: 73,549; 2021/22: 71,583; 2022/23 (Prel.): 76,505; 2022/23 (Proj): 71,928; 2023/24 (Budget): 75,827; 2024/25 (Mid-Year): 81,310; 2025/26 (Proj): 86,918; 2026/27 (Proj): 91,694; 2027/28 (Proj): 97,950; 2028/29 (Proj): 104,517. - Overall balance (N$ millions): 2018/19: -10,119; 2019/20: -10,046; 2020/21: -15,446; 2021/22: -16,218; 2022/23 (Prel.): -14,523; 2022/23 (Proj): -15,250; 2023/24 (Budget): -14,263; 2024/25 (Mid-Year): -12,109; 2025/26 (Proj): -10,205; 2026/27 (Proj): -10,628; 2027/28 (Proj): -10,927; 2028/29 (Proj): -11,199. - Fiscal ratios (percent of GDP, Table 3b): - Total revenue and grants: 2018/19: 30.8; 2019/20: 32.6; 2020/21: 33.0; 2021/22: 29.6; 2022/23: 30.1; 2023/24: 31.0; 2024/25: 31.9; 2025/26: 31.6; 2026/27: 31.7. - Expenditure and net lending: 2018/19: 36.4; 2019/20: 38.2; 2020/21: 41.8; 2021/22: 38.3; 2022/23: 37.2; 2023/24: 36.4; 2024/25: 36.2; 2025/26: 35.6; 2026/27: 35.6; 2027/28: 35.4. - Overall balance (percent of GDP): 2018/19: -5.6; 2019/20: -5.6; 2020/21: -8.8; 2021/22: -8.7; 2022/23 (Prel.): -7.1; 2022/23 (Proj): -7.7; 2023/24 (Budget): -7.2; 2024/25 (Mid-Year): -5.4; 2025/26 (Proj): -4.2; 2026/27 (Proj): -4.1; 2027/28 (Proj): -4.0; 2028/29 (Proj): -3.8. - Public debt: - Public debt/GDP (Table 1, percent): 2018: 50.4; 2019: 59.9; 2020: 65.9; 2021: 70.1; 2022: 69.7; 2023: 69.5; 2024: 69.1; 2025: 68.7; 2026: 68.1; 2027: 67.5. - Gross public and publicly guaranteed debt/GDP (Table 3b, percent): 2018/19: 56.5; 2019/20: 66.7; 2020/21: 72.3; 2021/22: 75.5; 2022/23: 75.7; 2023/24: 75.5; 2024/25: 75.1; 2025/26: 74.7; 2026/27: 74.1; 2027/28: 73.5. ### External sector and balance of payments (Tables 1, 2) - Current account balance (US$ millions, Table 2): 2018: -455; 2019: -210; 2020: 304; 2021: -1,179; 2022: -1,187; 2023: -776; 2024: -757; 2025: -727; 2026: -600; 2027: -585. - Current account (percent of GDP, Table 2): 2018: -3.3; 2019: -1.7; 2020: 2.9; 2021: -9.6; 2022: -9.5; 2023: -5.8; 2024: -5.4; 2025: -4.9; 2026: -3.9; 2027: -3.6. - Trade balance (US$ millions): 2018: -1,544; 2019: -1,302; 2020: -956; 2021: -1,946; 2022: -1,884; 2023: -1,734; 2024: -1,732; 2025: -1,701; 2026: -1,653; 2027: -1,683. - Exports (f.o.b., US$ millions): 2018: 4,198; 2019: 3,879; 2020: 3,140; 2021: 3,585; 2022: 4,162; 2023: 4,656; 2024: 4,952; 2025: 5,128; 2026: 5,387; 2027: 5,643. - Diamonds (US$ millions): 2018: 832; 2019: 648; 2020: 429; 2021: 566; 2022: 823; 2023: 941; 2024: 1,033; 2025: 1,086; 2026: 1,141; 2027: 1,198. - Imports (f.o.b., US$ millions): 2018: -5,742; 2019: -5,182; 2020: -4,096; 2021: -5,530; 2022: -6,046; 2023: -6,391; 2024: -6,684; 2025: -6,829; 2026: -7,040; 2027: -7,326. - Gross official reserves (US$ millions, end of period, Table 1 & 2): 2018: 2,155; 2019: 2,071; 2020: 2,158; 2021: 2,766; 2022: 2,603; 2023: 2,814; 2024: 2,988; 2025: 3,200; 2026: 3,406; 2027: 3,586. - Reserves percent of GDP: 2018: 17.1; 2019: 16.0; 2020: 18.2; 2021: 24.2; 2022: 21.1; 2023: 21.3; 2024: 21.5; 2025: 21.9; 2026: 22.3; 2027: 22.1. - Months of imports of goods and services: 2018: 4.5; 2019: 5.4; 2020: 4.2; 2021: 5.0; 2022: 4.4; 2023: 4.6; 2024: 4.8; 2025: 4.9; 2026: 5.0; 2027: 5.1. - External public debt including IMF (percent of GDP, Table 1): 2018: 17.8; 2019: 20.4; 2020: 21.2; 2021: 18.2; 2022: 17.4; 2023: 17.2; 2024: 16.0; 2025: 14.2; 2026: 12.9; 2027: 11.9. ### Monetary accounts (Table 4 — selected aggregates) - Reserve money (end of period, N$ millions): 2018: 9,256; 2019: 7,081; 2020: 8,223; 2021: 8,238; 2022: 8,980; 2023: 9,697; 2024: 10,418; 2025: 11,188; 2026: 12,014; 2027: 12,900. - Broad money (M2, N$ millions, monetary survey deposits and currency): Deposits: 2018: 101,409; 2019: 112,463; 2020: 121,738; 2021: 126,816; 2022: 138,222; 2023: 149,255; 2024: 160,307; 2025: 172,111; 2026: 184,765; 2027: 198,345. - Domestic credit (N$ millions): 2018: 113,509; 2019: 127,622; 2020: 134,933; 2021: 148,158; 2022: 155,678; 2023: 164,149; 2024: 174,579; 2025: 185,792; 2026: 197,637; 2027: 210,273. - Claims on central government (net, N$ millions): 2018: 9,929; 2019: 17,344; 2020: 23,694; 2021: 35,787; 2022: 36,939; 2023: 38,401; 2024: 40,127; 2025: 41,858; 2026: 43,661; 2027: 45,591. - Credit to the private sector (N$ millions): 2018: 96,386; 2019: 103,211; 2020: 105,668; 2021: 106,773; 2022: 112,375; 2023: 118,641; 2024: 126,641; 2025: 135,412; 2026: 144,725; 2027: 154,668. - Monetary indicators (percent change or ratios): - Monetary base (percent change): 2018: 5.7; 2019: 5.0; 2020: 16.1; 2021: 0.2; 2022: 9.0; 2023: 8.0; 2024: 7.4; 2025: 7.4; 2026: 7.4; 2027: 7.4. - Broad money (M2, percent change): 2018: 6.4; 2019: 10.5; 2020: 8.1; 2021: 4.2; 2022: 9.0; 2023: 8.0; 2024: 7.4; 2025: 7.4; 2026: 7.4; 2027: 7.4. - Money multiplier (levels, memorandum): 2018: 11.3; 2019: 16.3; 2020: 15.2; 2021: 15.8; 2022: 15.8; 2023: 15.8; 2024: 15.8; 2025: 15.8; 2026: 15.8; 2027: 15.8. ### Key macro-fiscal risks and vulnerabilities (synthesized from tables and figures) - Large fiscal deficits during and after the pandemic: overall balance widened to -8.8 percent of GDP in 2020 and remains elevated at -7.1 percent of GDP in 2022 (Prel.). - Public debt elevated and rising: public debt/GDP rose from 50.4 percent in 2018 to 70.1 percent in 2021, projected at 69.7 percent in 2022 and remaining near the high 60s through 2027. - External position: current account swung to a -9.6 percent of GDP deficit in 2021, projected at -9.5 percent in 2022 and improving thereafter but still negative through 2027. - Reserve coverage improved in 2021 (24.2 percent of GDP) and projected to remain around 21–22 percent of GDP through 2027, with months of imports rising to about 5.0–5.1 by 2026–27. ### Projections and outlook (key projections from tables) - Real GDP growth projected: 2022: 3.0; 2023: 3.2; 2024: 2.7; 2025: 2.6; 2026: 2.6; 2027: 2.6. - Inflation (consumer prices, average) projected: 2022: 4.6; 2023: 4.9; 2024–27: 4.5 each year. - Fiscal trajectory: revenue around 30.1–31.9 percent of GDP in 2022–24; overall balance improving gradually from -7.1 percent of GDP in 2022 to -3.8 percent of GDP by 2027/28 (fiscal year basis). - External flows: exports (US$) projected to rise from 4,162 in 2022 to 5,643 in 2027; imports also projected to rise, leaving trade deficits but gradual improvement in current account deficits from -9.5 percent of GDP in 2022 to -3.6 percent of GDP in 2027. *Sources: Namibian authorities and Fund staff estimates and projections.* ### Annex I. Risk Assessment Matrix ### Annex I. Risk Assessment Matrix ### Overview and methodology - The Risk Assessment Matrix (RAM) shows events that could materially alter the baseline path. - The relative likelihood is staff’s subjective assessment: "low" = probability below 10 percent; "medium" = probability between 10 and 30 percent; and "high" = probability between 30 and 50 percent. - The RAM reflects staff views as of the time of discussions with the authorities. Non-mutually exclusive risks may interact and materialize jointly. - Conjunctural shocks and scenario risks may materialize over a shorter horizon (between 12 to 18 months); structural risks are likely to remain salient over a longer horizon. - Based on the latest G-RAM (August 2022). ### Conjunctural risks: Sources, likelihood, expected impacts, and recommended policy responses - Intensifying spillovers from Russia’s war in Ukraine - Likelihood: High - Expected impact on the economy: High. Limited direct trade and financial links to Russia and Ukraine. However, higher global energy and food prices could further increase inflation, worsen the external position, put additional pressures on reserves, slow down the recovery and increase poverty and inequality. - Recommended policy response: - Accelerating fiscal adjustment, raising the policy rate above South Africa’s, and seeking affordable external financing would support reserves and the currency peg. - Provide targeted support to vulnerable households to mitigate the impact of higher fuel and food prices. - Commodity price shocks (continuing supply disruptions and negative demand shocks) - Likelihood: High - Expected impact on the economy: High. Higher international oil and food prices would increase inflation, put additional pressure on international reserves, slow down economic recovery and increase poverty and inequality. - Recommended policy response: - Accelerating fiscal adjustment, raising the policy rate above South Africa’s, and seeking affordable external financing would support reserves and the currency peg. - Provide targeted support to vulnerable households to mitigate the impact of higher fuel and food prices. - Systemic social unrest (rising inflation, declining incomes, worsening inequality) - Likelihood: High - Expected impact on the economy: High. Slower global demand for commodities would negatively impact the mining sector, worsen the fiscal and current account positions, add pressures on reserves, and weaken growth. - Recommended policy response: - Accelerating fiscal adjustment, raising the policy rate above South Africa’s, and seeking external financing would support reserves and the currency peg. - Accelerate structural reforms to support the private sector and foster economic diversification and alternative sources of growth. - Abrupt global slowdown or recession (synchronized sharp growth slowdown, recessions in some countries) - Likelihood: Medium - Expected impact on the economy: High. Slower global demand for commodities would negatively impact the mining sector, worsen the fiscal and current account positions, add pressures on reserves and weaken growth. - Recommended policy response: - Accelerating fiscal adjustment, raising the policy rate above South Africa’s, and seeking affordable external financing would support reserves and the currency peg. - Accelerate structural reforms to support the private sector and foster economic diversification and alternative sources of growth. - Local COVID-19 outbreaks (slow-to-vaccinate countries or vaccine-resistant variants) - Likelihood: Medium - Expected impact on the economy: High. Larger current account and fiscal imbalances following lower demand for commodities; lower SACU revenues as the regional economy slowdowns; pressures on public debt and reserves and refinancing risks. - Recommended policy response: - Provide targeted and temporary fiscal support to the most vulnerable households and businesses. - De-anchoring of inflation expectations and stagflation (food/energy supply shocks triggering wage-price spiral) - Likelihood: Medium - Expected impact on the economy: Medium. Slower growth and higher financing cost deteriorating the fiscal balance and worsening the debt level; lower commodity prices translating into larger current account and fiscal imbalances; lower capital inflows. - Recommended policy response: - Accelerating fiscal adjustment, raising the policy rate above South Africa’s, and seeking affordable external financing would support reserves and the currency peg. ### Structural risks - Deepening geo-economic fragmentation and geopolitical tensions (deglobalization, supply disruptions, technological and payments systems fragmentation) - Likelihood: High - Expected impact on the economy: Medium. Limited direct trade and financial links to Russia and Ukraine. However, higher global energy and food prices could further increase the inflationary pressure. - Recommended policy response: - Provide targeted support to vulnerable households to ensure inclusive recovery. ### Domestic risks - Incomplete or weak policy implementation (undermining confidence in fiscal adjustment plans; political and capacity constraints; contingent liabilities) - Likelihood: Medium - Expected impact on the economy: High. Rising public debt, tighter budget financing; declining international reserves; possible disorderly fiscal adjustment and deterioration in financial sector’s asset quality. - Recommended policy response: - Identify permanent spending reductions and revenue mobilization measures that support long-term development. - Accelerate reforms of public extra budgetary entities, continue policies restraining the wage bill. - Implement mitigating measures for the most vulnerable. Monitor and manage key fiscal risks and financial sector vulnerabilities. - Protracted drought and climate change in Southern Africa (water shortages, frequent floods, lower production) - Likelihood: Medium - Expected impact on the economy: Medium. Higher food prices; lower electricity production; fiscal costs to support farmers and rural population; higher unemployment. - Recommended policy response: - Implement adaptation measures to climate shocks. Accelerate the structural transformation of the economy. - Provide targeted support to affected households. *1namea2022001 - Annex I. Risk Assessment Matrix* ### Annex III. Capacity Development Strategy ### Annex III. Capacity Development Strategy ### Overview of capacity building and past engagement - Objective: Support implementation of economic policies and reforms to foster macroeconomic stability and growth through capacity development (CD). - Focus areas: fiscal consolidation; strengthening financial sector resilience and mitigating risks; enhancing quality of statistics. - Fiscal CD highlights: - Establishment of the Namibia Revenue Authority (NamRA) in 2021; priorities include recruitment, improving capacity of the Large Taxpayer Office, adopting the new ITAS in domestic taxes, reviewing the ASYCUDA system in customs, and strengthening VAT management. - Recent support on post clearance audit; business continuity planning (BCP); risk management and intelligence; and strategy development and monitoring framework. - Strengthening Public Financial Management (PFM) via TA on: (i) reviewing the new PFM bill and supporting implementing regulations; (ii) developing macro-fiscal forecasting capacity at the Ministry of Finance; (iii) improving budget formulation and execution, anchoring the budget on medium term objectives, and considering fiscal risks; (iv) strengthening governance of extrabudgetary entities and public enterprises; (v) enhancing fiscal reporting; and (vii) reviewing the PPP framework to ensure consistency with best practice and containment of risks to the budget. - Monetary and financial CD highlights: - Development of a state-of-the-art liquidity forecasting framework with MCM and AFRITAC South TA; next step: incorporate it to calibrate monetary operations. - Risk-based supervision developed by NAMFISA; Special Resolution Regime for the BoN passed in revisions to the Banking Institutions Act. - Namibia Deposit Guarantee Authority (NDGA) established in 2020. - TA supporting updates to stress-testing, including long-Term Insurance Industry and Old Mutual Stress Testing Framework. - Statistical CD highlights: - Support across macroeconomic statistics: National Accounts, Prices (AFRITAC South), and external sector, monetary and finance statistics, and government finance statistics (HQ). - Focus on strengthening compilation processes and implementation of international statistical standards. - Implementation assessment: - Broadly satisfactory progress: establishment of a revenue authority, fiscal risk management framework, implementation of key FSAP recommendations, and improved BOP and FSI statistics. - Remaining gaps: advance PFM reforms, and delays in enhancing NBFIs oversight and regulatory/oversight framework. ### Moving ahead: priority capacity building areas and planned TA - Fiscal and PFM priorities: - Develop further capacity in NamRA and streamline exemptions. - Strengthen risk-based compliance management. - Address ITAS and ASYCUDA issues to make revenue monitoring and collection more efficient. - Review and consolidate exemptions, especially discretionary ones, to limit losses to the budget. - Set up and build capacity of a Tax Policy Unit within the Ministry of Finance. - Enhance PFM: - Planned support to perform a PIMA to improve planning and execution of public investment and reviewing the PPP framework. - Planned TA on digitalization of the budget formulation process. - Support SDG achievement: - Assess spending needs and map interventions in the budget. - Three complementary activities: (i) assess additional spending needs to achieve selected SDGs; (ii) budget implementation of Namibia’s 6th National Development Plan; (iii) support the medium-term expenditure framework. - Macroprudential, financial stability, and resilience priorities: - Operationalize the new macroprudential framework and expand the macroprudential toolbox: - Map and develop tools for FSMOD to manage financial stability risks. - Review early warning indicator framework. - Support application of Growth at Risk (GaR) analysis, monitoring of systemic risks, and stress-testing. - Assist on using the 2019 stress testing framework and evaluate banks’ capital needs with a Namibia-specific scenario. - Support introduction of a framework for counter cyclical capital buffer (CCyB). - Monitor interconnectedness risks (between NBFIs and commercial banks). - Develop an Emergency Liquidity Assistance (ELA) framework. - Mitigate cyber-risk to support financial stability: - Ongoing TA jointly with AFRITAC South; Namibia is one of six pilot countries. - Focus: (i) develop regulatory and supervisory framework on cyber risk; (ii) conduct cyber security training; (iii) launch a comprehensive cyber security strategy with first phase planned for end-2023. - Digital currency and virtual assets: - Discussions ongoing on TA covering CBDC implications for monetary policy transmission and financial stability and on TA needs for regulating virtual and crypto assets. - Central bank forecasting and policy analysis: - ICD multi-year TA project at the Bank of Namibia (BoN) to enhance macroeconomic policy analysis and forecasting. - Phase 1 achievements (2021): (i) centralized database for BoN forecasting team built; (ii) BoN research staff trained in macroeconomic forecasting and nowcasting; (iii) near-term forecasting models for inflation evaluated and re-estimated; (iv) GDP nowcasting introduced. - Phase 2 planned: develop a semi-structural core model for medium-term forecast accounting for Namibia’s integration with the South African economy, including large SACU transfers and the exchange rate peg to the rand. - Statistical dissemination and SDDS subscription: - STA support on dissemination of timely and comprehensive economic statistics through a roadmap for subscribing to the Special Data Dissemination Standards (SDDS). - Missions to strengthen consistency between monetary and finance statistics and international investment position data, and improve coverage of external sector, monetary and finance statistics, and general government operations (GGO) data. - Subscription to the SDDS is expected to be finalized before the end of 2022. ### Capacity development priorities table (summarized by department) - FAD (selected objectives): - Revenue Administration: Improve revenue administration processes, particularly audit functions; strengthen core customs and tax functions; training on digital taxation and transfer pricing. - Tax Policy: Review and streamline exemptions regime; establish Tax Policy Unit; review natural resource taxation. - PFM: Review new PFM bill/act and support implementing regulations; develop macro-fiscal forecasting capacity of the MoF; improve budget formulation through digitalization; perform a PIMA; strengthen governance of extrabudgetary entities and public enterprises; enhance fiscal reporting (Chart of Accounts). - SDG Costing: Assess cost for reaching SDGs in education, health, and infrastructure (roads, electricity, water/sanitation). - MCM (selected objectives): - Financial Supervision and Regulation: Map and develop tools for financial sector risks for FSMOD; review early warning indicator framework; evaluate banks’ capital needs with a Namibia-specific stress test; review CCyB development and possibility of a positive neutral rate; update liquidity regulatory framework; develop stress testing for pension funds and insurance companies; update capital requirement regulation for pension funds; follow up on 2018 FSAP issues including NBFI supervision and crisis management preparedness. - Monetary policy and central bank operations: Revamp liquidity management framework and improve liquidity forecasting capacities. - ICD: - Forecasting and Policy Analysis System (FPAS) at the Bank of Namibia: Develop modeling and analytical capacity, establish processes and organizational structure of FPAS, and incorporate it into the decision-making process. - STA (selected objectives): - Real sector statistics: Rebase national accounts; improve quarterly GDP statistics; follow-up on producer price index. - Government finance statistics: Review completeness of reported fiscal operations accounts, particularly investments financed by non-central government entities; adopt and report fiscal accounts using latest GFS standards and expand coverage to general government and key SOEs as needed. - Financial statistics: Expand FSI coverage to non-banks; continue expanding coverage of the monetary survey to asset managers. *Source: Annex III. Capacity Development Strategy (Namibia).* ### 7. The heat map, which summarizes the risk assessment of Namibia’s debt and gross ### 1namea2022001 - 7. The heat map, which summarizes the risk assessment of Namibia’s debt and gross ### Heat map and overall risk assessment - The heat map (Figure AIV.1) points to significant risks: all shock scenarios for the debt level and gross financing needs flash red, reflecting already elevated debt levels and financing needs under the baseline. - Mitigating factors noted: - Large domestic institutional investor base. - Market appetite for long maturity debt instruments. - Low share of foreign currency debt. ### Realism of baseline assumptions - Inflation projections: Past inflation projections have a percentile rank of 81 percent compared to other surveillance MACs; described as neither too optimistic nor pessimistic. - Real GDP and primary balance projections: Show an optimistic bias with median forecast errors during 2013–21 of: - Real GDP: -4.5 percent (median forecast error). - Primary balance: -1.2 percent (median forecast error). - These partly reflect volatility in mineral production and SACU tax revenues. - Cyclically Adjusted Primary Balance (CAPB): - Projected 3-year adjustment in CAPB is relatively strong with a percentile rank of 13 percent. - Level of the CAPB is relatively small with a percentile rank of 54 percent compared to historical experience for high-debt market access countries. - SACU receipts distribution note: Forecast errors are typically adjusted with a two-year lag; positive adjustments anticipated in FY23/24 and FY24/25 based on higher-than-anticipated customs and excise revenues. ### External debt—evolution, composition, and projections - Key developments: - Public external debt declined to 16.7 percent of GDP at end-2021 (from 21.3 percent at end-2020) following redemption of the US$500 million 2010 Eurobond and rollover through domestic debt issuance. - Private sector external debt declined to 49.9 percent of GDP at end-2021 (from 56 percent at end-2020) despite nominal pickup due to resumed mining activity. - Most external debt has long and medium-term maturities. - Namibia’s public external debt is mostly owed to multilateral official creditors and commercial creditors; the proportion owed to multilateral creditors nearly doubled in 2021 compared to pre-pandemic levels. - Historical and peak levels: - External debt peaked in 2020 at 77.3 percent of GDP (public external debt 21.3 percent of GDP; private external debt 56 percent of GDP), driven by sharp output contraction and sizeable exchange rate depreciation (about 14 percent). - Projections: - Starting in 2022, external debt is expected to gradually decline as the economy recovers and the current account position gradually improves. - Gross external financing needs are expected to remain large but gradually decline over the medium-term. - Table excerpts (selected figures): - Total external debt by year (percent of GDP): 2015: 49.6; 2016: 60.9; 2017: 64.9; 2018: 61.7; 2019: 66.4; 2020: 77.3; 2021: 66.5. - Public (without guarantees) external debt (percent of GDP): 2015: 13.2; 2016: 17.5; 2017: 16.0; 2018: 15.5; 2019: 17.5; 2020: 21.3; 2021: 16.6. - Private external debt (percent of GDP): 2015: 36.4; 2016: 43.5; 2017: 48.9; 2018: 46.2; 2019: 48.8; 2020: 56.0; 2021: 49.9. - Original maturity composition (percent of GDP) 2021: Short-term 5.3; Long and medium-term 61.2. - Creditor composition (selected 2019–2021 snapshots, USD million and percent of total): Multilateral official creditors in 2021: 9,048.4 (48.0% of total); Commercial creditors in 2021: 7,943.0 (7.1% of GDP); Eurobonds in 2021: 5,036.7 (6.1% of GDP). ### Sensitivity and stress-test findings - Current-account shock: - A widening of the non-interest current account deficit by 6.4 percent of GDP (one standard deviation) during the projection period would increase external debt to 86 percent by 2027 (compared to 53 percent under the baseline). - Exchange rate shock: - A 30 percent exchange rate depreciation in 2023 would increase external debt by about 9 percentage points of GDP relative to the baseline. - Interest rate shock: - Impact of real interest rate shocks is small due to sizeable share of fixed-rate debt. - Bound and scenario results (from Figures AIV.6 and related text): - Baseline external debt projection in percent of GDP: 53 (baseline projection). - Interest rate shock scenario: 58 (average projection in shock scenario). - Real GDP growth shock scenario: 64. - Non-interest current account (CA) shock scenario: 86. - Combined shock scenario: 87. - Real depreciation (one-time 30 percent) scenario: 59. - Public debt stress tests (from DSA figures): - Under baseline and multiple stress tests, gross nominal public debt and public gross financing needs exhibit material increases under adverse shocks; all shock scenarios in the heat map exceed early-warning benchmarks (cells flash red). ### Debt-stabilizing and external financing metrics (selected Table AIV.1 figures) - External debt trajectory (percent of GDP) 2017–2027 (selected): - 2017: 64.9; 2018: 61.7; 2019: 66.4; 2020: 77.3; 2021: 66.5; 2022: 64.6; 2023: 63.7; 2024: 60.6; 2025: 57.6; 2026: 55.4; 2027: 53.1. - Change in external debt (percent of GDP): 2017: 3.9; 2018: -3.1; 2019: 4.6; 2020: 10.9; 2021: -10.9; 2022: -1.8; 2023: -1.0; 2024: -3.1; 2025: -3.0; 2026: -2.2; 2027: -2.3. - Gross external financing need (in billions of US dollars): annual values 2017–2027 include: 2017: 3.0; 2018: 3.2; 2019: 2.8; 2020: 2.3; 2021: 4.3; 2022: 3.7; 2023: 3.7; 2024: 3.4; 2025: 3.4; 2026: 4.2; 2027: 3.3. - External debt-to-exports ratio (percent): 2017: 186.4; 2018: 170.0; 2019: 181.9; 2020: 230.7; 2021: 204.7; 2022: 168.3; 2023: 168.3; 2024: 153.1; 2025: 144.6; 2026: 140.7; 2027: 134.6. - Key macro assumptions (selected): Real GDP growth rates (percent) 2022–2027: 2022: 2.7; 2023: 3.0; 2024: 3.0; 2025: 3.2; 2026: 2.7; 2027: 2.6; Nominal external interest rate (percent) across 2022–2027: 0.8; 2.8; 2.8; 5.1; 4.9; 3.9; 3.1 (as shown in Table AIV.1 series). ### Policy-relevant implications (derived from findings) - Elevated baseline debt and gross financing needs imply vulnerability to adverse shocks, particularly to the current account. - Reliance on domestic investor base, long-maturity instruments, and low foreign-currency exposure provide partial mitigation against external shocks. - Continued fiscal adjustment and policies that strengthen SACU revenue realization and export recovery would support declining external debt ratios under the baseline. - Monitoring and containing contingent liabilities remain important given their potential to materially worsen public debt under stress. *Source: IMF staff (excerpts from Figures AIV.1–AIV.6 and Table AIV.1 in the provided chapter).* ### Annex V. External Sector Assessment ### Annex V. External Sector Assessment ### Overall Assessment - Namibia’s external position in 2021 was moderately weaker than the level implied by fundamentals and desirable policy settings, based on the IMF’s EBA-lite current account model. - External position weakened in 2021 owing to rebounding imports, a sharp temporary decline in SACU transfers, and the lingering impact of the COVID-19 pandemic on tourism. - Exceptional financial inflows, including the RFI and the general SDR allocation, helped to strengthen reserve coverage significantly. - Continued efforts to strengthen the fiscal position and advance the planned fiscal consolidation strategy will help strengthen the external position. ### Potential Policy Responses - Implement a medium-term growth-friendly fiscal consolidation to support the external position and assist gradual accumulation of reserves consistent with achieving the ARA metrics reserve adequacy level, thereby ensuring sustainability of the exchange rate peg with South Africa. - Gradual accumulation of reserves to support the currency peg and strengthen buffers against shocks. - Structural reforms to improve the business climate and competitiveness to attract more sustainable financial inflows, including FDIs to non-resource intensive sectors, and help diversify sources of external funding. ### Net International Investment Position (NIIP) - Background: - NIIP deteriorated steadily since 2009; Namibia became a net debtor country in 2015 when net foreign position reached -2.8 percent of GDP. - NIIP improved since 2018, supported by accumulation of portfolio assets by non-bank financial institutions and valuation gains. - NIIP improved to -2.9 percent of GDP in 2021 from -4.4 percent of GDP in 2020 and -8.0 percent of GDP in 2019. - External debt decreased to 66.9 percent of GDP in 2021 from 77.5 percent of GDP in 2020; external debt at end-2019 was 66.4 percent of GDP. - Redemption of the 2015 Eurobond in November 2021 contributed to NIIP improvement; repatriation of pension fund foreign assets was a countervailing factor. - Assessment: - Under staff’s baseline scenario, medium-term prospects: lower current account deficits and anticipated decline in external debt (driven by planned growth-supportive fiscal consolidation) would help contain NIIP deterioration. - Main risks: - Delays in implementation of planned fiscal consolidation could worsen public external debt dynamics. - Exposure of the non-bank financial sector to foreign liabilities as global interest rates rise. - Potentially lower returns to external assets reducing valuation gains amid financial market volatility. - Mitigants: - Authorities’ progress and commitment to planned fiscal consolidation. - Large part of private external debt is due by mining companies to their parents. ### Current Account - Background: - During 2017–2019 the CA deficit narrowed, reaching -1.7 percent in 2019. - In 2020 the current account recorded a surplus of 2.8 percent of GDP due to strong import compression despite declines in mining exports and SACU transfers. - In 2021 the current account deficit widened to 9.6 percent of GDP driven by a strong rebound in imports (higher food and fuel prices) and a sharp decline in SACU transfers; negative public savings were -5.4 percent of GDP. - Current account deficit remained large in the first half of 2022 due to higher international oil and food prices, large FDI-related imports in oil and gas exploration, and further decline in SACU receipts. - Assessment (EBA-lite results, 2021): - Actual CA: -9.6 percent of GDP. - Cyclical contributions (from model): (-)1.0 percent of GDP. - COVID-19 adjustor: (-)1.5 percent of GDP. - Additional temporary/statistical factors: (-)3.3 percent of GDP, comprised of: - SACU transfers adjustment: (-)1.6 percent of GDP. - Diamond exports adjustment: (-)1.0 percent of GDP. - Air Namibia lease/one-off penalty: (-)0.7 percent of GDP. - Natural disasters and conflicts: (-)0.2 percent of GDP. - Adjusted CA: -5.6 percent of GDP (after above adjustments). - CA Norm (cyclically adjusted, multilateral consistency): -3.7 percent of GDP. - Adjusted CA Norm: -3.7 percent of GDP. - CA Gap: -1.9 percent of GDP (i.e., adjusted CA - adjusted CA norm). - o/w Relative policy gap: 3.1 percent of GDP. - Elasticity: -0.29. - REER Gap (in percent): 6.4 (overvaluation after adjustments); alternative REER undervaluation cited below. - Adjustments and one-off factors totalled an aggregate adjustment of 5.0 percent of GDP, yielding the further adjusted current account deficit of -5.6 percent of GDP. - Notes on specific adjustments: - Tourism visitation dropped 68 percent in 2021 vs pre-pandemic period; tourism adjustment taken from EBA-Lite baseline. - SACU revenues dropped by more than 3 percent of GDP in 2021 compared to 2020; adjustment of 1.6 percent of GDP derived from difference between three-year average prior to pandemic (10.8 percent of GDP) and 2021. - Diamond exports adjustment: difference between 2021 export value (4.6 percent of GDP) and three-year pre-pandemic average (5.6 percent of GDP) equals 1.0 percent of GDP. - Air Namibia one-off penalty payment: US$109 million less regular payments US$25.6 million = US$83.4 million (0.7 percent of GDP) adjustment. ### Real Effective Exchange Rate (REER) - Background: - Namibian dollar pegged at par to the South African rand; REER movements largely reflect rand nominal changes and inflation differential with South Africa. - REER depreciated by 22 percent between 2010–2016; broadly stable until COVID-19. - In 2020 the REER depreciated by 7.3 percent (y-o-y, average). - In 2021 the REER appreciated by 5.5 percent (y-o-y, average). - After appreciating by 5.5 percent in 2021, the REER depreciated by 2.5 percent during January-August 2022 and the NEER depreciated by 2.3 percent. - CPI-based REER measure may underestimate weakening of cost competitiveness amid rising wages that outstrip productivity growth. - Assessment: - EBA-lite REER model using CPI-based measure suggests an undervaluation of 13.9 percent. - ULC-based REER yields a lower undervaluation of 7.7 percent reflecting slowdown in wage growth. ### Financial Account - Background: - After a declining trend over 2015–19, exceptionally high financial inflows marked 2021 due to IMF emergency financing under the RFI, the general SDR allocation, AfDB budget support, and higher FDI inflows (notably mining inter-company loans in the uranium sector). - Large financial outflow from redemption of the 2010 Eurobond (USD$ 500 million, 4 percent of GDP) was more than compensated by repatriation of assets by the non-bank financial sector (pension funds) to finance large fiscal needs. - Gross financing needs increased substantially in 2021; amortization picked up to 4.3 percent of GDP, reflecting repayment of the 2010 Eurobond. - Assessment: - Net FDI flows: positive but on a moderate downward path prior to the pandemic; volatility linked to mining-sector investments and short-term operations. - Higher domestic asset requirements (2018) led to higher portfolio inflows partially compensating for declining FDI inflows. - Long-term investments in green hydrogen and oil and gas expected to enhance inflows in the medium-term; large FDI inflows in oil and gas exploration recorded in H1 2022. - Risks: volatility in international financial markets and lower equity returns could weaken portfolio inflows. - Policy implication: accelerate reforms to improve business climate and competitiveness to attract sustainable FDI to non-resource sectors and diversify external funding sources. ### International Reserves Adequacy - Background: - Reserves increased to 3.2 months of imports in 2015 (boosted by 2015 Eurobond and swap operations). - Pre-pandemic (end-2019) reserves reached 5.4 months of imports (19.1 percent of GDP) and were above IMF’s reserve adequacy metric for market access economies. - Reserves coverage declined to 4.2 months of imports in 2020. - Reserves rebounded to 5 months of imports coverage at end-2021, supported by IMF RFI (2.2 percent of GDP), IMF general SDR allocation (2.1 percent of GDP), and AfDB budget support (0.8 percent of GDP), and were above ARA measures. - Authorities’ foreign exchange interventions are consistent with prudent reserves management to support the currency peg. - Assessment and projections: - Gross international reserves: 5 months of import coverage and 22.5 percent of GDP at end-2021 (above IMF metric for market access countries). - Staff baseline scenario projects reserves decline to 4.4 months of imports (20.8 percent of GDP) at end-2022, below IMF reserve adequacy metrics. - Current account deficit expected to remain large at 9.5 percent of GDP in 2022 due to SACU receipts decline and pick-up in oil and food imports (food and oil imports represent 16.9 and 15.2 percent of overall imports, respectively); partially mitigated by mining export recovery. - Reserves expected to be 2.6 billion (4.4 months of imports) at end-2022, slightly below IMF adequacy metrics; expected to reach adequacy by 2023 and gradually increase thereafter supported by: - Planned fiscal consolidation, - Sustained mining production and prices, - Recovering SACU receipts, - Lower international oil and food prices. - Downside risks: delays in fiscal consolidation, lower-than-anticipated non-oil commodity prices, slowdown in oil exploration FDI. - Recommendation: diversify the economy within a broader economic transformation strategy to mitigate risks. - Reserve adequacy thresholds and baseline scenario (Percent of GDP; Months of imports): - Percent of GDP - minimum: 2022 20.2, 2023 20.3, 2024 20.8, 2025 20.0, 2026 20.0, 2027 19.5 - maximum: 2022 30.3, 2023 30.4, 2024 30.9, 2025 30.4, 2026 30.0, 2027 29.5 - baseline scenario: 2022 20.8, 2023 21.1, 2024 21.2, 2025 21.7, 2026 22.0, 2027 22.1 - Months of imports - minimum: 2022 4.5, 2023 4.6, 2024 4.8, 2025 4.7, 2026 4.7, 2027 5.1 - maximum: 2022 6.7, 2023 6.9, 2024 7.2, 2025 7.1, 2026 7.1, 2027 7.7 - baseline scenario: 2022 4.4, 2023 4.6, 2024 4.8, 2025 4.9, 2026 5.0, 2027 5.1 *Source: Annex V. External Sector Assessment, IMF staff estimates and Namibian authorities (from the provided content).* ### 2. Emergency health and education spending were swiftly undertaken to respond to the ### 1namea2022001 - 2. Emergency health and education spending were swiftly undertaken to respond to the ### Emergency health, education, and water spending (COVID-19 response) - Emergency health spending executed: N$727.7 million (0.4 percent of GDP) — used to purchase protective equipment and pharmaceuticals, conduct testing and contact tracing, set-up quarantine facilities, and step-up health personnel. - Emergency education spending allocated: N$468 million (0.3 percent of GDP, about 80 percent of the budgeted amount) — to promote sanitation and improve health facilities in public schools throughout the country. - Water infrastructure spending used: N$72 million (0.04 percent of GDP, 90 percent of the budgeted amount) — to improve water provisions and infrastructure. - Tabulated COVID-19 emergency spending (Millions of $N; Percent of FY GDP) as presented in the source: - Health: Budgeted 727; Actual 728; 0.4; 0.4 - Education: Budgeted 600; Actual 468; 0.3; 0.3 - Water: Budgeted 80; Actual 72; 0.05; 0.04 - Emergency Income Grant: Budgeted 772; Actual 576; 0.4; 0.3 - Arrears repayment: Budgeted 3800; Actual 3800; 2.2; 2.2 - Wage subsidy and employee salary protection programs: Budgeted 400; Actual 107; 0.2; 0.1 - Total: Budgeted 6379; Actual 5750; 3.6; 3.3 ### Social safety nets — Emergency Income Grant (EIG) - EIG design and targeting: - Budgeted for N$772 million (0.4 percent of GDP); targeted about 800,000 individuals (about 35 percent of the Namibian population). - One-off cash transfer: N$750 per person to eligible individuals who were: i) unemployed (as of February 1st, 2020) and not benefitting from other social grants; or ii) operating in the informal sector and having experienced a loss of income. - Access based on self-nomination; payments via mobile banking modalities. - Actual take-up and fiscal cost: - About 769,000 individuals estimated to have benefited. - Fiscal cost: N$576 million (0.4 percent of GDP, 72 percent of the total allocation). ### Private sector support and job protection measures - Employer Wage Subsidy and Employee Salary Protection Program: - Covered about 230 employers and 21,359 employees. - Overall cost: N$106.7 million (0.1 percent of GDP, about 25 percent of the allocated amount). - Conditions: employers in tourism, aviation, and construction sectors received a subsidy to cover a share of their wage bill for three months; beneficiary employers committed not to retrench staff for the same period and not to reduce salaries by more than 50 percent. - Arrears repayment: - N$3.8 billion (2.1 percent of GDP) was accelerated and paid in full to private sector (VAT refunds and government suppliers). - Government guarantee loan scheme for firms (notably SMEs): - Total: N$2.4 billion (1.3 percent of GDP); usage remained limited due to administrative bottlenecks. ### Financial sector relief and liquidity support - Bank of Namibia (BoN) regulatory easing — April 2020, for 24 months: - Relaxation of liquidity risk management determination. - Capital conservation buffer rate reduced to 0 percent. - Implementation of the 25 percent single borrower limit and concentration risk limit postponed. - Banks allowed to grant loan payment moratoria from 6 up to 24 months. - NBFIs required to grant premium and contribution holidays/reductions in most affected sectors, notably tourism. - Extension: - In October 2021, the Bank of Namibia extended relief measures until April 2023 (originally due to expire April 2022). ### The Welwitschia Fund (WF) — sovereign wealth fund - Establishment and objectives: - Launched in May 2022 as part of Harambee Prosperity Plan II to strengthen natural resources management. - Objectives: insure against cyclical shocks and strengthen resilience; promote intergenerational equity through intertemporal distribution of benefits derived from natural resource endowments and state assets; contribute to macroeconomic stability. - Initial setup and seed capital: - Until Parliament approves the WF Act, WF set up as a reserve account managed by the Bank of Namibia. - Initial seed capital: N$262 million (0.1 percent of GDP). - Temporary funding rules outlined in a Memorandum of Understanding between the Bank of Namibia and the Ministry of Finance. - Funding triggers and sources: - Savings from budgetary resources to flow to WF once public revenue reaches its long-term average of 30.5 percent of GDP and expenditure falls below the voluntary non-legislative ceiling of 33 percent of GDP. - Stabilization account funding sources: - At least 2.5 percent of SACU receipts when SACU receipts are above 9.5 percent of GDP; - At least 33 percent of positive adjustments in SACU receipts; - At least 50 percent of fiscal surplus in years of overall fiscal surpluses because of increased revenue from non-renewable sources; - 10 percent of revenues from renewable resources, including from green hydrogen projects. - Intergenerational saving account funding sources: - 15 percent of mineral royalties; - At least 33 percent of proceeds from divestiture from government assets (unless sale attached to specific commitment). - Withdrawal rules: - Stabilization account withdrawals permitted when: - Fiscal deficits exceed 8 percent of GDP over a two-year period due to business cycle, climate, and external shocks (deficit must be primarily due to revenue shortfalls rather than spending increases); - Fiscal revenue as a percent of GDP falls below its long-term average level (30.5 percent of GDP) over a two-year period; - At any given time, withdrawals cannot exceed 10 percent of total asset value of the Stabilization Account. - Intergenerational account withdrawals permitted when: - Account has reached accumulation equivalent to 20 percent of GDP; - Withdrawals only against returns on investments (capital cannot be withdrawn); - Withdrawn returns can only fund national projects/infrastructure with positive socioeconomic impact on future generations; - Withdrawals limited to 10% of total returns accumulated in the intergenerational account. - Exceptional circumstances: withdrawals from either account could be made to defend the currency in the event of a balance of payments shock (intergenerational account only if Stabilization Account depleted). - Governance, transparency, and staff recommendations: - WF to be managed by a Board of Directors under Minister of Finance guidance. - Draft WF policy framework assigns Bank of Namibia Board of Directors as WF Board; staff recommended a separate board to strengthen governance and independent oversight and to avoid impeding BoN's core mandate. - Staff recommended clarifying the Minister of Finance and Board roles in WF policy and management. - Reporting requirements: audited financial statements and an annual report to be submitted to the National Assembly and published; monthly Gazette report on WF's return on assets and liabilities required. - Staff recommended the Auditor-General conduct an external audit and that this be explicitly articulated in the WF Act. ### Medium-term fiscal consolidation and distributional considerations - Consolidation framework (late 2020): - Package of fiscal adjustment measures: 5.5 percent of GDP, cumulative over FY2021/22–24/25. - Key components: - Containing the wage bill: freeze nominal wage increases in FY2021/22; allow for natural attrition (excluding priority sectors); implement an early retirement scheme. - Reducing transfers to SOEs by divesting from selected entities and improving SOEs’ performance and management. - Mobilizing tax arrears and one-off exceptional revenues. - Distributional context: - Namibia Gini coefficient: 59.1 percent in 2015 (most recent data available). - COVID-19 estimated to have exacerbated inequality. - Importance: carry out fiscal consolidation without exacerbating high inequality; requires complementary mitigating measures. - Modeling approach: - A general equilibrium model (MIMMI: Multisector Incomplete Markets Macro Inequality App) customized to Namibia used to examine distributional consequences of selected fiscal measures. ### Policy experiments and recommendations (distributional lens) - Key insight: - Complement fiscal reforms with distributional policies to prevent revenue-enhancing measures from worsening inequality. - Use part of additional revenue from reforms to finance targeted social transfers to offset regressive impacts and support demand. - Example — VAT efficiency improvements: - VAT C-efficiency declined from 62 percent in FY2013/14 to 49 percent in FY2019/20, falling further to 34 percent in FY2020/21. - In FY2019/20, potential VAT revenue estimated at 8.2 percent of GDP vs actual collection of 6.4 percent of GDP, implying about a 21 percent tax gap. - Closing VAT gap (improving enforcement, eliminating exemptions) would be equivalent to raising the effective VAT rate, boosting revenue but lowering output and potentially being regressive. - Recommendation: use part of additional VAT revenue for targeted social transfers to reduce poverty and alleviate negative impacts on inequality and moderate decline in aggregate demand. - Example — Corporate Income Tax (CIT) efficiency improvements: - CIT efficiency ratio has been declining since FY2015/16; highest observed CIT efficiency ratio used for potential revenue calculation was 43.1 percent in FY2015/16. - Potential CIT revenue in FY2019/20 estimated at 5 percent of GDP vs actual CIT revenue of 4 percent of GDP, implying a 20 percent CIT gap. - Indicators pointing to a large CIT gap: - Share of taxpayers filing taxes on time: 19 percent in 2019. - Share of CIT paid on time: 3.3 percent in 2019. - Stock of CIT arrears: 11.1 percent of GDP in FY2020/21. - Recommendation: improve CIT compliance and collection while pairing revenue measures with targeted transfers to mitigate distributional harm. *Source: Excerpted IMF content provided in the supplied document.* ### 8. Closing the CIT gap would increase government revenue at the cost of higher output ### 8. Closing the CIT gap would increase government revenue at the cost of higher output ### Closing the CIT gap and distributional effects - Bringing previously untaxed or under-taxed firms into the tax system may reduce their profitability, resulting in lower input demand and, consequently, lower output. - Government CIT revenue could rise slightly. - Both poverty and inequality would worsen in the absence of social transfers. - With targeted social transfers, the reform could lower poverty and inequality while additional revenues are collected. ### Increasing the Progressivity of the Personal Income Tax - Increasing the progressivity of personal income taxes (e.g., by lowering bracket cut-offs and raising tax rates for the top two income tax brackets) could reduce income inequality. - Likely adverse macroeconomic and fiscal effects: - Discouragement of formal work and increase in informality. - Decrease in aggregate productivity and output over time. - Increase in informality would partially offset the revenue gain from increased progressivity, resulting in lower revenue. - Because of its impact on overall economic productivity, the reform may exacerbate poverty. ### SOEs Reform - Rationalizing SOEs through targeted privatization has the potential to increase aggregate productivity. - Mechanism: - Reduced public supply of services would increase service prices, incentivizing private sector entry. - Private sector entry would boost labor demand, raising wages in the modern/urban sectors. - Higher wages would increase demand for agricultural goods, boosting rural households’ agricultural income. - Distributional effect: - Inequality would rise slightly, necessitating supplementary policies to mitigate unintended distributional effects. ### Annex IX. Fiscal Consolidation and Growth in Namibia — Medium-term strategy - Authorities implementing a medium-term fiscal consolidation strategy building on a cumulative fiscal adjustment package of 6.7 percent of GDP over FY2021/22–25/2. - Key elements of the fiscal consolidation strategy: - Containing the wage bill. - Reducing transfers to SOEs. - Mobilizing domestic revenue. ### DIGNAR model calibration and baseline variables - A dynamic, stochastic model of a small economy (DIGNAR) is used to assess growth impact. - Table of initial steady-state variables (In percent of GDP unless otherwise indicated (2021)): - GDP growth rate2.7 - Exports29.1 - Imports-44.9 - Government consumption34.8 - Government investment expenditure3.4 - Private investment11.5 - Mining value added9.8 - Government domestic debt 1/39 - Private foreign debt0 - Government external commercial debt31.7 - Grants0 - Note: "1/ The actual amount of domestic debt in 2021 was too high for the calibration of the model at above 50 percent of GDP, and hence the remaining debt was added to the government external debt to arrive at the actual total debt to GDP ratio for 2021." ### Macro-fiscal variables consistent with the baseline consolidation path (In percent of GDP unless otherwise indicated) - 2021–2027 selected series (as presented): - Capital Expenditure 3.43.02.92.92.92.92.9 - Current Expenditure34.833.533.533.332.732.732.6 - Public Transfers9.79.49.09.08.98.68.6 - Overall Revenue28.828.731.031.931.531.631.7 - Overall Deficit-9.3-7.7-5.4-4.2-4.1-4.0-3.8 ### Alternative scenarios and marginal growth impacts - Simulations: baseline and four alternative scenarios — i) spending substitution; ii) expenditure quality reforms; iii) revenue administration reforms; iv) different speeds of adjustment. - Key scenario findings: - Spending substitution: protecting capital with greater reduction in current spending improves the growth path. An additional capital spending of 0.1 percent of GDP each year by reducing current spending by the same amount produces no material difference from baseline; increasing capital spending toward 4 percent of GDP by the end of the projection increases yearly average growth by 0.1 percent of GDP. - Expenditure quality scenario: a one-time, 10 percent permanent efficiency gain in expenditure quality starting in year 2023 (from reform efforts in 2022) yields an average yearly growth pickup of 0.02 percentage points. - Revenue administration scenario: less reliance on expenditure cuts — reducing overall spending contraction by 0.5 percent of GDP each year with gains falling equally across government expenditure — yields a yearly average gain of 0.1 percentage point in growth relative to baseline. - Pace of consolidation: assuming equal distribution of the fiscal adjustment produces no significant gains to growth. A less backloaded consolidation produces a relatively small average gain of 0.02 percentage points of growth over the projection period; a more backloaded consolidation does not significantly alter the growth path and can produce negative marginal effects (backloaded curve adjustment-0.08). - Table of marginal changes to average growth across alternative paths (In percentage points): - Spending substituition0.10 - Investment efficiency0.02 - Revenue reforms0.10 - Equal distribution of adjustment0.00 - Backloaded curve adjustment-0.08 - Less backloaded curve adjustment0.02 - Overall assessment: - Various alternative scenarios do not produce significantly different growth paths but deliver marginal changes. - Gains in investment efficiency bring less growth premium than substituting investment spending for current spending and revenue reforms. - The baseline pace of consolidation produces a growth path close to the optimal scenario produced by simulations. - Debt above 60 percent of GDP is assumed to cause a 3 to 4 basis points increase in the sovereign risk premium for every percentage point increase in the debt to GDP ratio (used to capture higher risk from high debt). - Striking the right balance between a fragile recovery and reducing negative growth risk from high debt is paramount. ### Annex X. Financial Sector–Growth Nexus: overview of financial sector size and metrics - As of end-2021: - Banking sector assets represent over 100 percent of GDP. - Non-bank financial sector (NBFS) assets represent 187 percent of GDP. - Households hold aggregate claims on non-bank financial institutions (NBFIs) equivalent to 80 percent of GDP, half of which are GIPF liabilities. - The financial system is closely linked to South Africa where most banks and asset managers have parent companies. - Namibia’s financial sector development is significantly above emerging markets and sub-Saharan Africa averages (Sahay et. al, 2015). - Key selected comparator table excerpts (preserve values as presented): - Financial Instituitions: Depth0.650.270.120.240.880.810.360.05 - Private Sector Credit to GDP71.21131.4739.9342.13116.13190.7636.22 - Pension Fund Assets to GDP10.3918.3641.6470.44 - Mutual Fund Assets to GDP10.117.6340.7591.13 - Insurance Premiums (life and non-life) to GDP7.132.061.8713.926.493.280.53 - Financial Instituitions: Access0.450.360.140.420.400.840.310.03 - Bank branches per 100,000 adults11.1811.514.4514.629.5930.469.37 - ATMs per 100,000 adults72.3742.616.0944.1165.3145.02 - Financial Instituitions: Efficiency0.700.610.550.650.700.720.680.73 - Net interest margin (in percent)7.847.6610.448.284.573.4133.13 - Lending-deposits spread4.175.787.553.124.80 - Return on assets (in percent)2.791.941.942.371.501.602.352.86 - Return on equity (in percent)17.5613.8915.5216.5914.0411.5015.5520.55 - Financial Markets' Depth0.200.220.080.210.760.990.100.02 - Stock market capitalization to GDP 8.9530.7625.17132.32106.9728.46 - Stocks traded to GDP 0.7883.9513.3673.42108.21 - International debt securities of government to GDP64.5647.808.4128.23 - Total debt securities of financial corporation to GDP3.6773.4057.9469.6017.82 - Total debt securities of nonfinancial corporation to GDP2.7732.1721.5815.3530.33 - Financial Markets Access 0.050.230.060.240.420.660.550.00 - Percent of market capitalization outside of top 10 largest companies49.6150.1180.2575.49 - Financial Markets Efficiency 0.990.160.040.150.411.000.060.00 - Stock market turnover ratio (value traded/stock market capitali3.7631.5521.9733.134.48 ### Financial sector’s potential and historical contribution to growth - The relationship between financial development and growth is expressed by an inverse U-shaped function (Sahay et. al, 2015). - Applying the bell curve estimation to Namibia, the impact of financial development on growth would be expected to be approximately 4.5 percentage points. - Namibia is estimated to be positioned to the left of the bell curve, implying that further financial development would potentially increase returns to growth. - Historical evidence: - The growth contribution of Namibia’s financial sector has been historically limited or negative. - During periods of large growth spurts in financial development, Namibia’s real growth has largely been flat. - Granger causality tests indicate lack of causality from financial development to growth; in a more recent period, economic activity appears a stronger determinant of financial sector development (demand-following). - Prior analysis: a 1 percent decline in real credit is associated with a 0.47 percent decline in real GDP (IMF Country Report 15/276). ### Constraints to the financial sector supporting growth - Identified constraints: - Firms’ weak access to credit, especially for SMEs. - Uneven pace of development: financial markets lag financial institutions. - High loan concentration in the real estate/housing market. - Significant linkage between the government and the financial sector through high concentration of government debt holdings by financial institutions. - Specifics: - Access to financial markets is the weakest relative to other metrics. - In Namibia only 1.4 percent of all investments are financed by equity, compared to 300 percent stock market capitalization for South Africa (as presented). - More than 90 percent of household debt at end-2021 was in housing mortgages, representing half of all banking sector loans to the private sector. - Concentration of credit in less productive sectors could make the financial sector’s growth contribution asymmetric and increase downside risk during contractions, especially for households exposed to rising interest rates and declining real wages. *Source: 1namea2022001 - 8. Closing the CIT gap would increase government revenue at the cost of higher output* ### 9. A significant sovereign-financial ### 9. A significant sovereign-financial nexus can compound these challenges. ### Sovereign-financial nexus and credit allocation - Large budgetary financing needs may have crowded out credit to the private sector. - The large role of the public sector in financial markets can increase fragility and reduce the cushioning impact of the private sector in the context of fiscal consolidation. - The link between government spending and private sector contracts heightens vulnerabilities of loan concentration in construction and real estate markets. - More than 70 percent of construction projects receive banking credits through government contracts. - When public spending slows or its composition switches toward current expenditures, the construction sector may experience a significant contraction, negatively affecting financial sector credit and growth. ### Fostering financial sector contribution to growth - Enhancing firm access to credit could enhance the role of the financial sector in supporting growth. - Measures to reduce collateral constraints and information asymmetries: - Enhance functionality of credit bureaus. - Invest in development of digital databases. - Legal and institutional measures: - Strengthen contract enforcement. - Strengthen the role of micro-credit institutions. - Support local collective collateralization projects to increase lender confidence in private-sector repayment capacity. - Reduce crowding out of private sector credit by diversifying government funding and reducing pressure on domestic financing sources. ### SME support and government-facilitated facilities - Namibia’s strategy to facilitate SME access to credit aims to increase project bankability via three complementary facilities: - Credit Guarantee Scheme. - The Credit Guarantee Scheme for SMEs aims to provide collateral cover of 60 percent for qualifying SMEs applying for finance from participating commercial financial institutions. - This framework will be funded with N$98 million seed capital from the Government of Namibia and the BoN. - Catalytic First Loss Venture Capital Fund (VCF) to finance riskier projects with value-added potential. - Mentoring and Coaching Program to increase bankability of projects by young entrepreneurs. - Operational oversight: - Bank of Namibia oversees operationalization of the Credit Guarantee Scheme. - Implementation challenges: - Initiative has seen limited pick-up to date, highlighting lack of credit demand, limited set of bankable projects, and low risk appetite by the banking sector. ### Deepening equity markets and financial market infrastructure - Deepening equity markets and making equity financing more accessible could broaden credit. - Introducing a Single Central Securities Depository (CSD) would: - Enhance Financial Market Infrastructure (FMI) safety and efficiency. - Transfer the current paper-based system to a digital platform. - Facilitate equity market deepening and potentially incentivize international entry into the domestic market. - Ongoing efforts: - Financial Institutions and Market Act (FIMA). - Demutualization of the Namibian Stock Exchange (NSX). ### Development of digital finance and FinTech oversight - Digital finance could provide alternative and less costly financing options (e.g., crowdfunding). - Bank of Namibia initiatives: - Digital Transformation Strategy to widen digital access to rural areas and strengthen investments in electricity and network infrastructure. - FinTech regulatory framework to oversee FinTechs in controlled environments (regulatory sandboxes and innovation hubs). - Risks to manage: - Data integrity, cyber security, financial stability, and central bank policy transmission. - Need for a robust regulatory framework. ### Macroprudential tools - Broadening macroprudential tools could help manage excessive risk taking and credit concentration. - Tools suggested: debt service-to-income (DSTI) and loan to value ratio (LTVR). - Potential benefits: - Curb risks from highly leveraged households. - Protect private debt sustainability. - Reduce growth volatility from contractions in credit and lower demand from indebted households. - Trade-offs: - Consider potential procyclical impact on growth. - Balance with facilitating targeted access to sustainable credit for low to middle income housing to avoid adverse social consequences. --- ### Annex XI. Addressing Food Insecurity in Namibia ### Overview and recent developments - Food security has emerged as a fundamental challenge in Namibia, sharpened by COVID-19 and the war in Ukraine. - The number of people suffering from food insecurity increased by 53 percent during COVID to more than a quarter of the population. - According to FAO, food prices rose by 34 percent (y-o-y). - For low-income households, food can absorb up to 65 percent of earnings. - Staff estimate: for every 1 percent increase in the price of food, there is a 1.9 percent reduction in the welfare of low-income households. - Namibia has a 34.4 percent rate of stunting among children under five years. - Studies suggest stunting can reduce GDP per capita by as much as 0.4 percent each year. ### Structural vulnerabilities contributing to food insecurity - Reliance on rain-fed crops and climate exposure: - As of 2017, 54 percent of crop production was rainfed. - 81 percent of the population dependent on a semi-arid environment. - Large share of population depends on informal subsistence agriculture: - Agriculture represents 7.4 percent of GDP. - Agriculture is a direct or indirect source of income for 70 percent of the population. - Agriculture strata: - Formal, commercialized sector covers 44 percent of the land and supports 10 percent of the population. - Subsistence-driven informal sector covers 41 percent of the land and supports 60 percent of the population. - Namibia is a net food importer with a 60 percent food deficit between food exports and imports. - More than half of daily calories consumed per person are import dependent. ### Policy recommendations and ongoing initiatives - Short-term and structural measures are needed: - Targeted cash and in-kind transfers to mitigate short-term food insecurity. - Long-term strategies to make agriculture more productive and resilient to boost supply and incomes. - Priority interventions: - Invest in climate-smart infrastructure, including micro-irrigation and climate-resilient seeds. - Increase market and credit access, and develop weather insurance options for small-scale farmers. - Attract private sector investments and FDIs into high-value added crops. - Government programs and initiatives: - Food Bank and Drought Relief Program (short-term mitigation). - NAMSIP (Namibia Agricultural Mechanization and Seed Improvement Project) to improve access to mechanization and research of climate-resilient seeds and technologies. - Green Schemes initiative to match productive land with private farmers for commercially viable crops. - School Feeding Program with World Food Program — potential to reduce stunting and enhance learning if scaled effectively. - Fiscal and program efficiency: - Increase agricultural spending while improving efficiency. - Phase out inefficient and untargeted general subsidies while scaling targeted benefits for the vulnerable. - Review: - Import and price control policies of the National Agronomic Board (NAB). - Financial integrity of the Agro-Marketing and Trade Agency (AMTA). - Any implicit, untargeted subsidies from either agency. - Emphasize clearly defined objectives, better targeting, transparency, timing of input delivery, and an exit strategy toward market-priced inputs. ### Impact of the Russia-Ukraine conflict on food security - Namibia is 96 percent import dependent for wheat, which represents 16 percent of daily calories. - Wheat imported from Russia represents 60 percent of total wheat imports. - Food inflation accelerated to 9.3 percent as of September 2022 (highest rate in 5 years). - Estimated BOP impact of wheat price increases: above 0.2 percent of GDP in 2022. - Transport costs have risen 13.8 percent y/y as of September 2022, contributing to higher food prices. - Other input cost increases (seeds, fertilizers) are putting further pressure on local production costs. *Source: IMF staff chapter "9. A significant sovereign-financial nexus can compound these challenges." and Annex XI. Addressing Food Insecurity in Namibia.* ### References ### 1namea2022001 - References ### References (selected) - Abraham, F. and Schmukler, S. L., “Addressing the SME Finance Problem” World Bank Research and Policy Briefs, October 2017. - Briones, R. and Felipe, J., “Agricultural and Structural Transformation in Developing Asia: Review and Outlook” Asian Development Bank (ADB). - Cangul, Mehmet, “Constructing a Positive Shock: growth through the lens of option pricing.” Upcoming IMF working paper, 2022. - Covid 19 Households and Job Tracker Impact Survey by the Namibia Statistics Agency (NSA). - Elizabeth L Prado, Kathryn G Dewey, Nutrition and brain development in early life, Nutrition Reviews, Volume 72, Issue 4, 1 April 2014, Pages 267–284. - FAO website for Namibia: http://www.fao.org/namibia/fao-in -namibia/namibia-at -a-glance/en/ - GIZ website: https://www.giz.de/en/worldwide/97268.html - Global Hunger Index, GHI, 2021 Namibia. - Google Mobility Indicators (GMI) database. - Gubbels, J., van der Put, C.E. & Assink, M. Risk Factors for School Absenteeism and Dropout: A Meta-Analytic Review. J Youth Adolescence 48, 1637–1667 (2019). - Highton, Nick, “Mutual Accountability at the Country Level: Rwanda Country Case Study”, May 2008, Center for Aid and Public Expenditure, ODI. - IMF Country Report No. 19/295. - Integrated Food Security Phase Classification (IPC) analysis by the Office of the Prime Minister (OPM). - Lovell, Rachel, “Nanoclay: the liquid turning desert to farmland” BBC Future, Follow the food series: https://www.bbc.com/future/bespoke/follow-the-food/the-spray-that-turns-deserts-into-farmland.html - Mary, Sebastien, (2018). How Much Does Economic Growth Contribute to Child Stunting Reductions? Economies. 6. 55. 10.3390/economies6040055. - Martin, S. Kapi., (2017), “Contemporary Challenges Facing the Small Farmers in the Green Scheme Projects in Namibia.” Sustainable Agricultural Research; vol. 6, No. 3. - Mellor, John., “Agricultural Development and Economic Transformation: Promoting Growth with Poverty Reduction”, Palgrave Studies in Agricultural Economics and Food Policy, 2017. - Namibia Cost of Hunger in Africa (COHA) Report. - Namibia’s 5th National Development Plan (NDP5) 2017/18 – 2021/22. - Namibia Household Income and Expenditure Survey by Namibia Statistics Agency (NSA). - Namibian Ministry of Agriculture, Water and Reform. “2019 Agricultural Statistics Bulletin.” - Nickanor, N. and Kazembe, L. “Climate Change and Food Security in Namibia”, 2015, Princeton University. - "Notes on the Theory of the 'Big Push.' " In Economic Development for Latin America, edited by Howard S. Ellis and Henry C. Wallich. New York: St. Martin's, 1961. - Nutrition and Food Security Alliance of Namibia (NAFSAN) is the coordinating agency of all NGOs involved in food security in Namibia. - Rachel Loopstra, Valerie Tarasuk, Severity of Household Food Insecurity Is Sensitive to Change in Household Income and Employment Status among Low-Income Families, The Journal of Nutrition, Volume 143, Issue 8, August 2013, Pages 1316–1323, https://doi.org/10.3945/jn.113.175414 - Shikangalah, R. N. “The 2019 drought in Namibia: An overview”, Journal of Namibian Studies, 27 (2020): 37-58. - The Strengthening African Rural Smallholders (STARS) program is a five-year program (2017-2021) implemented by ICCO Cooperation in partnership with Mastercard Foundation. - Walsh, J. and Yu, J., “Inflation and Income Inequality: Is Food Inflation Different?” June 2012 IMF Working Paper. - WDI database. ### Annex XII — The Impact of Weather Shocks on Agricultural Output #### Context and vulnerability - Namibia is highly vulnerable to weather shocks; climate characteristics include persistent droughts, unpredictable and variable rainfall patterns, temperature variability, and water scarcity (World Bank, 2021). - Namibia is an arid, water-stressed country with high solar radiation, low humidity, and a high evaporation rate. - Potential evaporation is at least five times greater than average rainfall across the majority of the country. - According to the ND-Gain Index, Namibia ranks 62nd out of 182 countries in terms of vulnerability to weather shocks. #### Projected climate changes and historical impacts - With a 2°C global warming, projections for Namibia include: - average temperature expected to rise by 2.7°C; - the amount of rain in extremely heavy rainfall events will increase by 13 percent; - annual rainfall will fall by 7 percent. - Droughts would become more frequent and longer in duration, as would heat waves and flooding, adversely affecting the agricultural sector and health outcomes. - Comparison: during the 2018/19 drought—one of the worst in a decade—crop production fell by nearly 32 percent, putting about 20 percent of the population at risk. #### Empirical findings on agricultural output (2000-2020 panel) - Staff examined the impact of two weather shocks—temperature and rainfall—on crop yields, using crop-level panel data from 2000-2020. - Results: - A one percent temperature deviation from its long-term annual average is associated with a 4 percent to 11.5 percent decline in crop yield (Table AXII.1, column 4 and 5). - Given Namibia’s current production structure, the direct impact of this weather shock is equivalent to 0.1 to 0.3 percent loss in overall real GDP. - Above-normal rainfall is significantly associated with lower crop yields due to the deleterious impact of floods, resulting in a 0.1 percent loss in overall real GDP (Table AXII.1, column 5). *Source: 1namea2022001 - References (Annex XII text and bibliographic entries).* ### 4. Furthermore, weather shocks could also have a long-term impact. Liquidity constrained ### 4. Furthermore, weather shocks could also have a long-term impact. Liquidity constrained ### Long-term impacts of weather shocks on households and poverty traps - Liquidity constrained households may sell their productive assets to cope with the weather shocks and smooth their consumption. - Empirical evidence suggests that, after a weather shock, productive assets may fall below the minimum required threshold to sustain agricultural production, pushing households into poverty traps. - Access to credit, including for consumption smoothing, and weather insurance could play a significant role in preserving productive assets from depletion. ### Evidence and illustrative materials referenced - Figure AXII.1. Namibia: Weather Shocks — rising temperature, erratic rainfall, more frequent floods, and natural disasters are highlighted as channels through which weather shocks materialize (figure elements described in the source). - Citations referenced in the discussion: - Carter, M. et al., “Poverty Traps and Natural Disasters in Ethiopia and Honduras.” World Development 35, no. 5 (May 1, 2007): 835–56. - Banerjee, A, E Breza, E Duflo and C Kinnan (2019), “Can Microfinance Unlock a Poverty Trap for Some Entrepreneurs?”, NBER Working paper No. w26346. - Noritomo, Yuma, and Kazushi Takahashi, 2020. “Can Insurance Payouts Prevent a Poverty Trap? Evidence from Randomized Experiments in Northern Kenya.” The Journal of Development Studies 56:1, 2079–96. ### Namibia: Weather Shocks and Agricultural Yield — regression table highlights (Table AXII.1) - Dependent variable: Yield per hectare - Observations: 437 (for each specification column) - R-squared: 0.0988; 0.1119; 0.1082; 0.1082; 0.1209 (columns correspond to different model specifications) - Fixed effects: Yes (FE Yes in all columns) - Selected coefficient estimates and standard errors (standard errors in parentheses): - Time: -0.0025 (0.0052); -0.0005 (0.0061); 0.0058 (0.0071); 0.0059 (0.0071); 0.0037 (0.0026) - Time Squared: 0.0001 (0.0002); 0.0001 (0.0002); -0.0002 (0.0003); -0.0002 (0.0003); -0.0001 (0.0001) - Rainfall: -0.0001 (0.0004); -0.0006 (0.0021) - Rainfall (t-1): 0.0004 (0.0003) - Temperature: -0.0896* (0.0483); -0.1171* (0.0603) - Temperature (t-1): 0.0249 (0.0631) - Rainfall Squared: 0.0000 (0.0000) - Rainfall Deviation from Long-term Mean: -0.0324 (0.0373) - Temperature Deviation from Long-term mean: -0.1151* (0.0622); -0.0421** (0.0172) - Rainfall Deviation below normal: 0.0025 (0.0098) - Rainfall Deviation above normal: -0.0335** (0.0147) - Lagged yield growth: -0.2994*** (0.0671); -0.2982*** (0.0680); -0.3013*** (0.0680); -0.3015*** (0.0676); -0.3319*** (0.0291) - Significance notation: *** p<0.01, ** p<0.05, * p<0.1 - Robust standard errors reported in parentheses. ### Policy implications and recommended interventions (from the source discussion) - Improve access to credit to allow consumption smoothing and reduce the need for households to sell productive assets following weather shocks. - Expand availability and uptake of weather insurance to prevent depletion of productive assets and reduce the likelihood of households falling into poverty traps. *Prepared by Daniel Gurara. Content excerpt from the Namibia — Staff Report for the 2022 Article IV Consultation — Informational Annex (sections and tables as provided).* ### Introduction ### Introduction ### Recent Economic Developments and Outlook - Real GDP is expected to grow from 2.7 percent in 2021 to 2.8 percent in 2022, anchored by increased output from primary industries and tertiary industries. - Growth benefited from a strong recovery in mining activities, supported by buoyant performance in the diamond sub-sector and a return to growth for most of the tertiary industries. - Growth is expected to expand further by 3.4 percent in 2023 underpinned by strong diamond, gold, and uranium production buoyed by firming external demand, favorable export commodity prices, and a new vessel for diamonds mining. - Manufacturing and tourism activity is projected to gradually recover as economic activity fully re-opens. - Real GDP is projected to return to pre-pandemic levels in 2023, though the outlook is clouded by the lingering effects of the pandemic and spillovers from the conflict in Ukraine. - Average inflation increased from 3.6 percent in October 2021 to 7.1 percent in October 2022 due to the surge in oil and food prices and a depreciating currency. - The current account deficit is expected to significantly widen in 2022, driven by higher import payments and the considerable decline in SACU receipts. - The stock of international reserves declined on account of higher imports, portfolio outflows and government’s external payments; international reserves remained sufficient at 5.7 months of import cover. ### Fiscal Policy - Authorities are fast-tracking measures outlined in the 2022-23 Fiscal Strategy to support economic recovery and achieve macroeconomic stability. - Namibia Revenue Authority (NAMRA) tax administration measures are being implemented to strengthen tax compliance and enforcement and support additional revenue generation. - Sizable tax arrears recovery is anticipated in FY22/23. - Authorities expect SACU revenues to recover over the medium-term in line with improved regional economic activity and normalization of regional trade flows. - The fiscal position has been improving gradually with the FY22/23 mid-year projecting a modest narrowing of the fiscal deficit. - Expenditure measures: - Intensify efforts to increase spending efficiency through public wage bill and SOEs’ reforms. - Reduce costs of the Public Service Medical Aid Scheme (PSMAS) and have reduced allocations to the PSMAS for the next two fiscal years in line with expected reform gains. - Rationalize public spending including through wage containment and natural attrition in non-priority sectors. - Implement an early retirement scheme expected to generate additional savings. - Limit capital spending to growth-enhancing projects while advancing SOEs reform agenda, including the process to liquidate the national airline and partial privatization of the mobile telecommunication company. - Debt sustainability focus: - Redirect a large share of increased revenue towards debt redemption and reducing the borrowing requirement. - Maintain a positive primary budget balance over the medium term. - Public Financial Management (PMF) Bill is at an advanced stage to enhance budget planning and execution and strengthen oversight of SOEs. - FY2023/24 Fiscal Strategy will center on prudent expenditure management and promoting economic recovery. - Government committed to entrenching fiscal sustainability and stabilizing the pace of debt accumulation. ### Monetary and Financial Sector Policies - Authorities shifted to a tight monetary policy stance to contain inflation after an extended accommodative period. - In October 2022 the Monetary Policy Committee of the Bank of Namibia (BoN) increased the Repo rate by 75 basis points to 6.25 percent to anchor inflation expectations, safeguard the peg with the South African Rand, and continue to meet the country’s international obligations. - Authorities are committed to safeguarding exchange rate parity to sustain policy rate alignment with the South African Reserve Bank and maintaining adequate reserves to anchor inflation. - BoN considers the currency arrangement to have served the country well and will comprehensively assess economic developments to preserve price stability amid heightened inflationary pressures. - Financial sector reforms and stability measures: - Substantial progress implementing 2018 Financial Sector Stability Assessment (FSSA) recommendations. - BoN assigned an explicit macroprudential mandate and established the Financial Stability Macroprudential Oversight (FSMO) Department and Financial Stability Committee. - Progress in establishing a macroprudential policy framework, strengthening financial supervision, and setting up a crisis management and resolution framework. - With Fund technical assistance, intend to continue managing macro-financial risks and expanding the macroprudential toolkit. - Authorities are working to roll out an action plan to strengthen the AML/CFT framework and reform appropriate legislation. - Authorities will monitor financial stability risks including concerns about a possible heightened financial-sovereign nexus and sizable commercial bank exposure to mortgages amidst rising interest rates. ### Structural Policies - Finalizing the Economic Diversification and Growth Strategy aimed at promoting macroeconomic stability, fiscal sustainability, and boosting socio-economic stability through job creation. - Efforts directed towards developing complementary new engines of growth and facilitating private sector development as outlined in the Presidential Economic Recovery Plan, HPPII. - Establishment of the Namibia Investment Promotion and Development Board (NIPDB) has intensified investment promotion initiatives, delivering a strong recovery in Foreign Direct Investment (FDI) flows during the first half of 2022 mainly in the mining and oil exploration sectors. - Ongoing efforts to position Namibia as a regional and global decarbonization champion by translating the vision of a synthetic fuels industry into immediate FDI and unlocking concessional financing for the green hydrogen strategy. - Authorities expect the green hydrogen industry will generate sizable jobs and associated renewable energy production would reduce energy costs and facilitate expansion of job-intensive manufacturing industries such as agro-processing. - Authorities expect increased interest in mining and exploration and opportunities in renewable energy to sustain the recovery. - Social protection and food security measures: - Measures to alleviate cost of living pressures rank high to protect vulnerable households and preserve social cohesion. - Short-term relief measures were rolled out to address food security challenges; government increased the monthly Conditional Basic Income Grant (CBIG) for former food bank recipients, effective October 2022. - Authorities are working to boost local food production and reduce dependency on food imports. - Namibia fully funds a well-developed program of cash transfers out of its own resources, including old age pensions, veterans’ grants, children’s grants, foster parents’ grants, and disability grants. - Authorities acknowledge additional efforts are warranted given heightened vulnerabilities and increasing poverty incidence. - Human capital and agricultural measures: - Conducting an economy-wide skills audit to align training needs with labor market demand. - Increasing budget allocation to CBIG to strengthen Social Safety Nets (SSNs). - Dedicated resources to improve productivity and resilience in agriculture including the Namibia Agricultural Mechanization and Seed Improvement Project and the Green Schemes Initiative. - Measures underway to increase strategic food reserves. - Sovereign fund and governance: - Established a sovereign fund, the Welwitschia Fund (WF), ahead of expected windfall revenues from oil and gas resources, with implementation planned for the medium term and commitment to strong governance and management frameworks. - Strengthening anti-corruption framework via the second anti-corruption strategy and implementation plan launched in March 2022. - Namibia subscribed to the Extractive International Transparency Initiative (EITI) to promote open and accountable management of oil, gas, and mineral resources. - Public finance governance: - On track to fulfill commitments under the Rapid Financing Instrument (RFI) for appropriate and transparent use, monitoring, and reporting of pandemic-related spending. - All COVID-19 spending was appropriately budgeted, with a progress report on execution presented in the FY2021/22 budget. - Governance commitments on COVID-19 spending under the RFI were met and remaining ones are being finalized; a comprehensive audit of COVID-19 spending was conducted by the General Auditor and published online. ### Conclusion - Namibia managed to weather unprecedented shocks and laid the groundwork for a gradual recovery. - Authorities commit to policy priorities focused on promoting sustainable and inclusive growth while achieving fiscal consolidation, anchoring inflation expectations, and advancing key structural reforms to diversify the economy. - Authorities value Fund advice and continued technical support and seek Director’s support in concluding the 2022 Article IV Consultations. *Source: 1namea2022001 - Introduction* --- _Source: https://www.imf.org/-/media/files/publications/cr/2022/english/1namea2022001.pdf_