## _cr09136

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### Executive summary — key findings and outlook
- Real GDP growth slowed to about 3 percent in 2008 from 4.1 percent in 2007.
- The 12-month inflation rate was 10.9 percent in December 2008, compared with 7 percent a year before; with the sharp fall in fuel prices by year-end, inflation should fall back to single digits in 2009.
- The 2007/08 (April–March) fiscal surplus, including extrabudgetary expenditure, was 4.5 percent of GDP, compared with the budgeted 0.2 percent.
- The 2008/09 budget envisages a fiscal balance shifting to a deficit of 5.7 percent of GDP, a swing of over 10 percent of GDP from the 2007/08 outturn.
- Should the 2008/09 budget be fully implemented, public debt would rise to 24.8 percent of GDP, close to the authorities’ target of 25 percent.
- Official international reserves increased to an equivalent of 3.7 months of imports of goods and services in December 2008, up from 3 months at end-2007.
- The Namibian dollar depreciated by 26 percent against the U.S. dollar during 2008.
- Unemployment remains high at over 30 percent; income inequality among the highest in the world; high, though declining, HIV/AIDS rate and low school enrollment persist.

### Recent economic developments — sectoral and external
- Mining sector:
  - Activity slowed abruptly in late 2008; a copper company suspended mining operations in November 2008 and the main diamond company cut production.
- Current account:
  - Projected to fall to 2 percent of GDP in 2008, reflecting declining terms of trade and substantial imports for mineral exploration and public infrastructure projects.
- Terms of trade:
  - Decline mostly reflected the collapse in mineral export prices from historic peaks.
- Capital flows:
  - Capital outflows—mostly through pension funds—slowed but remained large.
- External trade and reserves:
  - Reserve coverage: 3.7 months of imports (December 2008).
  - Namibian dollar depreciation: 26 percent versus the U.S. dollar in 2008.
- Investment:
  - Private sector investment remains high, reflecting in part FDI inflows.

### Fiscal policy — performance, projections, and risks
- 2007/08 fiscal outturn:
  - Fiscal surplus: 4.5 percent of GDP (including extrabudgetary expenditure).
  - Drivers: significant improvement in tax administration, increased mineral export taxes, strong SACU receipts, and lower-than-budgeted capital expenditure.
- 2008/09 budget (authorities’ plan):
  - Projected overall fiscal balance: deficit of 5.7 percent of GDP.
  - Expenditure increase: externally financed capital expenditure projected at 3.7 percent of GDP (compared to 0.6 percent in 2007/08).
  - Public debt implication: rise to 24.8 percent of GDP if budget fully implemented (authorities’ target: 25 percent).
- Staff assessment and baseline projections (Staff Baseline Medium Term Fiscal Outlook — percent of GDP sequence Est./Budget/Staff Est./Projections 2009/10–2013/14):
  - Revenue and grants: 32.4, 29.3, 30.4, 30.0, 29.1, 29.0, 28.8, 28.5
  - Mineral tax: 2.4, 2.0, 1.6, 1.5, 1.5, 1.5, 1.6, 1.6
  - SACU receipts: 12.7, 11.9, 11.9, 11.6, 10.7, 10.6, 10.3, 10.0
  - Expenditures: 27.9, 35.0, 33.0, 32.4, 32.2, 32.2, 32.3, 32.4
  - Current expenditure: 21.9, 24.6, 23.8, 24.0, 23.9, 23.9, 24.0, 24.1
  - Capital expenditure: 4.1, 8.8, 7.6, 6.7, 6.7, 6.7, 6.7, 6.7
  - Overall balance 1/: 4.5, -5.7, -2.6, -2.3, -3.1, -3.2, -3.5, -3.8
  - Overall balance excluding extrabudgetary spending 1/: 5.1, -2.0, 0.0, -0.3, -1.1, -1.2, -1.5, -1.8
  - Primary balance: 6.4, -4.0, -0.8, -0.3, -1.2, -1.3, -1.5, -1.8
  - Public and publicly guaranteed debt: 24.3, 33.1, 28.8, 29.8, 31.9, 33.6, 34.5, 35.3
  - Public debt: 18.9, 24.8, 22.0, 22.6, 24.3, 25.6, 27.1, 28.7
- Staff cautions and recommendations:
  - Staff cautioned the planned shift in the fiscal balance in 2008/09 went beyond automatic stabilizers and risked compromising the quality of spending.
  - Staff supports the authorities’ plan for a less expansionary fiscal stance in 2009/10.
  - Staff recommended expanding the public debt target to include publicly guaranteed debt and central government deposits; authorities were receptive.
- Staff alternative medium-term fiscal outlook (selected series, percent of GDP sequence):
  - Revenue and grants: 32.4, 29.3, 30.4, 29.9, 29.1, 29.0, 28.7, 28.5
  - Expenditures: 27.9, 35.0, 33.0, 32.3, 31.4, 31.1, 30.8, 30.5
  - Overall balance 1/: 4.5, -5.7, -2.6, -2.3, -2.3, -2.0, -2.0, -2.0
  - Public and publicly guaranteed debt: 24.3, 33.1, 28.3, 29.4, 29.0, 28.2, 28.3, 28.3
  - Net public and publicly guaranteed debt: 19.4, 28.6, 23.8, 25.1, 25.0, 24.3, 24.4, 24.4
- Staff view: public debt largely sustainable but simulations are sensitive to declining SACU revenue, increases in publicly guaranteed debt, and moderation of recent high GDP growth rates.

### Debt dynamics, overborrowing assessment, and stress tests
- Assessment of overborrowing:
  - Namibia assessed at low risk of default.
  - Overborrowing range estimated around 0.1 to 0.6 percent in 2013 (much less than emerging-market distress benchmarks).
- Baseline public sector debt path (percent of GDP):
  - 2007: 20.2; 2008: 20.2; 2009: 22.2; 2010: 23.9; 2011: 25.3; 2012: 26.8; 2013: 28.5
- Key vulnerabilities and bound test outcomes:
  - B6. 10 percent of GDP increase in contingent liabilities in 2009 projects public debt rising to 32.2 in 2009 and to 38.9 by 2013.
  - B7. Annual 2 percent of GDP decline in SACU from 2009 projects public debt rising to 24.2 in 2009 and to 36.7 by 2013.
- Recommendation: include publicly guaranteed debt in the public debt definition and factor government deposits into debt coverage to better anchor fiscal stance and guard against surprise calls on guarantees.

### Monetary and financial sector — policy stance and developments
- Exchange rate and monetary anchor:
  - Namibia is a member of the Common Monetary Area (CMA) and fixes its currency at par to the South African rand; the rand is legal tender in Namibia.
  - The exchange rate peg to the rand remains a strong monetary policy anchor.
- Bank of Namibia (BoN) policy and operations:
  - BoN reduced its repo rate by 50 basis points in December 2008, leaving the rate at 10 percent.
  - The BoN repo rate was 150 basis points below the SARB repo rate after the BoN opted not to follow three SARB rate increases in 2007–08.
  - The BoN introduced a seven-day repo facility in 2008 and increased issuance of BoN bills to manage liquidity and provide an alternative asset for banks.
- Interest rate differentials and capital flows:
  - Directors stressed limiting policy interest rate differentials with South Africa to avoid destabilizing capital flows.
  - Staff cautioned Namibia has limited scope for effective independent monetary policy; close monitoring of capital flows is essential.
- Credit and banking sector:
  - Growth in credit to the private sector fell to 5.6 percent (year on year) in November 2008 from 13 percent in December 2007.
  - Lending margins remain relatively high; banks are very profitable; prudential ratios are sound.
- Financial stability and supervision:
  - Global financial crisis had little direct impact; banks are well-provisioned and profitable with low nonperforming loans but nonperforming loans may rise as the economy slows.
  - BoN acted to curb pyramid schemes, closed one scheme in 2008, and initiated public awareness efforts.
  - BoN strengthening stress-testing and plans to implement Basel II in 2009.
  - NAMFISA capacity increasing; new law to consolidate nonbank regulation expected by end of 2009.

### Institutional investor regulation — pension and insurance investment requirements
- Regulation change (2008, phased in over five years beginning in 2009):
  - Limits dual-listed companies to a maximum of 10 percent of local assets.
  - Requires a minimum of 5 percent of total assets to be invested in unlisted Namibian companies.
- Previous regulation:
  - Permitted investment in dual-listed companies to be counted toward the 35 percent domestic investment requirement; no required minimum for unlisted companies.
- Staff recommendations:
  - Consider a more modest revision to mitigate risks to institutional investors given limited domestic investment opportunities.
  - Ensure changes do not force unproductive or excessively risky domestic investments.
- Authorities’ stance:
  - View revision as important to channel high domestic savings to support growth; plan to phase in changes.

### Economic outlook, downside risks, and illustrative scenario
- Near-term projection:
  - Real GDP growth projected to slow to 1 percent in 2009, despite a large fiscal expansion.
  - Mining output expected to fall significantly; investment in mineral exploration likely to remain weak after slowing dramatically in late 2008.
- Illustrative downside scenario (if diamond output falls by as much as 40 percent and South Africa slowdown reduces SACU):
  - Real GDP projected to decline by roughly 0.5 percent (compared with an increase of 1 percent projected in the baseline).
  - Current account would shift to a deficit of 2 percent of GDP (compared to a projected surplus of 0.8 percent).
  - 2009/10 fiscal deficit would widen from the projected 2.3 percent of GDP to nearly 5 percent.
- Exchange rate and inflation risks:
  - Further depreciation could put upward pressure on inflation via import prices.
  - The REER depreciated by 9 percent in real terms from end-2007 through November 2008, after an appreciation of more than 30 percent from 2001–07.
  - Equilibrium assessments produced mixed signals: equilibrium real exchange rate approach indicates undervaluation ranges from 13 to 20 percent depending on model; macroeconomic balance approach suggests an overvaluation of 11 percent under certain assumptions. Overall results inconclusive on misalignment at end-2008.

### Structural competitiveness, poverty reduction, and social measures
- Competitiveness and tradeable sector:
  - Strengths: strong institutions and good infrastructure.
  - Weaknesses: labor skill shortages; complicated business registration and licensing procedures.
  - Reforms/support: Strategic Plan for Education and Training Sector Improvement Program (2005–20); a “one stop-shop” for regulatory processing.
- Tradeable sector indicators (annual percentage changes, selected):
  - Export growth (Namibian dollars): 24.3 (2004), 11.8 (2005), 36.5 (2006), 14.6 (2007), 24.7 (Proj. 2008)
  - Mineral goods exports: 29.3 (2004), 5.3 (2005), 47.6 (2006), 14.7 (2007), 33.4 (Proj. 2008)
  - Manufacturing value added (real terms): 0.4 (2004), 7.5 (2005), 2.7 (2006), 7.2 (2007), 3.4 (Proj. 2008)
- Poverty and social measures:
  - Measures addressing high food and fuel prices: zero-rate VAT on selected food items; rebate facilities for food importers; a food distribution program.
  - 2008/09 budget increased payments to the elderly, orphans and vulnerable children, and war veterans’ allowances.
  - Under NDP3 (2007/08–2011/12): focus on sustainable growth, reducing poverty, targeting the poorest and most vulnerable, and strengthening MTEF-aligned ministry strategic plans with monitoring and evaluation.
  - HIV/AIDS: about 80 percent of those in need currently receiving ART under the National Strategic Plan on HIV/AIDS; prevention remains a priority and reliance on external funding could jeopardize long-term ART provision.
- Labor market:
  - Labor Act of 2007 enacted in 2008 aims to provide greater worker protection while recognizing need for business flexibility.

### Statistical, institutional, and surveillance issues
- Data and statistics:
  - Statistics broadly adequate for surveillance but with significant lags and revisions.
  - CBS released updated national accounts for 2000–2007, rebasing to 2004 prices; GDP in current prices increased on average by 14 percent for 2000–2007 over previous estimates.
  - Need for improved timeliness: seasonally adjusted QNA, updated labor market data, more timely fiscal data, expanded IIP coverage, and improved timeliness for BoN data.
- Relations with the Fund and technical assistance:
  - Namibia is on the standard 12-month Article IV consultation cycle; last Article IV concluded January 18, 2008.
  - Ongoing technical assistance across fiscal, monetary, statistical, and supervisory areas, with multiple missions listed through 2008 and planned workprogram items for 2009.

### Executive Board assessment and recommended priorities
- Board assessment highlights:
  - Commended authorities’ sound macroeconomic management, robust growth (pre-downturn), subdued inflation (earlier), and large current account surpluses.
  - Noted global downturn worsens near-term outlook, with mining sector downside risks.
- Recommended policy priorities:
  - Continue sound macroeconomic policies and determined implementation of structural reforms to accelerate non-mineral growth, reduce unemployment and poverty.
  - Exercise caution on the sizable planned fiscal expansion; safeguard spending quality and consider a less expansionary stance to protect fiscal sustainability.
  - Broaden public debt target definition to include publicly guaranteed debt and central government deposits.
  - Strengthen public financial management and revenue administration.
  - Maintain sufficient international reserves and monitor capital flows given the exchange rate peg to the South African rand.
  - Remain vigilant on banking sector risks as the downturn advances.

*IMF staff report: 2008 Article IV Consultation excerpts (2008).*

### 2008. Directors commended the authorities' sound macroeconomic management;

### 2008. Directors commended the authorities' sound macroeconomic management;

### Executive summary — Key findings and outlook
- Real GDP growth slowed to about 3 percent in 2008 from 4.1 percent in 2007, reflecting a downturn in the mineral sector and lagged effects of monetary tightening.
- The 12-month inflation rate was 10.9 percent in December 2008, compared with 7 percent a year before; with the sharp fall in fuel prices by year-end, inflation should fall back to single digits in 2009.
- The 2007/08 (April–March) fiscal surplus, including extrabudgetary expenditure, was 4.5 percent of GDP, compared with the budgeted 0.2 percent.
- The 2008/09 budget envisages a fiscal balance shifting to a deficit of 5.7 percent of GDP, a swing of over 10 percent of GDP from the 2007/08 outturn.
- Should the 2008/09 budget be fully implemented, public debt would rise to 24.8 percent of GDP, close to the authorities’ target of 25 percent.
- Official international reserves increased to an equivalent of 3.7 months of imports of goods and services in December 2008, up from 3 months at end-2007.
- The Namibian dollar depreciated by 26 percent against the U.S. dollar during 2008, roughly two-thirds of which took place during September–December.
- Unemployment remains high at over 30 percent; income inequality among the highest in the world; a high, though declining, HIV/AIDS rate and low school enrollment persist.

### Recent economic developments — sectoral and external
- Mining sector: activity slowed abruptly in late 2008; a copper company suspended mining operations in November 2008 and the main diamond company cut production.
- Current account: projected to fall to 2 percent of GDP in 2008, reflecting declining terms of trade and substantial imports for mineral exploration and public infrastructure projects.
- Terms of trade: decline mostly reflected the collapse in mineral export prices from historic peaks.
- Capital flows: capital outflows—mostly through pension funds—slowed but remained large.
- External trade and reserves:
  - Reserve coverage: 3.7 months of imports (December 2008).
  - Namibian dollar depreciation: 26 percent versus the U.S. dollar in 2008.
- Investment: private sector investment remains high, reflecting in part FDI inflows.

### Fiscal policy — performance and risks
- 2007/08 fiscal outturn:
  - Fiscal surplus: 4.5 percent of GDP (including extrabudgetary expenditure).
  - Drivers: significant improvement in tax administration, increased mineral export taxes, strong SACU receipts, and lower-than-budgeted capital expenditure.
- 2008/09 budget:
  - Projected overall fiscal balance: deficit of 5.7 percent of GDP.
  - Expenditure increase: externally financed capital expenditure projected at 3.7 percent of GDP (compared to 0.6 percent in 2007/08).
  - Revenue risk: falling global demand could dampen revenues in the remainder of the fiscal year.
  - Public debt implication: rise to 24.8 percent of GDP if budget fully implemented (authorities’ target: 25 percent).
- Staff cautions and recommendations:
  - Staff cautioned that the planned shift in the fiscal balance in 2008/09 went beyond automatic stabilizers and risked compromising the quality of spending.
  - Staff supports the authorities’ plan for a less expansionary fiscal stance in 2009/10.
  - For more comprehensive fiscal analysis, staff recommended expanding the current public debt target to include publicly guaranteed debt and central government deposits; the authorities were receptive.

### Monetary and financial sector — policy stance and developments
- Currency and anchor:
  - Namibia is a member of the Common Monetary Area (CMA) and fixes its currency at par to the South African rand; the rand is legal tender in Namibia.
  - The exchange rate peg to the rand remains a strong monetary policy anchor.
- Bank of Namibia (BoN) policy and operations:
  - BoN reduced its repo rate by 50 basis points in December 2008, leaving the rate at 10 percent.
  - The BoN repo rate was 150 basis points below the SARB repo rate after the BoN opted not to follow three SARB rate increases in 2007–08.
  - The BoN introduced a seven-day repo facility in 2008 as the key monetary policy instrument and increased issuance of BoN bills to manage liquidity and provide an alternative asset for banks to meet statutory asset requirements.
- Interest rate differentials and capital flows:
  - Directors stressed that policy interest rate differentials with South Africa be limited to levels that do not destabilize capital flows.
  - Staff cautioned that as a small, open economy with a fixed exchange rate, Namibia has limited scope for effective independent monetary policy; close monitoring of capital flows is essential for timely interest rate adjustments.
- Credit and banking sector:
  - Growth in credit to the private sector fell to 5.6 percent (year on year) in November 2008 from 13 percent in December 2007.
  - Lending margins remain relatively high; banks are very profitable; prudential ratios are sound.
- Statistics: statistics are broadly adequate for surveillance.

### Institutional investor regulation — pension and insurance investment requirements
- Regulation change:
  - A 2008 revision to regulation on pension funds and life insurance companies will tighten domestic investment requirements, including a required minimum investment in unlisted companies.
- Staff view:
  - Staff recommended a more modest revision to mitigate risks to institutional investors given limited domestic investment opportunities.
  - Authorities indicated they consider the change relatively moderate with a sufficient phase-in period.
- Directors' recommendation:
  - Directors recommended that any changes to domestic investment requirements should not prevent financial institutions from continuing to invest productively.

### Policy recommendations and priorities
- Fiscal policy:
  - Limit the 2008/09 fiscal expansion to what is warranted by automatic stabilizers to avoid compromising spending quality.
  - Adopt a less expansionary stance in 2009/10 as supported by staff.
  - Expand the public debt target to include publicly guaranteed debt and central government deposits for comprehensive fiscal analysis.
- Monetary/financial:
  - Maintain the exchange rate peg as a monetary anchor while recognizing limited scope for independent policy.
  - Limit interest rate differentials with South Africa to avoid destabilizing capital flows.
  - Closely monitor capital flows to allow timely interest rate adjustments.
- Institutional investor regulation:
  - Moderate planned tightening of domestic investment requirements for pension funds and life insurance companies to avoid forcing unproductive or risky domestic investments, given limited domestic opportunities.

*IMF staff report: 2008 Article IV Consultation excerpts (2008).*

### 9.      Namibia’s real GDP growth is projected to slow to 1 percent in 2009, despite the

### 9.      Namibia’s real GDP growth is projected to slow to 1 percent in 2009, despite the

### Economic outlook and near-term projections
- Real GDP growth projected to slow to 1 percent in 2009, despite a large fiscal expansion.
- Mining output expected to fall significantly; investment in mineral exploration likely to remain weak after slowing dramatically in late 2008.
- Several medium-term investment projects (including investments in electricity generation and water desalination) could be jeopardized by marked tightening in international financial markets.
- Authorities' projection during the November 2008 mission: roughly 2 percent real GDP growth for 2009 (when the global environment was still more benign).

### Downside risks and illustrative scenario
- Diamond industry: preliminary reports indicate consideration of a reduction in output of as much as 40 percent relative to initial plans for 2009.
- A more significant slowdown in South Africa could further reduce the SACU revenue pool.
- Illustrative scenario if both risks materialize:
  - Real GDP projected to decline by roughly 0.5 percent (compared with an increase of 1 percent projected in the baseline).
  - Current account would shift to a deficit of 2 percent of GDP (compared to a projected surplus of 0.8 percent).
  - 2009/10 fiscal deficit would widen from the projected 2.3 percent of GDP to nearly 5 percent.

### Inflation and exchange rate risks
- Further depreciation of the Namibian dollar could put upward pressure on inflation through increased import prices.
- Decline in international food and fuel prices should help moderate inflation in 2009, but rapid depreciation raises the risk of a substantial increase in imported inflation that could constrain the scope for monetary easing within the CMA.
- The peg of the Namibian dollar to the rand underpins deep economic and financial ties with South Africa.
- The REER depreciated by 9 percent in real terms from the end of 2007 through November 2008, after an appreciation of more than 30 percent from 2001–07.
- Equilibrium assessments:
  - Equilibrium real exchange rate approach: undervaluation magnitude ranges from 13 to 20 percent depending on period and model assumptions.
  - Macroeconomic balance approach: underlying current account deficit estimated at about 4.5 percent of GDP vs current account norm of 4 percent, implying an overvaluation of 11 percent assuming current account elasticity with respect to the REER of about 0.8.
  - Overall: results do not provide conclusive evidence that the REER was misaligned at end-2008; findings do not indicate substantial risks to external stability.

### Fiscal policy stance and risks
- Authorities considered the planned fiscal expansion in 2008/09 an appropriate countercyclical response, expecting full execution including the planned 7 percent of GDP increase in spending.
- Staff view:
  - Agreed expansionary fiscal stance was appropriate, but cautioned the magnitude appears large and could compromise quality of spending.
  - Taking import content of expenditure, historical implementation rates, and expected mining revenue impacts into account, staff estimated a deficit of 2.6 percent of GDP for 2008/09 as a more likely outcome.
  - Staff considered a deficit in this range appropriate to safeguard macroeconomic stability while still entailing a strong discretionary fiscal impulse.
- Authorities planned the 2008/09 spending increase to be largely one-off, with declines planned for 2009/10–2010/11 per the Medium-term Expenditure Framework (MTEF; 2008/09–2010/11).
- Staff projection based on the authorities’ MTEF indicates the authorities’ target of a 25 percent public debt-to-GDP ratio would be breached by 2011/12.

### Fiscal composition and key projections (Staff Baseline Medium Term Fiscal Outlook)
Revenue and grants (percent of GDP) by column sequence (Est./Budget/Staff Est./Projections 2009/10–2013/14):
- Revenue and grants: 32.4, 29.3, 30.4, 30.0, 29.1, 29.0, 28.8, 28.5
- Mineral tax: 2.4, 2.0, 1.6, 1.5, 1.5, 1.5, 1.6, 1.6
- SACU receipts: 12.7, 11.9, 11.9, 11.6, 10.7, 10.6, 10.3, 10.0
- Other revenue: 17.3, 15.4, 16.9, 16.9, 16.9, 16.9, 16.9, 16.9
- Grants: 0.3, 0.2, 0.2, 0.2, 0.2, 0.2, 0.2, 0.2

Expenditures and balances (percent of GDP):
- Expenditures: 27.9, 35.0, 33.0, 32.4, 32.2, 32.2, 32.3, 32.4
- Current expenditure: 21.9, 24.6, 23.8, 24.0, 23.9, 23.9, 24.0, 24.1
- Capital expenditure: 4.1, 8.8, 7.6, 6.7, 6.7, 6.7, 6.7, 6.7
- Net lending: 1.9, 1.6, 1.6, 1.6, 1.6, 1.6, 1.6, 1.6

Overall balance (percent of GDP) — sequence corresponding to the same column ordering:
- Overall balance 1/: 4.5, -5.7, -2.6, -2.3, -3.1, -3.2, -3.5, -3.8
- Overall balance excluding extrabudgetary spending 1/: 5.1, -2.0, 0.0, -0.3, -1.1, -1.2, -1.5, -1.8
- Overall balance excluding SACU receipts and mineral taxes: -10.6, -19.7, -16.1, -15.4, -15.3, -15.3, -15.4, -15.4
- Primary balance: 6.4, -4.0, -0.8, -0.3, -1.2, -1.3, -1.5, -1.8

Public debt and related indicators (percent of GDP):
- Public and publicly guaranteed debt: 24.3, 33.1, 28.8, 29.8, 31.9, 33.6, 34.5, 35.3
- Public debt: 18.9, 24.8, 22.0, 22.6, 24.3, 25.6, 27.1, 28.7
- Domestic: 13.9, 16.7, 14.7, 13.9, 13.9, 14.0, 14.4, 15.0
- External: 4.9, 8.1, 7.3, 8.7, 10.4, 11.6, 12.7, 13.6
- Publicly guaranteed debt: 5.4, 8.2, 6.9, 7.2, 7.6, 8.0, 7.3, 6.6
- Net public and publicly guaranteed debt: 19.4, ..., 24.3, 25.5, 27.9, 29.7, 30.6, 31.4

(Notes from table: 1/ "Overall balance" reflects externally financed project spending (except for roads) that is not channeled through the state account. "Overall balance excluding extrabudgetary spending" excludes such spending and thus corresponds directly with the authorities' budget balance. 2/ The change in domestic debt includes bonds issued for local capital market development.)

### Staff alternative medium-term fiscal outlook (key elements and numbers)
- Staff alternative scenario modifies two elements to achieve net public and publicly guaranteed debt reduction to the 25 percent of GDP target:
  1. Assumes planned SOE reforms result in gradual decline in need for budgetary support and debt guarantees starting in 2010/11 (improvements in operational efficiency and financial management; tighter criteria on publicly guaranteed debt of SOEs).
  2. Adjusts planned level of capital expenditure to reflect historical implementation rates.
- Staff alternative fiscal projections — selected series (percent of GDP), sequence as in table columns:
  - Revenue and grants: 32.4, 29.3, 30.4, 29.9, 29.1, 29.0, 28.7, 28.5
  - Expenditures: 27.9, 35.0, 33.0, 32.3, 31.4, 31.1, 30.8, 30.5
  - Overall balance 1/: 4.5, -5.7, -2.6, -2.3, -2.3, -2.0, -2.0, -2.0
  - Overall balance excluding extrabudgetary spending 1/: 5.1, -2.0, 0.0, -0.6, -0.6, -0.3, -0.3, -0.3
  - Public and publicly guaranteed debt: 24.3, 33.1, 28.3, 29.4, 29.0, 28.2, 28.3, 28.3
  - Net public and publicly guaranteed debt: 19.4, 28.6, 23.8, 25.1, 25.0, 24.3, 24.4, 24.4
- Staff view: estimates of public debt sustainability confirm that public debt is largely sustainable but simulations are sensitive to declining SACU revenue, increases in publicly guaranteed debt, and moderation of recent high GDP growth rates.

### Fiscal transparency, decentralization, and PPPs
- Progress in public financial management:
  - Introduction of comprehensive auditing of VAT refunds.
  - Plans to expand the mineral tax to all minerals.
  - Use of the Integrated Financial Management System has improved utilization of resources and prevented diversion of funds.
  - First Annual Accountability Report on budget implementation prepared for 2006/07.
  - Ongoing work to improve program budgeting and revenue forecasting.
- Staff recommendations:
  - Consolidate extrabudgetary project expenditure into regular budget reporting to enhance transparency and allow more comprehensive assessment of the overall fiscal balance and macroeconomic impact.
  - More comprehensive approach to fiscal decentralization: clear guidelines on revenue and expenditure assignments, transfers and subsidies, financing and borrowing.
  - Establish clear legal and institutional framework for PPP projects, and clearly identify and disclose fiscal risks associated with PPPs.
- Authorities' responses:
  - Formulating a formula-based intergovernmental fiscal allocation mechanism with minimum standards for fiscal accountability.
  - Agreed on importance of clear PPP framework and disclosure of fiscal risks.

### Public debt definition and fiscal anchor
- Staff recommended expanding the definition of public debt to include publicly guaranteed debt and adjust for government deposits.
- Rationale: broader definition of ‘net public and publicly guaranteed debt’ would better anchor fiscal stance and safeguard against surprise calls on publicly guaranteed debt, given volatility of cyclical revenue booms and significant increase in publicly guaranteed debt.
- Authorities generally agreed, requesting that government deposits be included in coverage; could not commit to a timeframe for implementation.
- Contextual numbers:
  - Publicly guaranteed debt has almost doubled in the last 10 years.
  - SACU revenue expected to fall by about 2 percent of GDP during 2008/09–2010/11, with further declines likely in the medium term due to planned regional developments.

### Structural competitiveness and tradeable sector performance
- Improving competitiveness is essential to stimulate growth and reduce high unemployment.
- Strengths: strong institutions and good infrastructure.
- Weaknesses: labor skill shortages; complicated business registration and licensing procedures.
- Reforms/support:
  - Namibia’s Strategic Plan for Education and Training Sector Improvement Program (2005–20) supported by World Bank and EU.
  - A “one stop-shop” established to facilitate fast-track processing of regulatory requirements.
- Tradeable sector performance indicators (annual percentage changes, selected):
  - Export growth (Namibian dollars): 24.3 (2004), 11.8 (2005), 36.5 (2006), 14.6 (2007), 24.7 (Proj. 2008)
  - Mineral goods exports: 29.3 (2004), 5.3 (2005), 47.6 (2006), 14.7 (2007), 33.4 (Proj. 2008)
  - Nonmineral goods exports: 18.0 (2004), 20.6 (2005), 23.3 (2006), 14.4 (2007), 12.4 (Proj. 2008)
  - Manufacturing value added (real terms): 0.4 (2004), 7.5 (2005), 2.7 (2006), 7.2 (2007), 3.4 (Proj. 2008)
  - Share of exports in world trade (percent): 0.020 (2004), 0.020 (2005), 0.022 (2006), 0.021 (2007), 0.018 (Proj. 2008)

### Monetary policy and financial stability
- Bank of Namibia (BoN) actions:
  - Did not follow SARB interest rate hikes from December 2007 through June 2008, judging further monetary tightening unnecessary given moderating inflation.
  - Maintains that capital controls allow some scope for independent monetary policy within the CMA.
  - Requires domestic assets of commercial banks to be equal to or greater than their domestic liabilities; limits foreign assets to one-half their level of equity capital.
  - Maintains foreign exchange reserves well above levels necessary to cover currency in circulation and monthly average capital outflows to ensure stability of fixed peg.
- Staff assessment:
  - Current deviation from the SARB repo rate poses little risk provided BoN maintains sufficient international reserves.
  - As a small, open economy with a fixed exchange rate as a CMA member, Namibia has limited scope for an effective independent monetary policy.
  - Capital controls constrain banks to some extent, but other channels exist for capital movement with South Africa, keeping money market and deposit rates closely linked to South African rates.

*Source: IMF staff report content.*

### 25.      The global financial crisis has had little direct impact on the Namibian financial

### _cr09136 - 25.      The global financial crisis has had little direct impact on the Namibian financial

### Financial sector impact and banking system
- The global financial crisis has had little direct impact on the Namibian financial sector, which has benefited from continued prudent supervision by the BoN.
- Banks in Namibia appear to have been well-protected by conservative lending practices and little direct overseas exposure, and remain well-provisioned and profitable.
- The expected entrance of a fifth bank in 2009 is expected to increase competition within the sector.
- Nonperforming loans are at very low levels despite a modest increase in 2008, but can be expected to increase as the real economy continues to slow.
- Given that banks have relatively high concentration to real estate and consumer lending, the banking system may be exposed to higher risks.
- The turbulence in international financial markets seems to have had little impact as yet on the banking sector; banks are well-capitalized and very profitable, with a low level of non-performing loans, although vigilance is needed as the economic downturn advances in 2009.

### Bank of Namibia (BoN) actions and supervision
- The BoN has acted quickly to curb pyramid schemes:
  - It closed down one such scheme in 2008.
  - It has initiated a public awareness campaign to deter others.
  - The authorities plan to increase consultation within the CMA on the issue and will participate in an IMF workshop on the issue in early 2009.
- The BoN has continued to strengthen its stress-testing framework and will move forward with implementation of Basel II in 2009.
- The exchange rate peg to the rand remains a strong monetary policy anchor; the BoN has found some room to deviate from the interest rate policy of the SARB, but the peg and close financial links with South Africa are likely to constrain the scope for effective independent monetary policy over the longer-term.
- It will be important to maintain sufficient international reserves and monitor capital flows closely to allow timely adjustment of interest rates.

### NAMFISA capacity and regulatory reforms
- The capacity of the Namibia Financial Institutions Supervisory Authority (NAMFISA) is increasing, but the authorities recognize the need for further improvement.
- A new law to consolidate regulation of nonbank institutions and clearly define NAMFISA’s supervisory authority is expected to be approved by the end of 2009.
- NAMFISA has introduced regular standardized reporting for pension funds and insurance companies to help address deficiencies in data collection and monitoring and is implementing a risk-based auditing system.

### Pension funds, life insurance, and domestic investment requirements
- The government is considering modifications to the tighter domestic investment requirements introduced for pension funds and life insurance companies in 2008 to address market uncertainty about their interpretation.
- The new regulation, which was to be phased-in over five years beginning in 2009:
  - Limits dual-listed companies (largely traded in South Africa) to a maximum of 10 percent of local assets.
  - Requires a minimum of 5 percent of total assets to be invested in unlisted Namibian companies.
- The previous regulation:
  - Permitted investment in dual-listed companies to be counted toward the 35 percent domestic investment requirement.
  - Had no required minimum investment in unlisted companies.
- Authorities view the revision as an important step to help channel high domestic savings to support economic growth, noting the previous regulation was not working as envisaged because the domestic investment requirement was mostly met through investment in dual-listed companies.
- Staff recommendations and concerns:
  - Staff encouraged consideration of a more moderate change to the requirements on domestic investment.
  - Staff agreed that a modest revision to direct a larger share of investment into local assets rather than dual-listed shares could be appropriate.
  - Staff cautioned there are insufficient instruments to absorb efficiently the significant volume of capital inflows that the new regulation would require.
  - The limited number of domestically listed companies and corporate and government bonds are mostly held by buy-and-hold investors and do not trade in sufficient volume or size to absorb the capital inflow.
  - Staff noted higher risk associated with the required allocation in unlisted companies and implications for insurance reserves and pension savings.
  - Experience with investment in unlisted domestic companies by the government pension fund in the mid-1990s raises significant concerns about excessive risk associated with these investments.

### Poverty reduction, social measures, and structural reforms
- Measures taken to address poverty and alleviate the temporary impact of high food and fuel prices include:
  - A zero-rate value-added tax on selected food items.
  - Rebate facilities for food importers.
  - A food distribution program to feed the most vulnerable.
- The authorities restated commitment to combating poverty and expanding the social safety net; the 2008/09 budget increased payments to the elderly, orphans and vulnerable children, and war veterans’ allowances.
- The mission supported additional but targeted social safety support and recommended that any increase should be accommodated by reallocation of resources within the existing budget envelope.
- National Development Plan 3 (NDP3) (2007/08–2011/12) objectives:
  - Achieve sustainable economic growth and reduce poverty.
  - Focus resources on the poorest and the most vulnerable, improve the social safety net, and foster competitiveness to promote growth and employment.
  - Each ministry is required to develop a strategic plan consistent with the MTEF, with a firm focus on monitoring and evaluation of outputs.
- Major challenges to overcoming poverty: unemployment and HIV/AIDS.
  - Under the National Strategic Plan on HIV/AIDS, Namibia has made good progress in expanding availability of anti-retroviral treatment (ART), with about 80 percent of those in need currently receiving treatment.
  - Progress on prevention remains a priority, and reliance on external funding could jeopardize the long-term provision of ART.
- The Labor Act of 2007, enacted in 2008, aims to provide greater protection to workers while acknowledging that the business sector needs flexibility and cost competitiveness in staffing.

### Macroeconomic outlook and staff appraisal
- The macroeconomic outlook faces significant downside risks from the slowing global economy.
- Real GDP growth is projected to slow to 1 percent in 2009, with the potential for a much more significant slowdown if weakening global demand results in further cuts in mining activity.
- The decline in world food and fuel prices toward the end of 2008 should bring the inflation rate back down to single digits in 2009.
- Fiscal policy and public debt:
  - Although countercyclical fiscal policy is appropriate in the context of the economic slowdown, the budget for 2008/09 appears too expansionary.
  - A less expansionary fiscal stance would allow for a more gradual increase in capital expenditure, while remaining within the target for the net public debt-to-GDP ratio over the medium term.
  - The more modest fiscal deficit projected for 2009/10 appears appropriate.
  - SOE reform remains a priority to improve operational efficiency and reduce the need for budgetary support for these enterprises.
- Consideration should be given to easing the new regulation on domestic investment requirements for pension fund and life insurance companies; the authorities’ plan to phase in the changes will help smooth the transition, but further flexibility to mitigate the risks to institutional investors would be desirable.

*IMF staff report content.*

### 39.      It is recommended that the next Article IV consultation take place on the

### _cr09136 - 39.      It is recommended that the next Article IV consultation take place on the

### Recommendation
- It is recommended that the next Article IV consultation take place on the standard 12-month cycle.

### National income and prices (selected)
- GDP at constant 2004 prices: 2.5; 7.2; 4.1; 2.9; 1.0; 2.8; 3.5; 3.7; 4.0 (2005–13, annual percentage change)
- GDP deflator: 5.6; 9.2; 9.3; 10.2; 8.4; 6.3; 5.3; 4.8; 4.7 (2005–13)
- GDP at current market prices (N$ millions): 46,176; 54,013; 61,456; 69,672; 76,254; 83,320; 90,777; 98,627; 107,306 (2005–13)
- GDP per capita (US$): 3,709; 4,007; 4,296; 4,127; 3,892; 4,034; 4,222; 4,411; 4,637 (2005–13)
- Consumer price index (period average): 2.3; 5.1; 6.7; 10.3; 9.1; 6.3; 5.2; 4.9; 4.6 (2005–13)
- Consumer price index (end of period): 3.5; 6.0; 7.1; 10.9; 7.3; 5.3; 5.0; 4.8; 4.5 (2005–13)

### External sector (selected)
- Exports (US$ % change): 13.3; 28.3; 9.9; 6.6; -23.5; 11.2; 5.8; 5.5; 5.2 (2005–13)
- Imports (US$ % change): 10.7; 9.7; 20.7; 27.4; -11.4; 6.8; 4.5; 3.8; 3.9 (2005–13)
- Export volume: -1.2; 17.6; -1.7; 1.8; -4.2; 2.5; 2.6; 2.7; 3.0 (2005–13)
- Import volume: 5.2; 5.0; 10.2; 11.8; 2.2; 1.8; 1.7; 1.8; 2.0 (2005–13)
- Terms of trade: 0.0; 11.5; 2.0; -8.1; -7.9; 3.3; 0.3; 0.8; 0.3 (2005–13)
- Real effective exchange rate (period average): 2; 0.7; -2.6; -4.3 (2005–08 as reported)

### Money and credit (selected)
- Credit to the private sector: 20.1; 14.8; 12.9; 6.1; 4.0; 7.5; 9.9; 9.6; 10.3 (2005–13, percent change)
- Broad money: 9.7; 29.6; 10.2; 15.5; 10.4; 12.1; 11.3; 11.1; 11.3 (2005–13, percent change)

### Investment and savings (percent of GDP)
- Gross investment: 19.7; 22.8; 20.9; 24.9; 23.5; 23.5; 24.0; 24.5; 24.8 (2005–13)
  - Public: 5.4; 5.7; 6.9; 11.6; 11.8; 11.5; 11.5; 11.5; 11.5
  - Private: 14.3; 17.1; 14.0; 13.3; 11.7; 12.0; 12.5; 13.0; 13.3
- Gross domestic savings: 16.6; 25.2; 19.9; 15.5; 12.9; 14.3; 14.8; 15.5; 15.3
- Gross national savings: 24.4; 36.6; 30.2; 26.9; 24.3; 24.7; 24.8; 25.2; 25.2
  - Public: 2.8; 6.8; 9.9; 7.5; 6.2; 5.5; 5.3; 5.1; 4.7
  - Private: 21.7; 29.9; 20.2; 19.4; 18.1; 19.1; 19.5; 20.1; 20.5

### Central government finance (selected; percent of GDP unless noted)
- Revenue and grants: 27.2; 30.2; 32.4; 30.4; 30.0; 29.1; 29.0; 28.8; 28.5 (2005–13)
  - Of which: SACU receipts: 8.1; 12.0; 12.7; 11.9; 11.6; 10.7; 10.6; 10.3; 10.0
- Expenditure and net lending: 27.6; 27.4; 27.9; 33.0; 32.4; 32.2; 32.2; 32.3; 32.4
  - Personnel expenditure: 12.2; 11.1; 10.7; 10.6; 10.6; 10.6; 10.6; 10.6; 10.6
  - Capital expenditure and net lending: 3.5; 5.0; 6.0; 9.2; 8.3; 8.3; 8.3; 8.3; 8.3
- Primary balance (deficit = –): 2.0; 5.1; 6.4; -0.8; -0.3; -1.2; -1.3; -1.5; -1.8
- Overall government deficit including grants: -0.4; 2.8; 4.5; -2.6; -2.3; -3.1; -3.2; -3.5; -3.8
- Gross public and publicly guaranteed debt outstanding/GDP: 33.3; 31.2; 24.3; 28.8; 29.8; 31.9; 33.6; 34.5; 35.3
- Net public and publicly guaranteed debt outstanding/GDP: 26.4; 19.4; 24.3; 25.5; 27.9; 29.7; 30.6; 31.4
- Public debt outstanding/GDP: 26.0; 24.4; 18.9; 22.0; 22.6; 24.3; 25.6; 27.1; 28.7

### External sector aggregates (selected, percent of GDP and levels)
- Current account balance including official transfers: 4.7; 13.8; 9.2; 2.0; 0.8; 1.2; 0.9; 0.7; 0.4 (2005–13)
- Current account balance excluding official transfers: -4.2; 2.2; -2.0; -10.4; -11.4; -10.2; -10.3; -10.2; -10.1
- Gross official reserves (US$ millions): 316.0; 512.8; 906.6; 1,394.2; 1,178.2; 1,245.2; 1,276.1; 1,301.0; 1,369.2 (2005–13)
- Months of imports of goods and services: 1.4; 2.1; 3.0; 3.7; 3.6; 3.6; 3.5; 3.4; 3.3 (2005–13)
- External debt/GDP (percent): 25.5; 28.1; 24.3; 28.4; 28.0; 27.9; 27.8; 27.2; 27.6
- Exchange rate (N$/US$, end of period): 6.3; 7.0; 6.8; 9.3 (2005–08 as reported)
- Exchange rate (N$/US$, period average): 6.4; 6.8; 7.1; 8.3 (2005–08 as reported)

### Balance of Payments (selected, US$ millions)
- Current account: 344.4; 1,105.1; 804.0; 168.6; 58.2; 90.5; 63.2; 52.1; 34.5 (2005–13)
- Goods (net): -265.3; 94.8; -172.0; -825.2; -1,108.6; -1,081.0; -1,095.2; -1,089.6; -1,092.9
- Exports, f.o.b.: 2,066.7; 2,652.3; 2,915.3; 3,107.1; 2,376.5; 2,642.0; 2,794.7; 2,949.8; 3,103.3
  - Diamonds: 848.3; 1,083.8; 909.8; 898.0; 525.1; 521.1; 411.2; 321.8; 327.4
  - Other minerals: 275.0; 474.7; 804.6; 1,056.1; 797.9; 980.1; 1,339.1; 1,503.2; 1,584.9
  - Fish: 155.9; 431.0; 445.1; 466.1; 379.5; 419.8; 445.6; 476.4; 505.8
- Imports, f.o.b. (excluding duty): -2,331.9; -2,557.5; -3,087.3; -3,932.3; -3,485.1; -3,723.0; -3,889.9; -4,039.5; -4,196.2
- Services: 43.1; 97.2; 84.9; 28.5; 253.9; 310.9; 286.7; 250.2; 152.6
- Income: -103.1; -37.3; -109.0; -101.5; -74.8; -105.0; -119.0; -126.5; -77.6
- Current transfers: 669.7; 950.3; 1,000.2; 1,066.7; 987.7; 965.7; 990.6; 1,018.1; 1,052.4
  - Of which: SACU receipts: 650.1; 893.9; 957.1; 1,017.1; 938.0; 915.9; 940.9; 968.4; 1,002.7
- Capital and financial account: -451.9; -1,177.6; -856.4; -168.6; -58.2; -90.5; -63.2; -52.1; -34.5
  - Financial account (net): -531.2; -1,262.3; -939.5; -250.9; -141.6; -173.4; -146.1; -135.2; -117.5
  - Direct investment: 360.4; 398.5; 976.4; 654.6; 525.9; 636.3; 652.7; 654.7; 661.1
  - Portfolio investment: -1,043.7; -1,112.4; -1,470.2; -1,017.9; -995.9; -905.9; -1,033.6; -1,189.2; -1,428.4
  - Reserve assets (net): 37.6; -140.5; -444.2; -489.0; 216.0; -67.0; -30.9; -24.9; -68.2
- Memorandum: GDP at market prices (US$ millions): 7,257.8; 7,981.6; 8,711.2; 8,438.2; 8,024.9; 8,387.2; 8,850.0; 9,323.5; 9,882.9 (2005–13)

### Central Government Operations (selected, N$ millions and percent of GDP)
- Revenue and grants (N$ millions): 16,893; 18,363; 20,608; 20,844; 21,710; 23,439; 24,822; 26,931; 29,069; 31,551 (2006/07–2013/14)
- Revenue (N$ millions): 16,843; 18,159; 20,404; 20,703; 21,568; 23,282; 24,652; 26,745; 28,867; 31,330
- Tax revenue (N$ millions): 15,734; 16,910; 19,048; 19,300; 20,070; 21,628; 22,847; 24,780; 26,732; 28,987
  - Personal income tax: 3,374; 2,983; 3,714; 3,728; 4,279; 4,681; 5,111; 5,564; 6,048; 6,633
  - Corporate income tax: 2,161; 2,070; 2,834; 2,674; 2,353; 2,575; 2,811; 3,060; 3,427; 3,759
  - International taxes (includes SACU receipts): 6,698; 8,085; 8,085; 8,502; 8,502; 9,050; 9,115; 9,830; 10,382; 11,055
- Expenditures (N$ millions): 15,315; 18,246; 17,736; 24,902; 23,540; 25,252; 27,458; 29,896; 32,565; 35,799
  - Current expenditure (N$ millions): 12,512; 14,053; 13,933; 17,564; 16,948; 18,758; 20,368; 22,177; 24,176; 26,598
  - Personnel (N$ millions, selected years shown): 6,213; 6,725; 6,827; 7,709; 7,584; 8,297; 9,058; 9,862; 10,719; 11,756
  - Interest payments (N$ millions): 1,263; 1,156; 1,179; 1,189; 1,234; 1,567; 1,599; 1,743; 1,966; 2,239
  - Capital expenditure (N$ millions): 2,169; 2,998; 2,612; 6,242; 5,451; 5,246; 5,727; 6,235; 6,777; 7,433
- Overall balance (N$ millions): 1,578; 117; 2,873; -4,058; -1,830; -1,813; -2,636; -2,965; -3,496; -4,249
- Overall balance excluding extrabudgetary spending (N$ millions): 1,776; 605; 3,228; -1,445; -7; -253; -932; -1,110; -1,480; -2,038
- Primary balance (N$ millions): 2,840; 1,273; 4,051; -2,869; -596; -246; -1,038; -1,222; -1,530; -2,010
- Financing (N$ millions): -1,578; -117; -2,873; 4,058; 1,830; 1,813; 2,636; 2,965; 3,496; 4,249
- Public and publicly guaranteed debt (N$ millions): 17,406; ...; 15,408; 19,692; 20,571; 23,264; 27,157; 31,147; 34,743; 38,996
- GDP at current market prices (N$ millions): 55,874; 63,510; 63,510; 59,516; 71,318; 78,020; 85,184; 92,739; 100,797; 110,552

### Monetary developments (Bank of Namibia and monetary survey, selected; N$ millions, end of period)
- Reserve money (Nov/Dec): 1,238.6; 1,372.6; 1,532.4; 1,647.7; 2,032.8 (2004–08)
  - Currency: 945.8; 1,026.8; 1,151.4; 1,323.7; 1,570.4
  - Reserves: 292.9; 345.7; 381.0; 323.9; 462.4
- Net foreign assets (Bank of Namibia): 1,977.8; 1,983.6; 3,165.1; 6,117.1; 12,727.1
- Net domestic assets (Bank of Namibia): -739.2; -611.0; -1,632.7; -4,469.4; -10,694.2
- Broad money (monetary survey): 15,821.6; 17,370.2; 22,518.1; 24,808.2; 29,715.3
- Private sector credit (end-period levels and growth): private sector (N$ millions) 19,918.7; 23,922.4; 27,452.6; 30,990.2; 32,669.7; annual percent change: 19.4; 20.1; 14.8; 12.9; 5.6 (selected)
- Annual percent change: Reserve money: 13.9; 10.8; 11.6; 7.5; 22.9 (2004–08)

### Millennium Development Goals (selected indicators, years shown)
- Malnutrition prevalence, weight for age (% of children under 5): 21.5 (1990); 20.3 (2000)
- Persistence to grade 5, total (% of cohort): 62.0 (1990); 94.0 (2000); 77.0 (2007)
- Proportion of seats held by women in national parliament (%): 7.0 (1990); 18.0 (1995); 22.0 (2000); 27.0 (2007)
- Immunization, measles (% of children ages 12–23 months): 57.0 (1990); 68.0 (1995); 69.0 (2000); 63.0 (2007)
- Mortality rate, infant (per 1,000 live births): 60.0 (1990); 55.0 (1995); 50.0 (2000); 45.0 (2007)
- Prevalence of HIV, total (% of population ages 15–49): 15.3 (2007, modeled estimate reported)

### Financial sector indicators (selected, percent unless otherwise indicated; 2002–08)
- Regulatory capital to risk-weighted assets: 14.1; 14.8; 15.4; 14.6; 14.2; 15.7; 15.8 (2002–08)
- Nonperforming loans to total gross loans: 3.5; 3.9; 2.4; 2.3; 2.6; 2.8; 3.2 (2002–08)
- Return on assets: 4.5; 3.6; 2.1; 3.5; 1.5; 3.5; 3.2 (2002–08)
- Return on equity: 59.8; 43.2; 24.2; 45.6; 19.9; 44.9; 39.4 (2002–08)
- Assets (N$ billions, banks): 17.8; 20.0; 23.4; 28.2; 33.4; 36.5; 40.4 (2002–08)
- Deposits (N$ billions, banks): 12.7; 14.3; 17.2; 21.5; 26.4; 33.3; 36.4 (2002–08)

### Indicators of external and financial vulnerability (selected, 2002–08)
- Public sector debt of the central government (percent of GDP): 22.1; 26.4; 28.8; 26.0; 24.4; 18.9 (latest observation Mar. 2008)
- Broad money (percent change, 12-month basis): 6.9; 9.6; 16.2; 9.7; 29.6; 10.2; 13.4 (Nov. 2008)
- Private sector credit (percent change, 12-month basis): 20.2; 12.4; 19.4; 20.1; 14.8; 12.9; 5.6 (Nov. 2008)
- Gross official reserves (US$ millions): 336.2; 318.9; 352.7; 316.0; 512.8; 906.6; 1,267 (latest Nov. 2008)
- Total external debt (US$ millions): 151.5; 161.8; 206.0; 1,848.4; 2,245.5; 2,116.5 (latest Dec. 2007)
- Nominal exchange rate (N$/US$, period average): 10.5; 7.6; 6.4; 6.4; 6.8; 7.1; 10.1 (Nov. 2008)
- Real effective exchange rate (percent change, depreciation = –): -8.2; 20.0; 7.0; 0.7; -2.6; -4.3 (2002–07 as reported)
- End-of-period stock market index: 305.0; 347.0; 425.9; 581.7; 852.8; 929.4; 552.4 (2002–08, Dec. 2008 latest)

### Social and demographic indicators (2007 and related)
- Area (thousands of square kilometers): Namibia 824; South Africa 1,219; Sub-Saharan Africa 24,265
- Population (2005): Total (millions): Namibia 2.0; South Africa 46.9; Sub-Saharan Africa 843.0
- Annual rate of growth (percent): Namibia 1.0; South Africa 0.1; Sub-Saharan Africa 2.2
- Urban population (percent of total): Namibia 32; South Africa 59; Sub-Saharan Africa 36
- Life expectancy at birth (2005): Namibia 47; South Africa 48; Sub-Saharan Africa 47
- People living with HIV/AIDS (percent): Namibia 19.6; South Africa 18.8; Sub-Saharan Africa 5.8
- PPP gross national income per capita (2005): Namibia 7,690; South Africa 10,880; Sub-Saharan Africa 1,913

### Informational Annex: Staff findings and assessments (summary)
- Relations with the Fund: Describes Namibia’s membership status, exchange arrangement, and financial and technical assistance from the Fund.
- The JMAP Bank-Fund Matrix: Describes the priorities and main activities of the World Bank Group and the IMF and areas of cooperation in their work with the Namibian authorities.
- Statistical Issues: Assesses the quality of the statistical data. Namibia’s statistical coverage is generally good although some data are not timely.
- Fiscal Debt Sustainability Analysis: Examines the long-run sustainability of Namibia’s public debt and finds that Namibia has a sustainable public debt level, which however remains vulnerable to exogenous shocks.

*Prepared by the African Department. Staff Report for the 2008 Article IV Consultation—Informational Annex. February 12, 2009.*

### 1. Common Indicators Required for Surveillance .....................................................................9

### 1. Common Indicators Required for Surveillance

### Relations with the Fund (As of November 30, 2008)
- Membership Status
  - Joined: 9/25/90; Article: VIII
- General Resources Account (SDR)
  - Quota: 136.50 (million) % of Quota: 100.0
  - Fund holdings of currency: 136.43 (99.95)
  - Reserve position in Fund: 0.08 (0.06)
- SDR Department (SDR)
  - Holdings: 0.02 (N/A)
- Outstanding purchases and loans: None.
- Financial arrangements: None.
- Projected obligations to Fund: None.
- Exchange rate arrangement
  - The Namibia dollar is pegged at par to the South African rand, and both currencies are legal tender in Namibia.
  - Namibia formally accepted the obligations of Article VIII, Sections 2, 3, and 4 of the Fund’s Articles of Agreement, as of September 20, 1996.
  - Maintains an exchange rate system free of restrictions in the making of transfers and payments of current account transactions. The mission will update this assessment.
- Article IV consultations
  - Namibia is on the standard 12-month Article IV consultation cycle; the last Article IV consultation was concluded by the Executive Board on January 18, 2008.
  - Executive Directors commended sound macroeconomic management, robust economic growth, subdued inflation, and large current account surpluses.
  - Directors recommended improved expenditure prioritization within the new medium-term expenditure framework.
  - Directors considered the exchange rate peg appropriate, but stressed limiting policy interest rate differentials with South Africa to avoid destabilizing capital flows or official reserves.
  - Directors stressed further progress on HIV/AIDS, high unemployment, and large income disparities.

### Technical Assistance (selected entries)
- 04/05: 2 weeks, STA, Bank of Namibia, ROSC Mission
- 06/05: 10 days, MFD, Bank of Namibia, Payments Oversight Advisor
- 02/06: 2 weeks, FAD, Ministry of Finance, Modernizing Tax Administration Mission
- 02/06: 2 weeks, FAD, Ministry of Finance, Fiscal Regime for Mining and Processing Mission
- 04/06: 1 week, MFD, Bank of Namibia, Payment Systems Advisor
- 05/06: 3 weeks, STA, Central Bureau of Statistics, National Accounts Advisor (GDDS project)
- 06/06: 2 weeks, STA, Ministry of Finance, GFS (GDDS project) Advisor
- 06/06: 2 weeks, FAD, Ministry of Finance, ROSC Mission
- 10/06: 2 weeks, MFD, Bank of Namibia, Lending Policy, Monetary Operations, Bank Supervision Mission
- 03/07: 2 weeks, MCM, Bank of Namibia, Risk-Based Supervision Advisor
- 04/07: 2 weeks, FAD, Ministry of Finance, Revenue Modeling Mission And Forecasting
- 08/07: 2 weeks, MCM, Bank of Namibia, Payments Systems Advisor
- 10/07: 2 weeks, STA, Bank of Namibia, Monetary and Financial statistics Mission
- 04/08: 2 weeks, STA, Ministry of Finance, GFS Mission
- 04/08: 3 weeks, MCM, Bank of Namibia, Risk-Based Supervision Advisor
- 05/08: 2 weeks, STA, Central Bureau of Statistics, National Accounts Advisor
- 07/08: 2 weeks, STA, Central Bureau of Statistics, National Accounts Advisor (SDDS project)
- 07/08: 2 weeks, STA, Bank of Namibia, Balance of Payments Statistics Mission
- 09/08: 2 weeks, FAD, Ministry of Finance, Public Financial Management Mission
- 11/08: 3 weeks, MCM, Bank of Namibia, Risk-Based Supervision Advisor

### The JMAP Bank-Fund Matrix (selected items)
- World Bank work program (next 12 months) highlights:
  - Nonlending Technical Assistance for multi-sector economic modeling.
  - Support to ETSIP1 (DPL2)
  - Health Sector Note (ESW)
  - eGovernance (TA)
  - GEF—Public Environmental Expenditure Review (ESW Dissemination)
  - Namibia Energy Sector (TA)
  - CEM Dissemination
  - Timing: November-December 2008; May 2009; Q2, FY09 (appr); Q3, FY09; Q2, FY09; Q3, FY09; Q4, FY09; Q4, FY10
- Fund work program (next 12 months)
  - 1. 2008 Article IV consultation and FSSA report
    - Background papers on (i) managing Southern African Customs Union revenues; and (ii) Southern African Development Community’s Macroeconomic Convergence Program: Initial Performance.
  - 2. 2009 Article IV consultation
  - 3. Technical assistance missions: State-owned enterprises and PPP; Program budgeting; Payments systems; Banking supervision; Balance of payments statistics; Government finance statistics; National accounts statistics
  - Timing: November-December 2008; Q4 2009 Board meeting in February 2009; Board meeting in Q1 2010; 2009
- Requests for work program inputs
  - Fund request to Bank: Periodic update on progress on analytical work (Sectoral strategy on education, and follow-up on assessment of the investment climate).
  - Bank request to Fund: Periodic updates on macroeconomic developments and analytical work; Assessment of the impact of global financial crisis on Namibia.
- Joint products in next 12 months
  - Debt Sustainability Analysis — January 2009 (provisional timing)

### Statistical Issues
- General assessment
  - Data provision has some shortcomings, but is broadly adequate for surveillance purposes.
  - Significant lags and revisions of key macroeconomic data hamper staff analysis.
  - Namibia is participating in the SDDS and the monetary and financial statistics modules of the Anglophone Africa project (funded by the U.K. Department for International Development (DFID)).
  - GDDS metadata posted on December 19, 2002; updates: central government debt (November 2003); financial and external sectors (May 2005).
- Real sector statistics
  - CBS released updated national accounts data for 2000-2007, revising previous series for constant and current prices.
  - Revisions reflect an expanded data survey and a rebase of the constant price series from 1995 to 2004 prices.
  - Result: GDP measured in current prices increased by an average of 14 percent for 2000-2007 over previous estimates; growth in real GDP increased by an average of 0.7 percentage points.
  - Further efforts needed: seasonally adjusted QNA estimates and improved source data.
- Consumer price index
  - February 2005: nation-wide CPI introduced, replacing Windhoek-only index. New index available from January 2002.
- Labor market data
  - Data on labor force, employment, and wages are not systematically collected. Last labor market survey: 2004.
- Government finance statistics
  - Annual fiscal data on budgetary central government through 2003 disseminated in the 2007 GFS Yearbook and IFS (cash basis, GFSM 2001 format).
  - African Department receives actual fiscal data (including government debt) several months after fiscal year end. No intra-year budget implementation data provided.
  - Need to strengthen expenditure information systems and provide preliminary cash expenditures of ministries regularly and promptly. Reconciliation of above-the-line fiscal data with financing data should be regular and timely.
- Monetary and financial statistics
  - Monthly monetary statistics for the Bank of Namibia (BoN) and other depository corporations (ODCs) reported regularly; timeliness can improve, particularly for BoN data.
  - Since April 2002, data based on standardized report forms consistent with the Monetary and Financial Statistics Manual.
  - Coverage of the ODC sector expected to include unit trusts beginning September 2008.
  - Consistency in inter-ODC positions and between ODCs and BoN improved substantially.
  - July 2008: STA TA assisted BoN staff in developing base call report form for quarterly balance sheet data from other financial corporations (OFCs).
- External sector statistics
  - Since 2001, BoN reports balance of payments quarterly with a lag of one quarter; data subject to substantial revisions.
  - Methodology consistent with the fifth edition of the IMF’s Balance of Payments Manual and well documented.
  - International investment position (IIP) compiled quarterly with a lag of one quarter.
  - Further work needed to expand IIP coverage and restate IIP in a format comparable with balance of payments statistics.

### Table 1. Common Indicators Required for Surveillance (As of February 3, 2009) — selected entries
- Exchange rates
  - Date of Latest Observation: Dec. 2008
  - Date Received: Jan. 2009
  - Frequency of Data: M
  - Frequency of Reporting: M
  - Frequency of Publication: M
- International reserve assets and reserve liabilities of the monetary authorities
  - Date of Latest Observation: Dec. 2008
  - Date Received: Jan. 2009
  - Frequency of Data: M
  - Frequency of Reporting: M
  - Frequency of Publication: M
- Reserve/Base money
  - Date of Latest Observation: Nov. 2008
  - Date Received: Dec. 2008
  - Frequency of Data: M
  - Frequency of Reporting: M
  - Frequency of Publication: M
  - Data Quality—Methodological Soundness: O, O, LO, LO
  - Data Quality—Accuracy and Reliability: O, LO, O, O, O
- Broad money
  - Date of Latest Observation: Nov. 2008
  - Date Received: Dec. 2008
  - Frequency: M (data/reporting/publication)
- Central bank balance sheet
  - Date of Latest Observation: Nov. 2008
  - Date Received: Dec. 2008
  - Frequency: M (data/reporting/publication)
- Consolidated balance sheet of the banking system
  - Date of Latest Observation: Nov. 2008
  - Date Received: Dec. 2008
  - Frequency: M (data/reporting/publication)
- Interest rates
  - Date of Latest Observation: Dec. 2008
  - Date Received: Dec. 2008
  - Frequency: M (data/reporting/publication)
- Consumer price index
  - Date of Latest Observation: Dec. 2008
  - Date Received: Jan. 2009
  - Frequency: M (data/reporting/publication)
  - Data Quality indicators: O, LNO, LO, O; LO, LNO, O, O, NA
- Revenue, expenditure, balance and composition of financing — central government
  - Date of Latest Observation: Mar. 2007
  - Date Received: May. 2008
  - Frequency of Data: I, NA (Comp. of Financing)
  - Frequency of Reporting: I, NA (Comp. of Financing)
  - Frequency of Publication: I, NA (Comp. of Financing)
- Stocks of central government and central government—guaranteed debt
  - Date of Latest Observation: Mar. 2007
  - Date Received: May. 2008
  - Frequency: M, I (Gov.-Guar. Debt)
- External current account balance
  - Date of Latest Observation: Q2 2008
  - Date Received: Oct. 2008
  - Frequency: Q (data/reporting/publication)
  - Data Quality indicators: O, O, O, LO; LO, LO, LO, LNO, NO
- Exports and imports of goods and services
  - Date of Latest Observation: Q2 2008
  - Date Received: Oct. 2008
  - Frequency: Q (data/reporting/publication)
- GDP/GNP
  - Date of Latest Observation: 2007
  - Date Received: Oct. 2008
  - Frequency: A (data/reporting/publication)
  - Data Quality indicators: O, O, O, LO; LNO, LO, LO, LO, O
- Gross external debt
  - Date of Latest Observation: 2007
  - Date Received: Oct. 2008
  - Frequency: A (data/reporting/publication)
- International investment position
  - Date of Latest Observation: 2007
  - Date Received: Oct. 2008
  - Frequency: A (data/reporting/publication)

### Fiscal Debt Sustainability Analysis
- Public debt levels and composition (end-2008)
  - Public debt: about N$14.1 billion (20.2 percent of GDP).
  - About one third of the debt is owed to bilateral and multilateral foreign creditors; the rest is domestic debt.
  - Since 2004, domestic debt declined from around 28 percent of GDP due to strong fiscal consolidation and prudent fiscal policies.
  - Privatization receipt of 1.3 percent of GDP in 2006 (sale of a telecommunications firm) contributed to the decline.
- Baseline projections (medium term)
  - Debt-to-GDP ratio projected to rise steadily, reaching 28.1 percent in 2013, driven largely by rising external debt.
  - Baseline macro assumptions: central government primary budget balance moves from a substantial surplus in 2007 to a deficit in 2008 and remains in deficit throughout the projection period.
  - Revenue and grants decline by about 2 percentage points of GDP, mainly due to declining SACU revenue.
  - Primary expenditure increases by around 4 percentage point of GDP owing to a large increase in foreign financed project expenditure in 2008.
  - Expenditure remains at around 31 percent of GDP in the projection period due mainly to continuous future commitments to foreign financed projects.
  - Public debt to revenue ratio: was 63 percent in 2007, gradually increases to around 97.3 percent by the end of the projection period.
- Alternative scenarios (Table 1 summary)
  - Scenario 1: Historical 10-year averages for real GDP growth, real interest rates, and the primary balance held constant.
    - Result: Public debt ratio declines by about 3.3 percentage point of GDP by 2013 (instead of remaining around 20 percent).
    - Explanation: More benign historical levels of key variables and a prudent fiscal stance that delivered primary surpluses.
  - Scenario 2: Government policies in 2008 remain unchanged (primary deficit remains at 1.6 percent of GDP for projection period).
    - Result: Public debt rises to 28.8 percent of GDP by the end of the forecast period.
  - Overall: Relative to the 2007 Debt Sustainability Analysis, debt indicators have worsened.
- Bounds tests and vulnerability analysis (Figure 1 summary)
  - Different standard deviation shocks to key indicators project debt-to-GDP increases between 4 to 8 percentage points of GDP depending on the shock.
  - Most benign shock: real interest rate shock could still result in up to a 4 percentage point increase in the debt-to-GDP ratio.
  - A 10 percent of GDP increase in public and publicly guaranteed debt in 2009 results in more than a 10 percentage point increase in the debt-to-GDP ratio.
  - Inclusion of a country-specific shock of around 2 percentage point of GDP annual decline in SACU revenue starting from 2009 further worsens the debt-to-GDP ratio.

*Source: IMF staff report extract (as provided in the supplied content).*

### 5.      A further analysis of the extent to which Namibia is overborrowing confirms that

### 5.      A further analysis of the extent to which Namibia is overborrowing confirms that

### Assessment of overborrowing and default risk
- Namibia is assessed to be at low risk of default.
- Overborrowing definition used: ratio of actual public debt to the benchmark level of debt (calculated as the present discounted value of expected future primary surpluses) greater than 1.
- Analysis based on a benchmark model of constant primary balance using 10 year historical average.
- The comparison of public debt to GDP ratio in the baseline and benchmark models indicates an overborrowing range of around 0.1 in 2013 to 0.6 percent in 2013, much less than the 2½ times median value found for emerging market economies that are at risk of default.

### Debt dynamics, scenarios, and risks
- Authorities’ fiscal policy anchor: maintain a public debt ratio of 25 percent of GDP.
- Achievement factors: positive shocks to SACU revenue and strong diamond production performance contributed to past debt reduction.
- Identified risks that could raise debt ratios above the 25 percent target:
  - Declining SACU revenue.
  - Higher contingent liabilities from publicly guaranteed debts.
  - Government plans to increase infrastructure spending consistent with National Development Plan 3, especially via foreign-financed debt.
  - Additional negative shocks from declining mining production.
- Policy responses advised:
  - Improve tax administration.
  - Reduce expenditures to moderate the impact from declining SACU and mineral revenue.
  - Include publicly guaranteed debt in the public debt target to focus policy on growth of publicly guaranteed debt.
- Warning: Without these efforts, the public debt ratio could rise substantially.

### Key projected and historical public debt and fiscal figures (selected)
- Baseline: Public sector debt (percent of GDP)
  - 2003: 25.8
  - 2004: 28.1
  - 2005: 27.2
  - 2006: 24.7
  - 2007: 20.2
  - 2008: 20.2
  - 2009: 22.2
  - 2010: 23.9
  - 2011: 25.3
  - 2012: 26.8
  - 2013: 28.5
- Of which: foreign-currency denominated (percent of GDP)
  - 2003: 4.0
  - 2004: 4.5
  - 2005: 4.1
  - 2006: 4.6
  - 2007: 4.9
  - 2008: 6.3
  - 2009: 8.3
  - 2010: 10.0
  - 2011: 11.4
  - 2012: 12.5
  - 2013: 13.5
- Change in public sector debt (percent of GDP)
  - 2003: 3.8
  - 2004: 2.2
  - 2005: -0.9
  - 2006: -2.4
  - 2007: -4.6
  - 2008: 0.0
  - 2009: 2.0
  - 2010: 1.7
  - 2011: 1.4
  - 2012: 1.5
  - 2013: 1.7
- Primary deficit (percent of GDP)
  - 2003: 3.6
  - 2004: 1.5
  - 2005: -1.4
  - 2006: -4.4
  - 2007: -6.1
  - 2008: 1.6
  - 2009: 1.2
  - 2010: 1.0
  - 2011: 1.3
  - 2012: 1.5
  - 2013: 1.8
- Revenue and grants (percent of GDP)
  - 2003: 26.6
  - 2004: 25.7
  - 2005: 27.4
  - 2006: 29.5
  - 2007: 32.0
  - 2008: 29.8
  - 2009: 29.9
  - 2010: 29.4
  - 2011: 29.1
  - 2012: 28.9
  - 2013: 28.8
- Primary (noninterest) expenditure (percent of GDP)
  - 2003: 30.3
  - 2004: 27.2
  - 2005: 26.0
  - 2006: 25.1
  - 2007: 25.9
  - 2008: 31.5
  - 2009: 31.1
  - 2010: 30.4
  - 2011: 30.4
  - 2012: 30.4
  - 2013: 30.6
- Public sector debt-to-revenue ratio (percent)
  - 2003: 97.1
  - 2004: 109.0
  - 2005: 99.1
  - 2006: 83.8
  - 2007: 63.0
  - 2008: 67.8
  - 2009: 74.2
  - 2010: 81.4
  - 2011: 87.1
  - 2012: 92.7
  - 2013: 99.0
- Gross financing need (percent of GDP)
  - 2003: 17.4
  - 2004: 18.1
  - 2005: 16.6
  - 2006: 9.0
  - 2007: 6.2
  - 2008: 10.4
  - 2009: 10.3
  - 2010: 12.1
  - 2011: 12.8
  - 2012: 12.4
  - 2013: 13.2
- Gross financing need in billions of U.S. dollars
  - 2003: 0.9
  - 2004: 1.2
  - 2005: 1.2
  - 2006: 0.7
  - 2007: 0.5
  - 2008: 0.9
  - 2009: 0.8
  - 2010: 1.0
  - 2011: 1.1
  - 2012: 1.2
  - 2013: 1.3

### Key macroeconomic and fiscal assumptions underlying baseline (selected)
- Real GDP growth (in percent)
  - 2003: 4.3
  - 2004: 12.3
  - 2005: 2.5
  - 2006: 7.2
  - 2007: 4.1
  - 2008: 2.9
  - 2009: 1.0
  - 2010: 2.8
  - 2011: 3.5
  - 2012: 3.7
  - 2013: 4.0
- Average nominal interest rate on public debt (in percent)
  - 2003: 10.9
  - 2004: 10.0
  - 2005: 9.4
  - 2006: 9.9
  - 2007: 9.0
  - 2008: 9.6
  - 2009: 10.5
  - 2010: 9.4
  - 2011: 8.6
  - 2012: 8.3
  - 2013: 8.2
- Average real interest rate (nominal rate minus change in GDP deflator, in percent)
  - 2003: 9.9
  - 2004: 8.1
  - 2005: 3.8
  - 2006: 0.7
  - 2007: -0.4
  - 2008: -0.6
  - 2009: 2.1
  - 2010: 3.1
  - 2011: 3.3
  - 2012: 3.5
  - 2013: 3.5
- Inflation rate (GDP deflator, in percent)
  - 2003: 1.0
  - 2004: 1.9
  - 2005: 5.6
  - 2006: 9.2
  - 2007: 9.3
  - 2008: 10.2
  - 2009: 8.4
  - 2010: 6.3
  - 2011: 5.3
  - 2012: 4.8
  - 2013: 4.7
- Growth of real primary spending (deflated by GDP deflator, in percent)
  - 2003: 6.7
  - 2004: 0.8
  - 2005: -2.0
  - 2006: 3.6
  - 2007: 7.4
  - 2008: 24.9
  - 2009: -0.3
  - 2010: 0.6
  - 2011: 3.5
  - 2012: 3.8
  - 2013: 4.6

### Stress and bound tests (highlights)
- Scenario with no policy change (constant primary balance) in 2008–13 projects public debt path:
  - 2008: 20.2
  - 2009: 22.4
  - 2010: 24.8
  - 2011: 26.6
  - 2012: 28.3
  - 2013: 29.9
  - Debt-stabilizing primary balance: 5.3 (percent)
- Selected bound test outcomes (public debt in percent of GDP under shocks)
  - B6. 10 percent of GDP increase in contingent liabilities in 2009:
    - 2008: 20.2
    - 2009: 32.2
    - 2010: 34.1
    - 2011: 35.6
    - 2012: 37.2
    - 2013: 38.9
    - Debt-stabilizing primary balance: 5.3
  - B7. Annual 2 percent of GDP decline in SACU from 2009:
    - 2008: 20.2
    - 2009: 24.2
    - 2010: 27.9
    - 2011: 31.4
    - 2012: 35.0
    - 2013: 36.7
    - Debt-stabilizing primary balance: 5.3

### Executive Board assessment and policy advice (summary)
- Commended authorities’ sound macroeconomic management contributing to solid growth and strong external and fiscal positions.
- Noted the global downturn worsens near-term outlook, with mining sector downside risks.
- Recommended:
  - Continued pursuit of sound macroeconomic policies.
  - Determined implementation of structural reforms to accelerate non-mineral growth, reduce unemployment and poverty.
  - Caution on sizable planned fiscal expansion; stress on safeguarding spending quality and considering less expansionary stance to protect fiscal sustainability.
  - Broaden public debt target definition to include publicly guaranteed debt and central government deposits.
  - Strengthen public financial management and revenue administration.
  - Maintain sufficient international reserves and monitor capital flows given the exchange rate peg to the South African rand.
  - Remain vigilant on banking sector risks as the downturn advances.

*Source: Excerpt from the provided IMF content unit.*

### 4.         The Namibian authorities remain committed to prudent fiscal policy. In 2007/08 fiscal

### 4.         The Namibian authorities remain committed to prudent fiscal policy. In 2007/08 fiscal year, the fiscal outturn, including extrabudgetary capital expenditure, registered a surplus of

### Fiscal policy and public debt
- Fiscal outturn 2007/08:
  - Surplus of 4.5 percent of GDP, much larger than budgeted.
  - Drivers: stricter enforcement of tax regime, aggressive collection of tax arrears from corporations and self-employed individuals, strong commodity prices boosting mineral export taxes, strong SACU receipts, and lower than budgeted capital expenditure.
- Fiscal stance 2008/09:
  - Targets a deficit of around 5.0 percent of GDP, mostly reflecting large increases in capital expenditures (power supply, rural development, and roads and rail networks).
  - Despite the swing to a deficit, public debt expected to remain below the authorities’ target of 25 percent.
- Revenue policy and risk management:
  - Authorities committed to enlarging fiscal space through strengthening revenue collection.
  - Aware of emerging risks and volatility of SACU, mining, and other receipts and factor these risks into spending decisions.
  - Moving toward a broad-based and effective domestic tax system.

### Monetary and exchange rate policy
- Exchange rate arrangement and monetary anchor:
  - Exchange rate peg to the rand viewed as an appropriate monetary policy anchor.
  - Member of the Common Monetary Area (CMA) with limited scope for independent monetary policy.
  - Capital controls (domestic asset requirements) within the CMA could allow limited independent monetary policy.
- Recent monetary decisions:
  - Bank of Namibia recently opted not to follow the South African Reserve Bank’s interest rate hikes, considering further tightening unnecessary given moderating inflation and a slowing economy.
  - Introduced a seven-day repo facility to help manage liquidity and provide an alternative instrument to commercial banks to meet statutory asset requirements.
- Reserves and exchange rate movements:
  - Foreign exchange reserves increased to about 4.5 months of imports cover in December 2008, compared to 3.2 months of cover for the same period in the previous year.
  - Namibia dollar depreciated by 26 percent against the U.S dollar during 2008, in line with the South African rand.

### Financial sector resilience and regulation
- Impact of global financial crisis:
  - Little direct impact on the Namibian financial sector, which benefited from continued prudent supervisory and regulatory framework.
- Banking sector soundness:
  - Commercial banks are sound, profitable, and well capitalized; balance sheets have little direct overseas exposure.
  - Authorities mindful of high concentration of banks’ loan portfolios in real estate and consumer lending as a manageable but monitorable risk if the economy continues to slow.
- Non-bank supervision and legislative reform:
  - New law to strengthen regulatory framework of non-bank financial institutions under Namibia Financial Institutions Supervisory Authorities (NAMFISA) is under consideration and expected to be approved in the second half of 2009.
  - Law will consolidate regulation of nonbank financial institutions and give more supervisory authority to NAMFISA.
- Domestic asset requirements and pension/life insurance:
  - Modest revision of domestic asset requirements for pension funds and life insurance companies intended to channel high domestic savings to support domestic economic growth.
  - Revision entails reducing 35 percent of domestic qualifying assets for dual-listed companies gradually over a five-year period.
  - Tightening of domestic investment requirements for dual-listed companies expected to encourage more domestic investment.
  - Reforms to be implemented in phases over a five-year period to allow development of market-based instruments and monitoring for necessary adjustments.

### Poverty reduction and structural reforms
- National development planning:
  - Third National Development Plan (NDP3) launched in 2008 aims at achieving sustainable economic growth and reducing widespread poverty.
  - Focus on improving living standards of the poorest and most vulnerable, and strengthening the social safety net to alleviate poverty and inequality.
  - Emphasis on fostering competitiveness, enhancing productivity, promoting growth, and creating employment.
- Public financial management and revenue administration reforms:
  - Commitment to implementing program-based budgeting to improve accountability and prioritize government expenditure.
  - Substantial progress in reforming public financial management.
  - Measures to strengthen revenue administration include introduction of comprehensive auditing of VAT refunds and plans to extend the current mineral tax to all minerals.
  - Planned reform of state-owned enterprises to improve operational efficiency and financial management, including tightening criteria on publicly guaranteed debt, expected to reduce dependency on budgetary support and debt guarantees.

### Conclusion and policy stance
- Authorities committed to prudent macroeconomic policies and consider a countercyclical fiscal stimulus during the period of economic slowdown to be warranted.
- They judge the temporary fiscal expansion would not pose risk to medium and long-term fiscal sustainability.
- Authorities continue to monitor the global economic and financial crisis and stand ready to take appropriate actions to mitigate negative impacts.
- Continued reliance on IMF technical assistance and policy advice as part of their policy toolkit.

*Source: IMF staff report excerpt.*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2009/_cr09136.pdf_