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---

### Water Stress in Namibia — Introduction and key vulnerabilities
- "92 percent of Namibia's land classified as arid."
- Namibia is ranked as the 21st most water stressed country globally.
- Agriculture supports 70 percent of the Namibian population directly or indirectly.
- 11 percent of Namibian households depend on subsistence or commercial farming as the main source of livelihood.
- Domestic electricity generation exposure to hydropower variability: during 2020–24 imports accounted for an average of 67 percent of total electricity demand in the second half of the year and 54 percent in the first half of the year.
- The average annual temperature in Namibia has increased by 1.2°C.

### Recent impacts of drought and extreme weather (historical and 2023–24 drought)
- Prolonged drought in 2023–24 sharply reduced crop yields and exacerbated food insecurity.
- Crop farming declines: 31.7 percent in 2023 and 6.6 percent in 2024 (national accounts data, 2024).
- Crop yields: 649kb per hectare in Namibia compared with the Sub-Saharan Africa (SSA) average of 1,613 kg per hectare in 2022 (World Bank).
- Approximately 40 percent of the population faced high levels of acute food insecurity and 84 percent of food reserves were exhausted as of September 2024 (IPC/NamVAC, Sept 2024).
- Dam water levels declined by 70 percent, constraining water-intensive activities and hydropower output (Reliefweb, 2024).
- Government drought relief: cumulative budgetary allocations of 0.9 percent of GDP in FY23/24 and FY24/25 for food assistance, seeds and horticultural supplies, livestock sale support, and water access improvements.
- International support example: United Nations allocating $3 million through the Central Emergency Response Fund (CERF) for drought relief efforts.

### Climate vulnerability indicators and socio-economic impacts
- ND-GAIN Index: Namibia ranks 109th out of 187 countries for climate vulnerability, with heightened vulnerabilities in water (dam capacity) and food security (agricultural capacity).
- Children’s Climate Risk Index: Namibia ranks 77th out of 163 nations (medium-high risk level).
- INFORM Climate Change Risk Index score: 3.2 (moderate level of risk), driven by high exposure to droughts, floods, and epidemics.
- Historical events and impacts:
  - Droughts 2013–2016 affected approximately 450,000 people and caused widespread food insecurity.
  - Drought in 1991 impacted over 550,000 people, including around 200,000 children, and resulted in damages worth 4 percent of GDP.
  - Flooding events affect roughly 70,000 people each year; 2011 flood impacted nearly 500,000 people, displaced over 60,000, required 19,000 relocation camp placements, and resulted in 65 fatalities.
  - According to the 2023 Housing and Population Census, 6.1 percent of total deaths between October 2022 and September 2023 were caused by natural disasters.

### Water resources, governance, and sectoral exposure
- Traditional water sources composition: groundwater 45 percent, perennial border rivers 33 percent, impoundments on ephemeral rivers 22 percent.
- Water stress projected to be extremely high for the next 30 years (WRI Aqueduct Water Risk Atlas, business-as-usual scenario).
- Water Resources Management legal framework:
  - Water Resources Management Act of 2013; 2023 Water Resources Management Regulations enforce water use licensing, infrastructure registration, and groundwater protection.
  - Implementation constraints: institutional capacity and financial constraints, administrative burdens for rural users, high compliance costs, inadequate data and monitoring infrastructure, limited public awareness.
- Worsening water availability threatens water-intensive sectors such as food and beverages; erratic floods can lead to damages worth 0.4 percent of GDP by 2030.

### Climate projections and likely future physical impacts
- Strong confidence in an increase of Namibia's average annual temperatures by at least 2 ̊C by 2050.
- Under a high-emissions scenario temperature rise could reach 4 ̊C.
- Under a low-emissions scenario projected range is 1.1–3.1 ̊C.
- Both daily minimum and maximum temperatures projected to rise, with 15 to 40 more days each year expected to exceed 35°C across the country.
- Moderate confidence that Namibia will become generally drier and average rainfall may fall by 12 percent by 2050 (under SSP2–4.5 projections cited).

### Macroeconomic and sectoral impacts (model-based and empirical evidence)
- VAR analysis: a severe drought condition is estimated to have lowered GDP growth by 0.7 percentage points in the year following a drought shock.
- Projected agricultural and livestock impacts by 2050:
  - Traditional agriculture production may drop by 40 percent in a moderate climate scenario to 80 percent in an extreme climate scenario.
  - Livestock carrying capacity could fall by 20–50 percent by 2050.
- Rising temperatures alongside industrialization and urbanization will increase electricity demand while reducing hydroelectric supply and potentially constraining imports on which Namibia depends.

### Public investment strategy and policy directions
- Need to balance ex-post interventions and ex-ante resilience building to reduce fiscal volatility and socio-economic losses from climate shocks.
- Current government resilience efforts:
  - Developing a National Resilience Building Strategy.
  - Preparing a Green Climate Fund project to strengthen climate information and early warning systems.
  - Scaling up capital expenditure on water infrastructure as laid out in the FY24/25 budget at the annual cost of 0.3 percent of GDP on average over the Medium-Term Expenditure Framework for FY24/25–26/27.
- Priority public investment areas for agricultural resilience:
  - Water infrastructure to augment limited traditional sources and address falling groundwater tables and reduced surface flows.
  - Drought-resistant crop development and measures to raise agricultural productivity.
  - Farmer insurance schemes and social protection to cushion shocks.
  - Improved public investment management, institutional capacity building, data and monitoring infrastructure, and cross-border water cooperation.
- Assessment of current capacity:
  - Efficiency of irrigated agriculture water use in Namibia is lower than the Sub-Saharan Africa region.
  - Disaster preparedness (a measure of adaptation capacity) is well below comparator country groups.

---

### Climate Adaptation and Food Security model — description and calibration
- Model scope:
  - Incorporates agricultural and non-agriculture sectors, international trade, and two types of public capital stocks used in agricultural production.
  - Distinguishes broad development capital (enhances production) and adaptation capital (mitigates climate change damages and costs more to build).
  - Recognizes role of food imports and prevalence of subsistence farming in Namibia.
  - Examples of adaptation capital: promotion of climate-resilient farming technology and enhancement of climate resilience of infrastructure.
- Calibration and key parameters:
  - Current level of public spending on agriculture estimated at 0.7 percent of GDP.
  - Share of agricultural consumption from imports is 39 percent.
  - Uses country-specific central projection from Cline (2007) to calibrate agricultural productivity loss parameter.
  - 3.3 ̊C warming is projected to lead to agricultural productivity loss by 27 percent in Namibia without adaptation.
  - Adaptation investment efficiency based on SSA average (Agrawala, 2010): adaptation investment rate of 0.01 percent of GDP per year reduces climate change-induced damage by 30 percent.
  - Alternative (lower-efficiency) assumption: 0.1 percent of GDP adaptation investment per year needed to achieve the same reduction in damage.

### Key simulation results (no financing constraint)
- Required scaling-up of development investment if unconstrained:
  - Investment in development capital of 2.4–2.5 percent of GDP per year through 2050 will mitigate a substantial part of climate change damages.

### Policy scenarios under a binding financing constraint (1.5 percent of GDP)
- Simulation design:
  - Two public investment policy options under a binding financing constraint of 1.5 percent of GDP:
    1. Only standard development capital.
    2. Combination of development and adaptation capital (reallocating part of the 1.5 percent of GDP to adaptation while keeping total public investment at 1.5 percent of GDP).
  - Results reported as percentage deviations from a "no climate change" counterfactual.
- Outcomes under only development capital (binding constraint) by 2050:
  - Agricultural output projected to be lower by ten percent relative to the no-climate change counterfactual.
  - Total outputs projected to be lower by seven percent relative to the no-climate change counterfactual.
  - Agricultural net imports projected to increase by 45 percent relative to the baseline.
  - Exports projected to be 16 percent lower relative to the baseline.
- Outcomes when reallocating a modest amount to adaptation (keeping total at 1.5 percent of GDP) by 2050:
  - Total output loss limited within 0.5 percent compared with the no-climate change counterfactual.
  - Investment, exports, imports, and agricultural output improve substantially due to damage-mitigating effects of adaptation investment.

### Optimal mix and sensitivity to adaptation efficiency
- Default-efficiency optimal mix:
  - Optimal split: adaptation investment of 0.1 percent of GDP and development investment of 1.4 percent of GDP.
- Alternative (lower-efficiency) assumption:
  - Optimal mix tilts toward adaptation investment of 0.3 percent of GDP, producing an output loss of 3.1 percent by 2050.
- Interpretation and constraints:
  - Relatively low optimal level of adaptation investment reflects:
    - High food import dependency.
    - Significantly larger productivity gap between agricultural and non-agricultural sectors.
  - Continued high reliance on food imports exposes the economy to regional and global shocks, which could force increased investment to raise agricultural productivity.
  - Closing the productivity gap may not materialize given prevalence of subsistence agriculture.

### Conclusions and policy recommendations from the model
- Fiscal and public investment priorities:
  - Plan and implement a sound and fiscally feasible adaptation investment strategy to boost agricultural resilience.
  - Authorities are appropriately aiming to increase public investment to build climate resilience.
  - Investment needs for public development capital could be large, but a cost-effective combination of development and adaptation investment can reduce losses at relatively modest costs.
  - Improve public investment management; significant scope for improvement exists as highlighted in PIMA and Climate-PIMA undertaken in 2024.
  - Reduce reliance on food imports by implementing measures to raise agriculture productivity.
- Complementary measures to strengthen adaptation and food security:
  - Continue development of the National Resilience Building Strategy.
  - Encourage greater adoption of drought resilient crops and livestock and mixed farming.
  - Improve water management systems and strengthen early warning systems.
  - Expand access to insurance mechanisms, including crop and animal insurance, to distribute risks and cushion financial shocks from climate-induced natural disasters.

---

### Box 1 — Developing Local Content: lessons and labor-market outcomes
- Administrative and compliance cost guidance:
  - Avoid imposing high administrative and compliance costs (Tordo et al., 2013); Kazakhstan example uses standard reporting templates.
- Cluster and regional trade synergies:
  - Malaysia example implemented a comprehensive package of policies in 2010 aimed at making the country a regional hub for oil related services and equipment.

### Labor market structural shifts and youth outcomes (Namibia)
- Structural shifts:
  - Between 2012 and 2018, Namibia’s economy experienced a structural shift from agriculture to services.
  - Between 2012 and 2016, employment expanded in mining, manufacturing, and services, while employment in agriculture and subsistence fell.
  - The 2015 commodity price shock led to contraction in mining and reallocation of workers from manufacturing and services back to agriculture and subsistence.
- Youth employment changes:
  - Probability a young person in the labor force would be in employment fell by 11 percentage points between 2012 and 2018.
  - Probability of being unemployed or discouraged increased by 20.4 percentage points between 2012 and 2018.
  - Among employed youths, probability of being in the informal sector rose by 18.4 percentage points.
  - Share of youth in TVET or higher education: 5.4 percent.
  - Younger cohorts moved more sharply toward services prior to the 2015 shock; after the shock younger cohorts continued increasing service employment probability while older workers pivoted back to agriculture. The increase in subsistence after the shock was sharpest for the youngest cohort.

### Service-sector productivity dynamics
- Between 1995 and 2018, employment in services increased but labor productivity for services showed no improvement.
- Shift-share decomposition (1995–2018):
  - Within-sector productivity growth for services was negative, indicating reallocation toward less productive firms.
  - Between-sector productivity was positive, reflecting labor movement from lower-productivity agriculture to higher-productivity services.
- Interpretation: service sector likely hires youth not because of high skills but because they are willing to work at lower wages.

### Macroeconomic and financial sector key statistics and trends
- Financial system size and composition:
  - As of end-2024, Namibia’s total banking assets amounted to 91 percent of GDP.
  - Commercial banks rely on wholesale funding from non-bank financial institutions, representing 15 percent of GDP at end-2024.
  - The non-bank financial sector is twice the size of the banking sector and is mainly comprised of a fully funded government pension (GIPF) and other pension funds, insurance funds, and collective investment schemes.
- Credit trends and composition:
  - Bank credit to the non-financial private sector stabilized at approximately 50 to 60 percent of GDP since 2005.
  - Credit-to-GDP ratio began to decline during the COVID-19 pandemic, resulting in a negative credit gap; before the pandemic the gap was positive.
  - Fiscal balance moved from a surplus of 6.2 percent of GDP in 2007 to a deficit of 4.7 percent of GDP in 2014.
  - By mid-2024, all five methodologies used to estimate the credit gap indicated Namibia’s credit gap was negative.
- Private-sector credit composition:
  - Households have consistently accounted for more than half of private sector credit over the past two decades.
  - Mortgages account for approximately half of bank credit to the private sector and Namibia’s share of mortgage lending in total bank lending has consistently exceeded 50 percent.
  - Within the mortgage sector, on average 77 percent of credit is for residential purposes.
  - Credit to commercial and services sectors constituted approximately 30 percent of private sector credit.
  - Credit to the tradable sector (mining and quarrying, agriculture, fishing) accounts for less than 20 percent of private sector credit.
- Credit-gap methodology:
  - Estimates use HP, Hamilton, CF filters, Growth Rate (GR) and Moving Average (MA) methods on quarterly data from 2002Q1 to 2024Q3 of real claims on the private sector per capita.
  - HP trend uses λ=400,000; Hamilton Filter applied with forecast horizon of 20 and regression lag of 4.

### Policy conclusions and recommendations (Box 1 and labor/skills)
- Macroeconomic and labor-market conclusions:
  - Namibia faces slowed real GDP per capita growth, persistently high unemployment and inequality, limited direct employment from capital-intensive resource sectors, and significant regional disparities.
  - Long-term resilience requires diversification away from extractives and ensuring oil exploration benefits are broadly distributed.
- Policy priorities:
  - Address skills mismatches and skill gaps: last skills audit from 2006 is outdated; collect new data.
  - National education and TVET system should develop a strategy to train workers with requisite skills and qualifications.
  - Balance local content and investment climate for oil and gas: careful implementation of the recent local content policy bill to balance FDI attraction and local benefits.
  - Implement a comprehensive and consistent labor market strategy: strengthen education and TVET, implement balanced local content policy, prioritize infrastructure, and reduce regulatory barriers.
- Note on fiscal space for TVET: approaches differ across countries; one example redirected public funding from tertiary education to vocational training to support social protection objectives.

---

### Housing market, mortgage credit, and macroprudential recommendations
- Housing market dynamics:
  - Urbanization and demographic changes led to unmet housing demand mainly due to shortage of serviced land.
  - Supply-side easing since 2017 (uptick in land delivery) exerted downward pressure on housing prices.
  - Real housing price peaked in 2017 and began to decline thereafter.
  - Correlation between three-year growth in mortgage (percent of GDP) and real housing prices growth: 0.41 over full sample and 0.26 in post-2017 sample.
- Mortgage credit, household leverage, and NPLs:
  - Mortgages account for half of banks’ credit to the private sector.
  - Household mortgage loans have contributed about half of non-performing loans (NPLs).
  - Variable-rate mortgages expose households to interest rate and income shocks; rising interest payments since 2022 may contribute to higher household debt service payments to income ratios.
  - Despite easing of monetary policy since mid-2024, household debt servicing burden remains high.
  - NPLs peaked at 6.8 percent in March 2021 and moderated to 5.6 percent in December 2024.
  - NPL moderation reflects recovery in nominal credit growth that has surpassed the growth in NPLs.
  - Banks remain liquid, profitable, and well-capitalized; NPLs are sufficiently provisioned to cover expected losses during the review period.
- Banking-system exposures and public sector credit:
  - Domestic credit to the public sector more than doubled over the past decade.
  - As of end-December 2024, total domestic debt was 51 percent of GDP.
    - Depository corporations held 14 percent of GDP.
    - NBFIs held 20 percent of GDP.
  - Deepening bank-sovereign nexus and significant NBFI holdings increase systemic risk.
- Access to credit for private firms:
  - World Bank Enterprise Survey (Namibia, 2024): 203 out of 307 firms (66 percent) view access to finance as an obstacle.
  - Only 110 firms (36 percent) reported having a line of credit or loan from a financial institution.
  - High collateral requirements identified as most important constraint.
- Macroprudential and borrower-based policy recommendations:
  - BoN should continue enhancing macroprudential toolkit; implement countercyclical capital buffer (CCyB) framework in last quarter of 2025.
  - Consider a positive-neutral CCyB to enhance banking resilience.
  - Consider targeted measures such as a systemic risk buffer for sovereign exposures above a threshold and further analysis of exposures for appropriate risk weights.
  - Reverse the 2023 elimination of downpayments on first and second residential properties to maintain minimum lending standards.
  - Collect data on flow measures such as debt-to-income (DTI) ratios and debt service-to-income (DSTI) for new property buyers.
  - Pursue solutions to support sound lending to non-financial corporations and conduct further studies to identify constraints to business credit access.

*Source: IMF staff chapter "Water Stress in Namibia" (May 28, 2025) and extracted IMF chapter content.*

### 1.    Water Stress in Namibia ______________________________________________________________ 4

### 1.    Water Stress in Namibia

### Introduction and key vulnerabilities
- Namibia is one of the most arid countries in the world: "92 percent of Namibia's land classified as arid."
- Namibia is ranked as the 21st most water stressed country globally.
- Agriculture supports 70 percent of the Namibian population directly or indirectly.
- 11 percent of Namibian households depend on subsistence or commercial farming as the main source of livelihood.
- Domestic electricity generation is heavily exposed to hydropower variability: during 2020–24 imports accounted for an average of 67 percent of total electricity demand in the second half of the year and 54 percent in the first half of the year.
- The average annual temperature in Namibia has increased by 1.2°C.

### Recent impacts of drought and extreme weather (historical and 2023–24 drought)
- The prolonged drought in 2023–24 sharply reduced crop yields and exacerbated food insecurity.
- Crop farming was down by 31.7 percent and 6.6 percent in 2023 and 2024, respectively (national accounts data, 2024).
- Crop yields in Namibia were 649kb per hectare compared with the Sub-Saharan Africa (SSA) average of 1,613 kg per hectare in 2022 (World Bank).
- Approximately 40 percent of the population faced high levels of acute food insecurity and 84 percent of food reserves were exhausted as of September 2024 (IPC/NamVAC, Sept 2024).
- Dam water levels declined by 70 percent, constraining water-intensive activities and hydropower output (Reliefweb, 2024).
- The government deployed drought relief with cumulative budgetary allocations of 0.9 percent of GDP in FY23/24 and FY24/25, including food assistance, seeds and horticultural supplies, livestock sale support, and water access improvements.
- International support example: United Nations allocating $3 million through the Central Emergency Response Fund (CERF) for drought relief efforts.

### Climate vulnerability indicators and socio-economic impacts
- ND-GAIN Index: Namibia ranks 109th out of 187 countries for climate vulnerability, with heightened vulnerabilities in water (dam capacity) and food security (agricultural capacity).
- Children’s Climate Risk Index: Namibia ranks 77th out of 163 nations (medium-high risk level).
- INFORM Climate Change Risk Index score: 3.2 (moderate level of risk), driven by high exposure to droughts, floods, and epidemics.
- Historical events and impacts:
  - Droughts 2013–2016 affected approximately 450,000 people and caused widespread food insecurity.
  - Drought in 1991 impacted over 550,000 people, including around 200,000 children, and resulted in damages worth 4 percent of GDP.
  - Flooding events affect roughly 70,000 people each year; 2011 flood impacted nearly 500,000 people, displaced over 60,000, required 19,000 relocation camp placements, and resulted in 65 fatalities.
  - According to the 2023 Housing and Population Census, 6.1 percent of total deaths between October 2022 and September 2023 were caused by natural disasters.

### Water resources, governance, and sectoral exposure
- Traditional water sources composition: groundwater 45 percent, perennial border rivers 33 percent, impoundments on ephemeral rivers 22 percent.
- Water stress projected to be extremely high for the next 30 years (WRI Aqueduct Water Risk Atlas, business-as-usual scenario).
- Water Resource Management legal framework:
  - Water Resources Management Act of 2013; 2023 Water Resources Management Regulations enforce water use licensing, infrastructure registration, and groundwater protection.
  - Implementation constraints: institutional capacity and financial constraints, administrative burdens for rural users, high compliance costs, inadequate data and monitoring infrastructure, limited public awareness.
- Worsening water availability threatens other water-intensive sectors such as food and beverages; erratic floods can lead to damages worth 0.4 percent of GDP by 2030.

### Climate projections and likely future physical impacts
- Strong confidence in an increase of Namibia's average annual temperatures by at least 2 ̊C by 2050.
- Under a high-emissions scenario temperature rise could reach 4 ̊C.
- Under a low-emissions scenario projected range is 1.1–3.1 ̊C.
- Both daily minimum and maximum temperatures projected to rise, with 15 to 40 more days each year expected to exceed 35°C across the country.
- Moderate confidence that Namibia will become generally drier and average rainfall may fall by 12 percent by 2050 (under SSP2–4.5 projections cited).

### Macroeconomic and sectoral impacts (model-based and empirical evidence)
- A VAR analysis indicates a severe drought condition is estimated to have an adverse impact on GDP growth; GDP growth is estimated to have been lowered by 0.7 percentage points in the year following a drought shock.
- Projected agricultural and livestock impacts by 2050:
  - Traditional agriculture production may drop by 40 percent in a moderate climate scenario to 80 percent in an extreme climate scenario.
  - Livestock carrying capacity could fall by 20–50 percent by 2050.
- Rising temperatures alongside industrialization and urbanization will increase electricity demand while reducing hydroelectric supply and potentially constraining imports on which Namibia depends.

### Public investment strategy and policy directions
- Need to balance ex-post interventions and ex-ante resilience building to reduce fiscal volatility and socio-economic losses from climate shocks.
- Current government resilience efforts:
  - Developing a National Resilience Building Strategy.
  - Preparing a Green Climate Fund project to strengthen climate information and early warning systems.
  - Scaling up capital expenditure on water infrastructure as laid out in the FY24/25 budget at the annual cost of 0.3 percent of GDP on average over the Medium-Term Expenditure Framework for FY24/25–26/27.
- Priority areas for public investment to improve agricultural resilience:
  - Water infrastructure (to augment limited traditional sources and address falling groundwater tables and reduced surface flows).
  - Drought-resistant crop development and measures to raise agricultural productivity.
  - Farmer insurance schemes and social protection to cushion shocks.
  - Improved public investment management, institutional capacity building, data and monitoring infrastructure, and cross-border water cooperation.
- Assessment of current capacity:
  - Efficiency of irrigated agriculture water use in Namibia is lower than the Sub-Saharan Africa region.
  - Disaster preparedness (a measure of adaptation capacity) is well below comparator country groups, indicating room to improve adaptation capacity.

*Source: IMF staff chapter "Water Stress in Namibia" (May 28, 2025).*

### 18. We use a Climate Adaptation and Food Security model to study investment needs for

### 1namea2025002-print-pdf - 18. We use a Climate Adaptation and Food Security model to study investment needs for

### Model description and calibration
- Model scope and purpose:
  - A Climate Adaptation and Food Security model that incorporates agricultural and non-agriculture sectors, international trade, and two types of public capital stocks used in agricultural production.
  - Distinguishes broad development capital (enhances production) and adaptation capital (mitigates climate change damages and costs more to build).
  - Food imports are an important component of food security; role may diminish as climate change affects global agricultural output and prices.
  - Subsistence farming is prevalent in Namibia, making climate-resilience in agriculture key to food security.
  - Examples of adaptation capital: promotion of climate-resilient farming technology and enhancement of climate resilience of infrastructure.
- Calibration and key parameters:
  - Current level of public spending on agriculture is estimated at 0.7 percent of GDP.
  - Share of agricultural consumption from imports is 39 percent.
  - Uses country-specific central projection from Cline (2007) to calibrate agricultural productivity loss parameter.
  - 3.3 ̊C warming is projected to lead to agricultural productivity loss by 27 percent in Namibia without adaptation.
  - Efficiency of adaptation investment calibrated based on SSA average reported in Agrawala (2010):
    - Adaptation investment rate of 0.01 percent of GDP per year reduces climate change-induced damage by 30 percent.
  - Alternative (lower-efficiency) assumption explored: 0.1 percent of GDP adaptation investment per year needed to achieve the same reduction in damage (i.e., ten-fold lower efficiency).

### Key simulation results (no financing constraint)
- Required scaling-up of development investment:
  - If no financing constraint is imposed, estimated investment in development capital of 2.4–2.5 percent of GDP per year through 2050 will mitigate a substantial part of climate change damages.

### Policy scenarios under a binding financing constraint (1.5 percent of GDP)
- Simulation design:
  - Two public investment policy options simulated under a binding financing constraint of 1.5 percent of GDP:
    1. Only standard development capital.
    2. Combination of development and adaptation capital (reallocating part of the 1.5 percent of GDP to adaptation while keeping total public investment at 1.5 percent of GDP).
  - Results are presented as percentage deviations from a counterfactual of “no climate change” baseline.
- Outcomes under only development capital (binding constraint):
  - Agricultural output projected to be lower by ten percent relative to the no-climate change counterfactual in 2050.
  - Total outputs projected to be lower by seven percent relative to the no-climate change counterfactual in 2050.
  - Agricultural net imports projected to increase by 45 percent relative to the baseline.
  - Exports projected to be 16 percent lower relative to the baseline.
- Outcomes when reallocating modest amount to adaptation (keeping total at 1.5 percent of GDP):
  - Total output loss limited within 0.5 percent by 2050 compared with the no-climate change counterfactual.
  - Other key variables (investment, exports, imports, agricultural output) improve substantially due to damage-mitigating effects of adaptation investment.

### Optimal mix and sensitivity to adaptation efficiency
- Default-efficiency optimal mix:
  - Optimal split: adaptation investment of 0.1 percent of GDP and development investment of 1.4 percent of GDP.
- Alternative (lower-efficiency) assumption:
  - Optimal mix tilts toward a slightly larger allocation to adaptation: adaptation investment of 0.3 percent of GDP (with remaining development investment implicit), producing an output loss of 3.1 percent by 2050.
- Interpretation and constraints:
  - Relatively low optimal level of adaptation investment in the model reflects:
    - High food import dependency.
    - Significantly larger productivity gap between agricultural and non-agricultural sectors (greater room to close it).
  - Continued high reliance on food imports exposes the economy to regional and global shocks (including climate change and trade fragmentations), which could force increased investment to raise agriculture productivity.
  - Closing the productivity gap might not materialize given the prevalence of subsistence agriculture.

### Conclusions and policy recommendations
- Fiscal and public investment priorities:
  - Plan and implement a sound and fiscally feasible adaptation investment strategy to boost agricultural resilience.
  - Authorities are appropriately aiming to increase public investment to build climate resilience.
  - Investment needs for public development capital to offset climate-related production loss in agriculture could be large, but a cost-effective combination of development and adaptation investment can reduce such loss at relatively modest costs.
  - It is crucial to improve public investment management; significant scope for improvement exists as highlighted in Public Investment Management Assessment (PIMA) and Climate-PIMA undertaken in 2024.
  - It is advisable to reduce reliance on food imports by implementing measures to raise agriculture productivity.
- Complementary measures to strengthen adaptation and food security:
  - Continue development of the National Resilience Building Strategy to improve agricultural productivity and food security.
  - Potential measures include:
    - Encouraging greater adoption of drought resilient crops and livestock and mixed farming.
    - Improving water management systems.
    - Strengthening early warning systems.
    - Expanding access to insurance mechanisms to distribute risks and cushion financial shocks from climate-induced natural disasters.
    - Encourage development and adoption of crop and animal insurance and other insurance products to mitigate natural disaster shocks.

*Source: IMF staff (extracted from the supplied IMF chapter content).*

### Box 1. Developing Local Content— Lessons from Other Resource–Rich

### 1namea2025002-print-pdf - Box 1. Developing Local Content— Lessons from Other Resource–Rich Countries (concluded)

### Lessons from other resource-rich countries and implications
- Avoid imposing high administrative and compliance costs (Tordo et al., 2013):
  - Kazakhstan uses standard reporting templates to improve transparency and enhance comparability of information across operators.
- Help to develop clusters and regional trade synergies (Tordo et al., 2013):
  - Malaysia implemented a comprehensive package of policies in 2010 aimed at making the country a regional hub for the oil related services and equipment.

### Labor market structural shifts and youth outcomes (Namibia)
- Structural shift and sectoral employment changes:
  - Between 2012 and 2018, Namibia’s economy experienced a structural shift from agriculture to services.
  - Between 2012 and 2016, employment expanded across mining, manufacturing, and services, while employment in agriculture and subsistence fell.
  - The commodity price shock of 2015 led to a contraction in mining and reallocation of workers from manufacturing and services back to agriculture and subsistence.
- Youth employment and transitions:
  - The probability that a young person in the labor force would be in employment fell by 11 percentage points between 2012 and 2018.
  - The probability of being unemployed or discouraged from looking for a job increased by 20.4 percentage points between 2012 and 2018.
  - Among employed youths, the probability of being in the informal sector rose by 18.4 percentage points.
  - Share of youth in TVET or higher education: 5.4 percent.
  - Younger cohorts moved more sharply toward services prior to the 2015 shock; after the shock, younger cohorts continued increasing service employment probability while older workers pivoted back to agriculture. The increase in subsistence after the shock was sharpest for the youngest cohort.

### Service-sector productivity dynamics
- Employment vs. productivity:
  - Between 1995 and 2018, employment in services increased in Namibia, but labor productivity for services showed no improvement.
  - Shift-share decomposition (1995–2018) results:
    - Within-sector productivity growth for services was negative, indicating reallocation toward less productive firms.
    - Between-sector productivity was positive, reflecting labor movement from lower-productivity agriculture to higher-productivity services.
  - Interpretation: the service sector likely hires youth not because of high skills but because they are willing to work at lower wages.

### Macroeconomic and financial sector key statistics and trends
- Financial system size and composition:
  - As of end-2024, Namibia’s total banking assets amounted to 91 percent of GDP.
  - Commercial banks heavily rely on wholesale funding from non-bank financial institutions, representing 15 percent of GDP at end-2024.
  - The non-bank financial sector is twice the size of the banking sector and is mainly comprised of a fully funded government pension (GIPF) and other pension funds, insurance funds, and collective investment schemes.
- Credit trends and composition:
  - Following initial financial deepening, Namibia's bank credit to the non-financial private sector stabilized at approximately 50 to 60 percent of GDP since 2005.
  - The credit-to-GDP ratio began to decline during the COVID-19 pandemic, resulting in a negative credit gap; before the pandemic the gap was positive.
  - Since 2014, the share of credit to the public sector in total domestic credit has increased steadily to finance the budget deficit.
  - Fiscal balance movement: surplus of 6.2 percent of GDP in 2007 to a deficit of 4.7 percent of GDP in 2014.
  - Claims on the public sector (in percent of GDP) rose further with the onset of the COVID-19 pandemic.
  - By mid-2024, all five methodologies used to estimate the credit gap indicated Namibia’s credit gap was negative.
- Private-sector credit composition:
  - Households have consistently accounted for more than half of private sector credit over the past two decades.
  - Mortgages account for approximately half of bank credit to the private sector and Namibia’s share of mortgage lending in total bank lending has consistently exceeded 50 percent.
  - Within the mortgage sector, on average 77 percent of credit is for residential purposes.
  - Credit to commercial and services sectors constituted approximately 30 percent of private sector credit.
  - Credit to the tradable sector (mining and quarrying, agriculture, fishing) accounts for less than 20 percent of private sector credit.
- Credit-gap methodology details (analysis scope):
  - Credit gap estimates use Hodrick Prescott (HP), Hamilton, Christiano-Fitzgerald (CF) filters, Growth Rate (GR) and Moving Average (MA) methods on quarterly data from 2002Q1 to 2024Q3 of real claims on the private sector per capita.
  - HP trend uses λ=400,000; Hamilton Filter applied with forecast horizon of 20 and regression lag of 4.

### Conclusions and policy recommendations
- Macroeconomic and labor-market conclusions:
  - Namibia's recent performance: slowed real GDP per capita growth, persistently high unemployment and inequality, and limited direct employment from capital-intensive resource sectors with significant regional disparities.
  - Long-term resilience requires diversification away from extractives and ensuring oil exploration benefits are broadly distributed.
- Policy priorities (summarized):
  - Address skills mismatches and skill gaps:
    - The last skills audit is from 2006 and is extremely outdated; collect new data on skill mismatches and gaps.
    - National education and TVET system should develop a strategy to train workers with requisite skills and qualifications.
  - Balance local content and investment climate for oil and gas:
    - The oil and gas industry is highly capital-intensive and requires complex and specialized technology, limiting forward and backward linkages.
    - Overly ambitious local content targets could cause supply bottlenecks.
    - With the recent passage of a local content policy bill, careful implementation is essential to strike a balance between attracting FDI and ensuring tangible local benefits.
  - Implement a comprehensive and consistent labor market strategy:
    - Strengthen education and TVET systems, implement a balanced local content policy, prioritize infrastructure, and reduce regulatory barriers to enhance labor market resilience and economic diversification.
- Additional implementation note:
  - Approaches for generating fiscal space to support TVET activities differ across countries; example cited where redirecting public funding from tertiary education to vocational training supported social protection objectives.

*Source: IMF staff compilation from “Box 1. Developing Local Content— Lessons from Other Resource–Rich Countries (concluded)” in the Namibia report.*

### 8. Structural issues largely shape housing prices in Namibia. Demographic changes and

### 8. Structural issues largely shape housing prices in Namibia. Demographic changes and

### Housing market dynamics and prices
- Urbanization and demographic changes have led to unmet housing demand, mainly due to a shortage of serviced land.
- Urban migration and supply constraints have driven up land and housing prices.
- An easing of supply-side constraints, marked by an uptick in land delivery from 2017, exerted downward pressure on housing prices (First National Bank Residential Property Report, December 2020).
- Real wage growth in Namibia has slowed since 2013 and turned negative in 2018, as economic performance weakened partly due to the 2015 downturn in commodity price cycles.
- The combination of demand-side challenges and easing supply-side constraints has contributed to downward pressure on housing prices since 2017, despite continued credit growth until 2020.
- After rising rapidly since the early 2000s, the real housing price peaked in 2017 and began to decline as the housing sector entered a downturn.
- The correlation between three-year growth in mortgage (in percent of GDP) and real housing prices growth is reported as 0.41 over the full sample and 0.26 in the post-2017 sample.

### Mortgage credit, household leverage, and non-performing loans (NPLs)
- Mortgage accounts for half of banks’ credit to the private sector, making the housing sector key to banking stability.
- Household mortgage loans have contributed about half of the non-performing loans (NPLs), which have increased significantly since 2017.
- Household leverage is defined as the ratio of household mortgage debt to the value of residential real estate; many market participants may have not experienced any nominal appreciation in their properties since 2017.
- Variable-rate mortgages expose households to interest rate and income shocks; rising interest payments since 2022 (as the BoN started hiking the policy rate to contain inflation) may contribute to higher household debt service payments to income ratios.
- Despite the easing of monetary policy since mid-2024, the debt servicing burden on households remains high.
- NPL dynamics:
  - NPLs peaked at 6.8 percent in March 2021, breaching Namibia’s supervisory threshold.
  - NPLs moderated to 5.6 percent in December 2024.
- The moderation in NPLs reflects recent recovery in nominal credit growth, which has surpassed the growth in NPLs.
- Banks remain liquid, profitable, and well-capitalized; NPLs are sufficiently provisioned to cover expected losses during the review period.

### Banking-system exposures and public sector credit
- Domestic credit to the public sector more than doubled over the past decade, corresponding with increased government financing needs.
- Banks’ exposure to the public sector (excluding the central bank) is above the African average; comparable to South Africa and exceeding Botswana and Mauritius.
- Non-bank financial institutions (NBFIs) holdings of domestic debt:
  - As of the end of December 2024, total domestic debt was 51 percent of GDP.
  - Depository corporations held 14 percent of GDP.
  - NBFIs held 20 percent of GDP.
- The deepening bank-sovereign nexus and significant NBFI holdings of government debt increase systemic risk.

### Access to credit for private firms and constraints
- World Bank Enterprise Survey (Namibia, 2024):
  - 203 out of 307 firms surveyed (or 66 percent) view access to finance as an obstacle, ranging from “minor” to “very severe”.
  - Access to finance is the top obstacle identified, surpassing regulatory burdens, security and stability, and infrastructure.
  - Only 110 firms (or 36 percent) reported having a line of credit or loan from a financial institution.
- Survey findings:
  - A simple regression suggests a positive correlation between having a line of credit and experiencing sales growth.
  - The most important constraint identified is the high collateral requirement on the demand side.
  - Potential supply-side constraints to investigate include cost of funding, regulatory and capital requirements, administrative and hedging expenses, and assessment of borrowers’ credit risks.
- Note: Survey covers formally registered small, medium, and large enterprises; many establishments that did not apply for loans reported they “did not need a loan, as the establishment had sufficient capital.” The situation is likely more challenging for informal and micro businesses.

### Macroprudential and other policy recommendations
- Macroprudential toolkit enhancements:
  - The Bank of Namibia (BoN) should continue enhancing its macroprudential toolkit to manage credit-cycle risks.
  - The countercyclical capital buffer (CCyB) framework is set to be implemented in the last quarter of 2025, allowing capital accumulation during credit booms to be released during downturns.
  - Given Namibia’s small open economy status and structural vulnerabilities, a positive-neutral CCyB could enhance banking resilience.
  - BoN should consider targeted measures, such as a systemic risk buffer for sovereign exposures that surpass a certain threshold, and further analysis of exposures in banking and trading books to ensure appropriate risk weights.
- Mortgage lending standards and borrower-based measures:
  - The Loan-to-Value (LTV) regulations adopted by BoN in March 2017 required prospective home loan applicants for a second mortgage property to pay at least 20 percent of the property’s market value (bank financing up to 80 percent); down payment requirements increased progressively for the third and subsequent properties.
  - In 2023, LTV ratios were revised to stimulate credit growth by eliminating downpayments on the purchase of both first and second residential properties.
  - Recommendation: BoN should reverse the elimination of downpayments on first and secondary residential properties to maintain minimum lending standards and prevent future NPLs.
  - BoN should consider collecting data on flow measures such as debt-to-income (DTI) ratios and debt service-to-income (DSTI) for new property buyers to inform targeted borrower-based macroprudential measures.
- Promoting private-sector credit while safeguarding stability:
  - Authorities should pursue solutions that support sound lending to non-financial corporations to diversify the economy and foster private sector-led growth.
  - Conducting further studies to identify constraints hindering businesses in accessing credit is critical for policy design and for understanding key drivers of Namibia’s credit cycles.

*Source: 1namea2025002-print-pdf.*

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_Source: https://www.imf.org/-/media/files/publications/cr/2025/english/1namea2025002-print-pdf.pdf_