## _cr10269 - Executive Summary

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### Executive Summary: Key Findings
- Global crisis reversed years of strong economic performance and deteriorated fiscal and external positions.
- Robust growth underpinned by a strong mining sector gave way to a contraction in output as external demand for minerals fell.
- Government revenue–to–GDP ratio declined while expenditures increased to address the impact of the global crisis, producing a fiscal deficit in 2009 after three consecutive years of fiscal surpluses.
- Despite deterioration of the external position, international reserves remained high partly thanks to the allocation of SDRs.
- Growth is expected to recover gradually as the global economy strengthens and private investment in mining firms up; downside risks remain.
- Stimulus measures in 2009/10 and the expansionary stance in the 2010/11 budget contributed to a deterioration in the fiscal outlook.
- Fiscal deficits over 8 percent of GDP are projected for 2010/11 and 2011/12, leading to rapid public debt accumulation.
- Authorities committed to fiscal consolidation aiming to reduce the fiscal deficit to 2.6 percent of GDP by 2014, considering measures to strengthen non-SACU revenue and reduce total expenditures to pre-crisis levels while reorienting spending to quality capital projects and critical social programs.
- Staff recommended earlier withdrawal of stimulus measures and a more ambitious fiscal consolidation than the authorities’ baseline; recommended fiscal rules anchored on the debt-to-GDP ratio complemented by a target on the non-SACU fiscal balance.
- Financial sector weathered the global financial crisis relatively well: commercial banks profitable and effectively supervised by the Bank of Namibia; weaknesses remain in supervision of nonbank financial institutions (NBFIs) with steps under way to strengthen NAMFISA.
- Emphasis on increasing growth potential by reducing the high cost of doing business and improving the environment for private sector-led growth.

### I. Background and Recent Developments
- Pre-crisis performance and indicators:
  - 2004–08 growth averaged 6.3 percent; other SACU countries averaged 3.8 percent over same period.
  - Inflation rose from 4.1 percent in 2004 to 10 percent in 2008.
  - Budget surpluses averaged 3.2 percent of GDP annually during 2006–08.
  - Public debt reduced to 17.8 percent of GDP by end-2008/09.
  - External current account surpluses averaged 8.6 percent of GDP during 2006–08.
  - International reserves rose slightly to US$1.4 billion at end-2008 (3.8 months of imports).
- Crisis impact and 2009–2010 outcomes:
  - Real GDP estimated −0.8 percent in 2009, from 4.3 percent growth in 2008; diamond production halved in 2009.
  - Twelve-month inflation: 5 percent in April 2010, down from 10 percent a year earlier.
  - Fiscal balance shifted to a deficit of 2.8 percent of GDP in 2009/10 from a surplus of 2 percent in 2008/09; government revenue fell by 2.3 percentage points of GDP.
  - External current account estimated deficit of 1.8 percent of GDP in 2009, down from a 2.7 percent surplus in 2008.
  - Gross international reserves: US$1.4 billion (3.4 months of imports) in 2009, aided by SDR allocations (SDR 130.4 million / US$203.4 million at end-August 2009 exchange rate).

### III. Short-Term Macroeconomic Policy Responses
- Fiscal policy actions:
  - 2009/10 budget: tax relief for non-mining companies and households (1 percentage point of GDP), expenditure increases (0.9 percentage points of GDP), and civil service wage increases (0.9 percentage points of GDP).
  - 2010/11 budget maintained expansionary stance implying non-SACU fiscal deficit of 14.8 percent of GDP, up from 13.3 percent in 2009/10, and an increase in public debt-to-GDP ratio to 19.6 percent from 14.9 percent.
- Monetary policy and credit:
  - Bank of Namibia cut policy rate by 300 basis points to 7 percent in June 2009.
  - Growth of credit to the private sector subdued at 10 percent in 2009.
- Use of IMF SDR allocation:
  - Namibia received SDR 130.4 million (US$203.4 million at end-August 2009 exchange rate), which was saved.

### IV. Outlook, Risks, and Downside Scenarios
- Outlook:
  - Near term: benefits from stimulus and gradual recovery in external demand, particularly diamond.
  - Medium term: real GDP growth predicated on private investment recovery in mining; uranium expected to be a key driver with commissioning of at least three new mines.
- Downside risks:
  - Weakening global recovery or another dip impacting commodity prices and the mineral sector.
  - Delays in financial market thaw may reduce FDI inflows and hinder private investment recovery.
  - Customs and mineral-related taxes (just under half of total revenue) sensitive to South African growth and external mineral demand.
  - Further SACU revenue risks from possible revision of revenue-sharing formula or expansion of SACU.
  - Failure to carry through fiscal consolidation could jeopardize internal and external sustainability.
  - Recent events in Europe heighten the risk of a double-dip recession.
- Unwinding fiscal stimulus and projected paths:
  - SACU revenue anticipated to drop from 10.5 percent of GDP in 2009/10 to 2.8 percent in 2011/12.
  - Overall fiscal deficit projected to widen from 2.8 percent of GDP in 2009/10 to an average of 8.4 percent in 2010/11–2011/12 despite expected expenditure reduction in 2011/12.
  - Public debt nearly doubles by 2013/14 to 29.1 percent of GDP; inclusion of publicly-guaranteed debt pushes debt-to-GDP over 30 percent by 2012/13.

### Fiscal Frameworks, Baseline and Alternative Scenarios
- Authorities’ MTEF targets and measures:
  - MTEF (2010/11–2012/13) envisages a sharp reduction in expenditure in 2011/12–2012/13 amounting to 4.9 percentage points of GDP; target government expenditure at 28 percent of GDP by 2012/13.
  - Revenue-strengthening measures under consideration: improve VAT compliance and tax audits; expand mineral tax to all minerals; introduce an environmental levy; requested IMF technical assistance for tax policy review.
  - Public financial management reforms: move to program budgeting; four pilot line ministries; full program budgeting by 2011/12.
- Authorities’ fiscal rules for MTEF:
  - (i) public debt-to-GDP ratio of 25–30 percent annually;
  - (ii) average budget deficit of 5 percent of GDP;
  - (iii) public expenditure levels below 30 percent of GDP;
  - (iv) interest payments capped at 10 percent of government revenue;
  - (v) contingent liabilities below 10 percent of GDP annually.
- Staff Alternative Fiscal Scenario (timing and measures):
  - Start overall budget deficit reduction a year earlier in 2011/12 versus baseline.
  - Reduce spending to 27.4 percent of GDP by 2014/15.
  - Reduce non-wage, non-interest current expenditure to 9.8 percent of GDP by trimming non-priority spending and accelerating SOE reforms.
  - Contain wage bill within budgeted levels; increase non-SACU revenue mobilization; continue VAT refund audits; expand mineral tax; streamline tax exemptions; create large taxpayer unit.
- Projections under Baseline (Est./Proj., percent of GDP, selected):
  - Revenue and grants: 28.8 (2009/10), 24.6 (2010/11), 20.6 (2011/12), 23.1 (2012/13), 25.2 (2013/14)
  - SACU receipts: 10.5 (2009/10), 6.5 (2010/11), 2.8 (2011/12), 5.2 (2012/13), 7.3 (2013/14)
  - Expenditures and net lending: 31.6 (2009/10), 32.9 (2010/11), 29.1 (2011/12), 28.0 (2012/13), 28.6 (2013/14)
  - Overall balance: -2.8 (2009/10), -8.3 (2010/11), -8.5 (2011/12), -4.9 (2012/13), -3.4 (2013/14)
  - Non-SACU fiscal balance: -13.3 (2009/10), -14.8 (2010/11), -11.3 (2011/12), -10.1 (2012/13), -10.8 (2013/14)
  - Public debt: 14.9 (2009/10), 19.6 (2010/11), 26.1 (2011/12), 28.2 (2012/13), 29.1 (2013/14)
  - Note: Namibia to repay excess SACU transfers for FY 2008/09 and 2009/10 representing 5.6 percent of GDP (N$ 5.2 billion).
- Projections under Staff Alternative Scenario (percent of GDP, selected):
  - Revenue and grants: 28.8 (2009/10), 24.8 (2010/11), 21.1 (2011/12), 23.8 (2012/13), 25.9 (2013/14), 26.8 (2014/15)
  - Expenditures and net lending: 31.6 (2009/10), 32.9 (2010/11), 28.9 (2011/12), 27.6 (2012/13), 27.6 (2013/14), 27.4 (2014/15)
  - Overall fiscal balance: -2.8 (2009/10), -8.1 (2010/11), -7.8 (2011/12), -3.8 (2012/13), -1.7 (2013/14), -0.6 (2014/15)
  - Non-SACU fiscal balance: -13.3 (2009/10), -14.6 (2010/11), -10.6 (2011/12), -9.0 (2012/13), -9.1 (2013/14), -8.8 (2014/15)
  - Public debt: 14.9 (2009/10), 19.4 (2010/11), 25.2 (2011/12), 26.3 (2012/13), 25.7 (2013/14), 24.2 (2014/15)
  - Staff outcome: brings fiscal deficit near balance and public and publicly-guaranteed debt to 27.2 percent of GDP by 2014/15 in staff analysis.

### Fiscal Risks, Sensitivities, and Debt Sustainability
- Main sources of fiscal risks:
  - Shortfalls in SACU revenue.
  - Economic growth shocks.
  - Contingent liabilities and forecasting errors.
- Bounds-test and sensitivity findings:
  - Different shocks could raise debt-to-GDP by between 5 to 10 percentage points depending on shock.
  - One-time real depreciation of 30 percent could raise debt-to-GDP by 2 percentage points.
  - Negative growth shock could increase debt-to-GDP by 9 percent of GDP relative to baseline.
  - Increase in contingent liabilities could increase debt-to-GDP by 10 percent of GDP relative to baseline.
- Public Debt Sustainability Analysis (baseline projections and scenarios):
  - End-2009 public debt ~ N$12.9 billion (15.7 percent of GDP).
  - Baseline: debt-to-GDP ratio rises to 29.1 percent in 2015 under expansionary stance and SACU revenue drop.
  - Scenario 1 (historical 10-year averages): debt-to-GDP falls to 9.9 percent by 2015.
  - Scenario 2 (no fiscal consolidation): debt ratio could reach 45.3 percent by end of forecast period.

### External Stability and Competitiveness
- Exchange rate and REER assessments:
  - Peg to South African rand considered best option; peg enhances trade and resulted in relatively low inflation.
  - Staff REER estimates: broadly in line with fundamentals under baseline; 10 percent real appreciation in 2009 owing to strengthening rand.
  - Macroeconomic balance approach: implied overvaluation of 5.9 percent (current account norm surplus 2.3 percent vs projected deficit 1.9 percent in 2014).
  - External stability approach: overvaluation of 4.7 percent (current account norm surplus 1.3 percent in 2014).
  - Equilibrium REER approach: overvaluation 1.6 percent.
  - Elasticity of the current account with respect to the REER: 0.7.
- External account projections:
  - Fiscal consolidation envisaged would help bring down external current account deficit to 1.9 percent by 2014, with a peak deficit of 5.7 percent in 2011.
- Business environment constraints:
  - Labor skill shortages, work permit delays, high transport costs, energy shortages, complicated registration/licensing.
  - Recommendation: reduce cost of doing business and improve environment for private sector-led growth.

### Monetary and Financial Sector Stability and NBFI Supervision
- Monetary stance:
  - As a Common Monetary Area member, BoN tracks SARB; BoN maintained repo rate at 7 percent in April and June 2010 while SARB cut to 6.5 percent in March 2010.
  - Staff sees scope for reducing domestic interest rates by aligning policy rate with South Africa’s.
- Financial sector soundness:
  - Commercial banks conservative, well provisioned, profitable, little direct overseas exposure; sizeable contraction in lending to private sector noted.
- Supervision of NBFIs and regulatory measures:
  - Authorities strengthening NAMFISA; requested IMF TA; Financial Institutions and Markets Bill approved by Cabinet to be tabled in Parliament by end-2010.
  - Domestic investment requirement (phased over five years) mandates minimum 1.75 percent of total assets in unlisted Namibian companies and caps dual-listed companies at 10 percent of local assets.
  - Staff recommends close monitoring of impacts on pension funds and insurance companies to mitigate risk-taking and safeguard long-term viability.
  - Priority: speed approval of Financial Institutions and Markets Bill and strengthen NAMFISA as independent body.

### Social, Structural, and Development Priorities
- Need to diversify from mining and spur broad-based growth to reduce vulnerability to commodity shocks.
- Prioritize NDP3 implementation and MTEF expenditure allocation:
  - NDP3 period: 2007/08–2011/12.
  - MTEF (2010/11–2012/13) will devote about 45 percent of government expenditures per annum to priority sectors such as education, health and agriculture, and improve social safety net.
- Structural reforms to unlock growth:
  - Tap mining potential while expanding agriculture, manufacturing and services (tourism).
  - Reduce cost of doing business, improve access to credit, attract FDI, and address infrastructure bottlenecks.
  - Authorities committed to investing in infrastructure: roads, port facilities, power grid extension.

### Key Quantitative Indicators (selected exact figures preserved)
- Growth and output:
  - 2004–08 growth averaged 6.3 percent; other SACU countries 3.8 percent.
  - Real GDP growth: 4.3 percent in 2008; estimated −0.8 percent in 2009.
  - Output gap estimated at 2.5 percent of GDP (negative) in 2010; eliminating gap would require growth rate of 5.9 percent in 2010.
- Inflation:
  - 4.1 percent in 2004; 10 percent in 2008; 5 percent in April 2010.
- Fiscal aggregates (selected):
  - Budget surpluses averaged 3.2 percent of GDP during 2006–08.
  - Public debt: 17.8 percent of GDP by end-2008/09.
  - Fiscal balance: surplus of 2 percent in 2008/09; deficit of 2.8 percent of GDP in 2009/10.
  - Non-SACU fiscal deficit: 13.3 percent of GDP in 2009/10; 14.8 percent of GDP in 2010/11 (authorities’ stance).
  - Projected target fiscal deficit: 2.6 percent of GDP by 2014 (authorities’ commitment).
  - Public debt-to-GDP ratio projected increase to 19.6 percent in 2010/11 from 14.9 percent.
- External sector:
  - External current account surpluses averaged 8.6 percent of GDP during 2006–08; estimated deficit of 1.8 percent of GDP in 2009.
  - Gross international reserves: US$1.4 billion at end-2008 (3.8 months of imports); US$1.4 billion (3.4 months of imports) in 2009.
- IMF and Fund relations:
  - Membership joined 9/25/90; quota 136.50 SDR (million).
  - Net cumulative SDR allocation: 130.39 SDR (million); SDR holdings: 130.41 SDR (million).
  - Exchange rate arrangement: Namibia dollar pegged at par to the South African rand; both currencies legal tender in Namibia.
- Selected macro time series (2007–2014 / fiscal series 2007/08–2014/15 preserved in source tables; examples):
  - GDP at constant 2004 prices (annual percent change): 5.4, 4.3, -0.8, 4.4, 4.8, 4.7, 4.2, 4.2.
  - Consumer price index (period average): 6.7, 10.0, 9.1, 6.5, 5.9, 5.6, 5.4, 5.2.
  - Gross official reserves (US$ millions, end of period): 906.6; 1,394.7; 1,405.3; 1,527.7; 1,323.7; 1,236.2; 1,393.8; 1,677.9.
  - Public debt (percent of GDP, fiscal series): 18.3, 17.8, 14.9, 19.6, 26.1, 28.2, 29.1, 29.3.
  - Central government revenue and grants (percent of GDP): 31.8, 31.1, 28.8, 24.6, 20.6, 23.1, 25.2, 26.1 (2007/08–2014/15).
  - Central government overall balance (percent of GDP): 4.8, 2.0, -2.8, -8.3, -8.5, -4.9, -3.4, -2.6.
  - Key fiscal nominal lines (N$ millions): Revenue and grants: 20,672; 23,429; 23,541; 22,509; 20,914; 26,193; 31,289; 35,381. Expenditures: 17,541; 21,898; 25,823; 30,100; 29,609; 31,742; 35,528; 38,972.
  - Financial soundness indicators: Regulatory capital to risk-weighted assets: 14.8; 15.4; 14.6; 14.2; 15.7; 15.5; 15.0. Nonperforming loans to total gross loans: 3.9; 2.4; 2.3; 2.6; 2.8; 3.1; 2.7.
- Public Debt Sustainability key baseline trajectory (Table 1 excerpts, percent of GDP):
  - Public sector debt: 2009: 15.7; 2010: 18.5; 2011: 24.7; 2012: 27.6; 2013: 29.0; 2014: 29.3; 2015: 29.1.
  - Change in public sector debt (percent of GDP): 2010: 2.8; 2011: 6.1; 2012: 2.9; 2013: 1.3; 2014: 0.4; 2015: -0.2.
  - Primary deficit (percent of GDP): 2010: 5.6; 2011: 6.8; 2012: 3.6; 2013: 1.3; 2014: 0.2; 2015: -0.5.

### Policy Recommendations and Priorities (concise)
- Implement fiscal consolidation earlier and more ambitiously than authorities’ baseline; start deficit reduction from 2011/12.
- Adopt fiscal rules anchored on the debt-to-GDP ratio with a target on the non-SACU fiscal balance to insulate fiscal policy from volatile SACU revenues.
- Strengthen public financial management and improve the budget process (program budgeting, chart of accounts, better disclosure and management of fiscal risks).
- Reorient spending toward quality capital projects and critical social programs while reducing total expenditures toward pre-crisis levels.
- Step up measures to mobilize non-SACU revenue: improve VAT compliance and tax audits; expand mineral tax; streamline tax exemptions; create a large taxpayer unit.
- Contain the wage bill and accelerate SOE reforms; implement SOEs Governance Act and establish PPP legal/institutional framework.
- Strengthen supervision of NBFIs via NAMFISA, speed approval of the Financial Institutions and Markets Bill, and monitor domestic investment requirements for pension funds and insurance companies.
- Reduce the high cost of doing business and improve the environment for private sector-led growth (infrastructure, transport, energy, work permits, business registration).

*Executive Summary and selected annex material, IMF staff report for the 2010 Article IV Consultation (IMF staff country report _cr10269).*

### Executive Summary ......................................................................................................

### _cr10269 - Executive Summary

### Executive Summary: Key Findings
- The global crisis reversed years of strong economic performance and deteriorated the fiscal and external positions.
- Robust growth underpinned by a strong mining sector gave way to a contraction in output as external demand for minerals fell.
- Government revenue–to–GDP ratio declined, while expenditure levels were increased to address the impact of global crisis, resulting in a fiscal deficit in 2009 after three consecutive years of fiscal surpluses.
- Despite a deterioration of the external position, the level of international reserves remained high partly thanks to the allocation of SDRs that helped mitigate the impact of the decline in export earnings.
- Growth is expected to recover gradually over the medium term as the global economy strengthens and private investment in the mining sector firms up, but downside risks remain.
- Stimulus measures in 2009/10 and the expansionary stance in the 2010/11 budget contributed to a deterioration in the fiscal outlook.
- Fiscal deficits over 8 percent of GDP are projected for 2010/11 and 2011/12, leading to a rapid accumulation of public debt.
- Authorities committed to fiscal consolidation aiming to reduce the fiscal deficit to 2.6 percent of GDP by 2014, considering measures to strengthen non-SACU revenue and reduce total expenditures to pre-crisis levels while reorienting spending to quality capital projects and critical social programs.
- Staff recommended an earlier withdrawal of stimulus measures and a more ambitious fiscal consolidation than envisaged in the authorities’ baseline. Staff also recommended streamlining fiscal rules with the debt-to-GDP ratio as a key anchor complemented by a target on the non-SACU fiscal balance.
- The financial sector weathered the global financial crisis relatively well: commercial banks are profitable and benefit from effective supervision by the Bank of Namibia; weaknesses remain in supervision of nonbank financial institutions, with steps under way to strengthen the Namibia Financial Institutions Supervisory Authority.
- Emphasis on increasing growth potential by reducing the high cost of doing business and improving the environment for private sector-led growth.

### I. Background: Entering the Global Crisis from Relative Strength
- 2004–08 growth averaged 6.3 percent, supported by sound macroeconomic policies and robust mining sector output; this compares with a 3.8 percent average growth for the other SACU countries over the same period.
- Inflation rose from 4.1 percent in 2004 to 10 percent in 2008, driven by fuel and food prices.
- Poverty remained pervasive despite strong growth (see Box 1: Social Indicators).
- Fiscal and external positions strengthened in 2006–08:
  - Budget surpluses averaged 3.2 percent of GDP annually.
  - Public debt reduced to 17.8 percent of GDP by end-2008/09.
  - External current account surpluses averaged 8.6 percent of GDP annually during 2006–08.
  - International reserves rose slightly to US$1.4 billion at end-2008 (3.8 months of imports).
- Revenue improvements driven by improved tax administration, increased mineral export taxes, and high SACU transfers.

### II. Recent Economic Developments: Enduring the Global Crisis
- Real GDP is estimated to have decreased by 0.8 percent in 2009, from 4.3 percent growth in 2008, driven by a sharp decline in mineral production.
- Diamond production halved in 2009; the copper company suspended operations in late 2008.
- Twelve-month inflation rate: 5 percent in April 2010, down from 10 percent a year earlier.
- Fiscal position shifted into a deficit in 2009/10:
  - Government revenue fell by 2.3 percentage points of GDP.
  - Fiscal balance shifted to a deficit of 2.8 percent of GDP in 2009/10 from a surplus of 2 percent in 2008/09.
- External current account deteriorated:
  - Current account estimated deficit of 1.8 percent of GDP in 2009, down from a 2.7 percent surplus in 2008.
  - Gross international reserves remained at US$1.4 billion (3.4 months of imports), aided by SDR allocations.

### III. Short-Term Macroeconomic Policies: Responding to the Crisis
- Fiscal policy:
  - 2009/10 budget combined tax relief for non mining companies and households (1 percentage point of GDP), expenditure increases including infrastructure and social programs (0.9 percentage points of GDP), and civil service wage increases (0.9 percentage points of GDP).
  - Authorities maintained an expansionary fiscal stance in the 2010/11 budget, implying a non-SACU fiscal deficit of 14.8 percent of GDP, up from 13.3 percent of GDP in 2009/10, and an increase in the public debt-to-GDP ratio to 19.6 percent, up from 14.9 percent.
- Monetary policy:
  - Bank of Namibia cut its policy rate by 300 basis points to 7 percent in June 2009, in line with the SARB.
  - Growth of credit to the private sector remained subdued at 10 percent in 2009.
- Use of IMF SDR allocation:
  - Namibia received SDR 130.4 million (US$203.4 million at end-August 2009 exchange rate), which was saved.

### IV. Policy Discussions
- Main focus: how and when to exit the expansionary fiscal stance to preserve medium-term fiscal sustainability amid a significant drop in SACU revenue, while managing risks and maintaining external and financial stability.

A. Outlook and Risks
- Near-term and medium-term growth outlooks positive:
  - Near term: benefits from stimulus and gradual recovery in external demand, particularly diamond.
  - Medium term: real GDP growth predicated on a strong recovery in private investment in the mining sector; uranium expected to be a key driver with commissioning of at least three new mines in the medium term.
  - Improved outlook for world demand for uranium expected to sustain FDI inflows and positively impact the balance of payments.
  - Diamond exports expected to rebound, though not to pre-2008 levels.

B. (Policy areas highlighted elsewhere in the document)
- Staff emphasized:
  - Need for earlier withdrawal of stimulus measures.
  - Need for more ambitious fiscal consolidation than the authorities’ baseline.
  - Recommendation to adopt fiscal rules anchored on the debt-to-GDP ratio and complemented by a target on the non-SACU fiscal balance to isolate fiscal policy from volatile SACU revenues.

### Selected Quantitative Indicators Highlighted
- Growth averages and rates:
  - 2004–08 growth averaged 6.3 percent.
  - Other SACU countries average growth over same period: 3.8 percent.
  - Real GDP growth: 4.3 percent in 2008; estimated −0.8 percent in 2009.
  - Output gap estimated at 2.5 percent of GDP (negative) in 2010 (Box 2); eliminating the gap would require a growth rate of 5.9 percent in 2010.
- Inflation:
  - 4.1 percent in 2004; 10 percent in 2008; 5 percent in April 2010.
- Fiscal balances and public debt:
  - Budget surpluses averaged 3.2 percent of GDP during 2006–08.
  - Public debt: 17.8 percent of GDP by end-2008/09.
  - Fiscal balance: surplus of 2 percent in 2008/09; deficit of 2.8 percent of GDP in 2009/10.
  - Non-SACU fiscal deficit: 13.3 percent of GDP in 2009/10; 14.8 percent of GDP in 2010/11 (authorities’ stance).
  - Projected target fiscal deficit: 2.6 percent of GDP by 2014 (authorities’ commitment).
  - Public debt-to-GDP ratio projected increase to 19.6 percent in 2010/11 from 14.9 percent.
- External sector:
  - External current account: surpluses averaging 8.6 percent of GDP during 2006–08; estimated deficit of 1.8 percent of GDP in 2009.
  - Gross international reserves: US$1.4 billion at end-2008 (3.8 months of imports); US$1.4 billion (3.4 months of imports) in 2009.
- IMF SDR allocation to Namibia: SDR 130.4 million (US$203.4 million at end-August 2009 exchange rate).

### Policy Recommendations and Priorities
- Implement fiscal consolidation earlier and more ambitiously than the authorities’ baseline to provide space to respond to adverse shocks.
- Adopt fiscal rules with the debt-to-GDP ratio as a key anchor plus a target on the non-SACU fiscal balance to insulate fiscal policy from SACU revenue volatility.
- Strengthen public financial management and improve the budget process.
- Reorient spending toward quality capital projects and critical social programs while reducing total expenditures toward pre-crisis levels.
- Strengthen supervision of nonbank financial institutions via the Namibia Financial Institutions Supervisory Authority.
- Increase growth potential by reducing the high cost of doing business and improving the environment for private sector-led growth.

*Executive Summary, IMF staff country report _cr10269 - Executive Summary*

### 8.      However, downside risks remain. The authorities recognized that a weakening of

### _cr10269 - 8.      However, downside risks remain. The authorities recognized that a weakening of

### Downside risks
- A weakening of the global economic recovery or another dip could dampen activity within the mineral sector by impacting commodity prices and thus the overall economy.
- Delays in thawing financial markets may adversely affect FDI inflows and hinder the recovery in private investment.
- Customs and mineral-related taxes, accounting for just under half of total revenue, will continue to be affected by growth prospects in South Africa and external demand for mineral exports.
- Further downside risks to SACU revenue:
  - Possibility of a revision to the revenue sharing formula.
  - Possible expansion of SACU to include additional countries (noting new members with larger economies may also bring more resources to the revenue pool).
- Failure to carry through the fiscal consolidation plan could put internal and external sustainability at risk.
- Recent events in Europe have heightened the risks of a double-dip recession.

### Unwinding fiscal stimulus and fiscal outlook
- Authorities recognize the countercyclical stance contributed to a deteriorated fiscal outlook.
- SACU revenue anticipated to drop from 10.5 percent of GDP in 2009/10 to only 2.8 percent in 2011/12.
- Fiscal deficit path (estimates/projections):
  - Overall fiscal deficit will widen from 2.8 percent of GDP in 2009/10 to 8.4 percent on average in 2010/11–2011/12, despite an expected significant reduction in government expenditure in 2011/12.
- Financing expectations:
  - Authorities believe ample liquidity in the domestic banking system and high demand for government securities would help finance emerging deficits.
- Public debt trajectory:
  - Public debt nearly doubles by 2013/14 to 29.1 percent of GDP.
  - Inclusion of publicly-guaranteed debt will push the debt-to-GDP ratio to over 30 percent by 2012/13.

### Authorities' planned fiscal measures
- MTEF (2010/11–2012/13) envisages:
  - Sharp reduction in expenditure in 2011/12–2012/13 amounting to 4.9 percentage points of GDP.
  - Target to bring government expenditure to 28 percent of GDP by 2012/13.
- Revenue-strengthening measures under consideration:
  - Improve VAT compliance and tax audits.
  - Expand the mineral tax to all minerals.
  - Introduce an environmental levy.
  - Requested IMF technical assistance to conduct a broad review of tax policy.
- Public financial management reforms:
  - Move to program budgeting; new chart of accounts being finalized.
  - Four pilot line ministries identified; all ministries expected to complete program budgeting by 2011/12.
  - Recognized fragmentation in responsibilities for compilation of current and capital budgets; legislative hurdles noted.

### Staff recommendations and fiscal rules
- Staff emphasized:
  - Need for deficit reduction starting from 2011/12 and for a more ambitious fiscal consolidation over the medium term.
  - Reorient stimulus spending toward capital projects and improve quality of public expenditures.
  - Streamline overlapping fiscal rules; debt-to-GDP ratio should be the key anchor for fiscal policy.
  - Setting a target on non-SACU fiscal balance to help isolate fiscal policy from volatile SACU revenues.
- Authorities adopted fiscal rules for MTEF (2010/11–2012/13):
  - (i) public debt-to-GDP ratio of 25–30 percent annually;
  - (ii) average budget deficit of 5 percent of GDP;
  - (iii) public expenditure levels below 30 percent of GDP;
  - (iv) interest payments capped at 10 percent of government revenue;
  - (v) contingent liabilities below 10 percent of GDP annually.

### Key fiscal figures (Est./Proj., percent of GDP)
- Namibia : Main Fiscal Indicators, 2009/10–2013/14 (Est./Proj.)
  - Revenue and grants: 28.8 (2009/10), 24.6 (2010/11), 20.6 (2011/12), 23.1 (2012/13), 25.2 (2013/14)
  - Of which SACU receipts: 10.5 (2009/10), 6.5 (2010/11), 2.8 (2011/12), 5.2 (2012/13), 7.3 (2013/14)
  - Expenditures and net lending: 31.6 (2009/10), 32.9 (2010/11), 29.1 (2011/12), 28.0 (2012/13), 28.6 (2013/14)
  - Overall balance: -2.8 (2009/10), -8.3 (2010/11), -8.5 (2011/12), -4.9 (2012/13), -3.4 (2013/14)
  - Non-SACU fiscal balance: -13.3 (2009/10), -14.8 (2010/11), -11.3 (2011/12), -10.1 (2012/13), -10.8 (2013/14)
  - Public debt: 14.9 (2009/10), 19.6 (2010/11), 26.1 (2011/12), 28.2 (2012/13), 29.1 (2013/14)
  - Publicly-guaranteed debt: 3.3 (2009/10), 3.5 (2010/11), 3.6 (2011/12), 3.8 (2012/13), 4.0 (2013/14)
- Note: Namibia is to repay excess SACU transfers for FY 2008/09 and 2009/10 representing 5.6 percent of GDP (N$ 5.2 billion).

### Alternative Fiscal Scenario (Box 3) — staff proposal
- Objective: More ambitious fiscal consolidation through 2014/15 centered on expenditure reforms and revenue enhancement.
- Timing:
  - Start overall budget deficit reduction a year earlier in 2011/12 compared to baseline.
- Expenditure path:
  - Reduce spending to 27.4 percent of GDP by 2014/15.
  - Reduce non-wage, non-interest current expenditure to their average level of the past five years (9.8 percent of GDP) by trimming non-priority spending and accelerating SOE reforms.
  - Contain the wage bill within budgeted levels (MTEF assumes projected wage bill increases of 3 and 7 percent in 2011/12 and 2012/13, respectively).
- Revenue measures:
  - Increased non-SACU revenue mobilization.
  - Continue comprehensive auditing of VAT refunds.
  - Expand mineral tax to all minerals.
  - Streamline tax exemptions and implement an integrated tax system.
  - Create a large taxpayer unit.
- Projections under Alternative Scenario (percent of GDP):
  - Revenue and grants: 28.8 (2009/10), 24.8 (2010/11), 21.1 (2011/12), 23.8 (2012/13), 25.9 (2013/14), 26.8 (2014/15)
  - Expenditures and net lending: 31.6 (2009/10), 32.9 (2010/11), 28.9 (2011/12), 27.6 (2012/13), 27.6 (2013/14), 27.4 (2014/15)
  - Overall fiscal balance: -2.8 (2009/10), -8.1 (2010/11), -7.8 (2011/12), -3.8 (2012/13), -1.7 (2013/14), -0.6 (2014/15)
  - Non-SACU fiscal balance: -13.3 (2009/10), -14.6 (2010/11), -10.6 (2011/12), -9.0 (2012/13), -9.1 (2013/14), -8.8 (2014/15)
  - Public debt: 14.9 (2009/10), 19.4 (2010/11), 25.2 (2011/12), 26.3 (2012/13), 25.7 (2013/14), 24.2 (2014/15)
  - Publicly-guaranteed debt: 3.3 (2009/10), 3.5 (2010/11), 3.4 (2011/12), 3.2 (2012/13), 3.0 (2013/14), 3.0 (2014/15)
- Staff outcome: Alternative scenario would bring fiscal deficit near balance and public and publicly-guaranteed debt to 27.2 percent of GDP by 2014/15 in staff analysis, providing room to respond to adverse shocks.

### Fiscal risks and mitigation (Box 4)
- Definition: Fiscal risk = possibility of deviations of fiscal outcomes (expenditures, revenues, assets, liabilities) versus budget expectations.
- Main assessed sources of fiscal risks for Namibia:
  - Shortfalls in SACU revenue.
  - Economic growth shocks.
  - Contingent liabilities and forecasting errors (large unexplained residual after accounting for key macro drivers).
- Recommended mitigation:
  - Adopt fiscal rules based on a sustainable non-SACU fiscal balance.
  - Strengthen budget framework and processes.
  - Base budgets on reasonable growth assumptions and consider alternative scenarios.
  - Improve disclosure of fiscal risks, especially contingent liabilities, to promote contingency responses.
- Authorities' actions:
  - Budget documents submitted to parliament already identify fiscal risks; further disclosure improvements suggested.
  - Steps taken to subject SOEs to performance agreements and move away from blanket subsidies.
  - Authorities requested TA from the Commonwealth and IMF to refine budget process and disclosure/management of fiscal risks.

### Preserving external stability and competitiveness
- Exchange rate regime:
  - Authorities consider the peg to the South African rand the best option for Namibia given historic and economic linkages.
  - Peg enhances trade and has resulted in relatively low rates of inflation.
- REER assessment (baseline scenario and Box 5):
  - Staff estimates indicate Namibia’s REER is broadly in line with fundamentals under the baseline scenario.
  - Despite a 10 percent real appreciation in 2009 owing to a strengthening rand, REER assessment suggests a negligible overvaluation provided authorities' baseline fiscal consolidation occurs.
  - Macroeconomic balance approach: current account norm stands at a surplus of 2.3 percent of GDP compared to projected current account deficit of 1.9 percent in 2014 when real output is close to potential, implying an overvaluation of 5.9 percent.
  - External stability approach: overvaluation of 4.7 percent, with current account norm estimated at a surplus of 1.3 percent of GDP in 2014.
  - Equilibrium REER approach: overvaluation estimated at 1.6 percent based on model with trade openness, investment rate, broad money and relative productivity.
  - Elasticity of the current account with respect to the REER is 0.7.
- External account projections:
  - Envisaged fiscal consolidation would contribute to bringing down the external current account deficit to 1.9 percent by 2014, which will peak at 5.7 percent in 2011.
- Business environment challenges undermining FDI and competitiveness:
  - Labor skill shortages.
  - Delays in processing work permits.
  - High cost of transport and energy shortages.
  - Complicated business registration and licensing procedures.
  - Recommendation: Reduce cost of doing business and create an enabling environment for private sector-led growth.

### Monetary and financial stability
- As member of the Common Monetary Area, BoN monetary policy tracks SARB closely.
- Policy rate actions:
  - BoN maintained repo rate at 7 percent in April and June 2010.
  - SARB cut its rate by 50 basis points to 6.5 percent in March 2010.
  - BoN rationale: effects of previous interest cuts not fully passed through given lags in monetary transmission.
- Financial sector resilience:
  - Commercial banks (mostly South African subsidiaries) have been conservative, well provisioned and profitable with little direct overseas exposure and prudent supervision by BoN.
  - Noted sizeable contraction in lending to the private sector, which could limit private sector development.
- External and reserves indicators (figures indicated in text/figures):
  - Commodity prices recovered while Namibian dollar strengthened.
  - Falling SACU transfers contributed to a slowdown in exports, while imports rose.
  - Current account shifted into a deficit; reserves remain broadly adequate.
  - REER has appreciated in line with South Africa's.

*Source: _cr10269 - 8.      However, downside risks remain. The authorities recognized that a weakening of (PDF chapter/section).*

### 20.      The authorities have taken measures to address vulnerability stemming from

### _cr10269 - 20.      The authorities have taken measures to address vulnerability stemming from

### Supervision of nonbank financial institutions (NBFIs)
- Authorities have taken measures to address vulnerability stemming from weaknesses in the supervision of the rapidly growing nonbank financial institutions (NBFIs).
- Measures undertaken:
  - Efforts to improve supervision through the strengthening of the Namibia Financial Institutions Supervisory Authority (NAMFISA).
  - Authorities are looking to enhance human capacity within NAMFISA and have formally requested IMF TA in the area of supervision.
  - The Financial Institutions and Markets Bill has been approved by Cabinet and is set to be tabled in Parliament by the end of 2010. Passage of this bill will help to further strengthen NAMFISA in carrying out its obligations.
- Capacity constraints remain.
- Note: The NBFIs comprise mainly pension funds, insurance companies, unit trusts, stock brokers, asset managers, and micro-lenders.

### Domestic investment requirements for insurance companies and pension funds
- Amendment adopted in 2009, envisaged to be phased-in over a five-year period.
- Key provisions:
  - Limits dual-listed companies to a maximum of 10 percent of local assets.
  - Requires a minimum of 1.75 percent of total assets to be invested in unlisted Namibian companies.
- Potential effects and authorities’ views:
  - Given the limited size of the domestic market, the repatriation requirement could encourage risk taking by these institutions and may force them to forgo higher yield investments abroad, thus lowering their profitability.
  - Authorities stressed commitment to safeguarding long-term financial viability of the pension funds and insurance companies, and indicated that the domestic investment requirement has stemmed capital outflows and contributed to the development of local capital markets.
- Staff recommendation:
  - Short of reversing it or reducing its rate, it is of paramount importance to monitor closely the impact on pension funds with a view to mitigating risk taking by institutional investors and safeguard their long-term financial viability.

### Promoting broad-based growth and poverty reduction
- Context and need:
  - The recent global downturn highlighted the need for a comprehensive strategy to spur broad based growth in Namibia.
  - Heavy reliance on the mining sector makes the country highly vulnerable to commodity price shocks; the economic contraction after a decade of uninterrupted growth increases the need for diversification.
- Policy directions to unlock growth:
  - Tap potential of mining sector while unlocking growth potential in agriculture, manufacturing and services, particularly tourism.
  - Reduce the cost of doing business, improve access to credit, and attract FDI.
  - Implement structural reforms to improve the business climate and address infrastructure bottlenecks.
- Authorities’ commitments:
  - Reducing the cost of doing business by investing heavily in infrastructure, roads, port facilities, and power grid extension.

### Prioritization of National Development Plan 3 (NDP3) and budgetary priorities
- NDP3 period: 2007/08–2011/12.
- Need for renewed efforts and prioritization in execution due to setbacks from the global downturn.
- MTEF period: 2010/11–2012/13.
  - The MTEF will devote about 45 percent of government expenditures per annum over the next three years to priority sectors such as education, health and agriculture, while improving the social safety net to alleviate poverty and inequality.
- Constraints to steady growth:
  - Low productivity and limited implementation of structural reforms need to be overcome.

### Staff appraisal, risks, and policy recommendations
- Economic outlook and risks:
  - The economic recovery is well underway, supported by timely macroeconomic stimulus.
  - Outlook is subject to downside risks stemming from uncertain global economic recovery; if external demand for commodities weakens or thawing of financial markets is delayed, the recovery could lose steam.
- Fiscal stance and recommendations:
  - Countercyclical measures were instrumental in cushioning the impact of the global downturn but have deteriorated the fiscal outlook.
  - An expansionary fiscal stance in 2010/11 appears appropriate given slack in economic activity and global uncertainty, but attention should be paid to the quality of spending and reorienting spending toward quality capital projects while protecting critical social programs.
  - A more ambitious fiscal consolidation than envisaged in the current MTEF is key to ensuring internal and external sustainability.
    - Fiscal consolidation should start from 2011/12 by targeting a reduction in the overall budget deficit.
    - Given the projected sharp drop in SACU revenue and rapid debt accumulation in the medium term, authorities need to step up efforts at reducing public spending and mobilizing non-SACU revenue to reduce projected fiscal deficits and public debt to sustainable levels.
    - Priority measures: containing the wage bill, accelerating reforms of SOEs, and improving non-SACU revenue mobilization.
  - Fiscal risks need close monitoring; complementing measures with reforms such as strengthening the budget process, bringing into effect the SOEs Governance Act, and establishing the institutional and legal framework for PPPs.
- Monetary policy and exchange rate:
  - The exchange rate peg to the rand continues to be the main anchor of monetary policy.
  - Despite the peg to the South African rand, the BoN monetary policy stance has started since April 2010 to deviate from the interest rate policy of SARB.
  - Staff believes there is scope for reducing domestic interest rates by bringing the policy rate in line with South Africa’s.
- Financial stability recommendations:
  - Upgrading supervision of NBFIs and addressing concerns about the tightening of the regulation on domestic investment requirements for pension funds and insurance companies are critical.
  - Speeding up approval of the Financial Institutions and Markets Bill, and strengthening NAMFISA as an independent body would address weaknesses in prudential regulations and supervision of the NBFIs.
  - Monitor closely the impact of domestic investment requirements on pension funds to mitigate risk taking and safeguard long-term financial viability.

*Sources: Namibian authorities, IMF and IMF staff estimates.*

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

### _cr10269 - 30.      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.

### Macroeconomic performance and projections (selected indicators)
- GDP at constant 2004 prices (annual percent change): 5.4, 4.3, -0.8, 4.4, 4.8, 4.7, 4.2, 4.2 (2007–2014 series as presented).
- GDP deflator (annual percent change): 9.0, 14.3, 8.0, 7.5, 5.8, 7.3, 5.1, 4.9.
- GDP at current market prices (N$ millions): 62,081; 74,017; 79,262; 88,975; 98,726; 110,870; 121,418; 132,675.
- GDP per capita (US$): 4,339; 4,344; 4,512; 5,454; 5,559; 5,850; 6,021; 6,213.
- Consumer price index (period average): 6.7, 10.0, 9.1, 6.5, 5.9, 5.6, 5.4, 5.2.
- Consumer price index (end of period): 7.1, 10.9, 7.0, 6.1, 5.7, 5.5, 5.2, 5.2.

### External sector and external balances
- Exports (US$ percent change): 9.9, 8.7, -1.0, 25.9, 6.8, 2.7, 2.7, 2.6.
- Imports (US$ percent change): 20.7, 24.8, 10.8, 15.0, 5.9, 3.4, 3.4, 3.4.
- Export volume (annual percent change): -2.8, 8.1, 21.3, 6.5, 5.8, 4.7, 3.8, 3.7.
- Import volume (annual percent change): 9.9, 11.9, 27.7, 7.4, 5.3, 2.8, 2.6, 2.6.
- Terms of trade (annual percent change): 2.9, -9.8, -5.9, 10.4, 0.4, -2.5, -1.8, -1.9.
- Real effective exchange rate (period average): -4.3, -7.9, 9.9 (series incomplete thereafter).
- Current account balance (including official transfers, US$ millions): 80.4; 240.9; -166.7; -257.4; -665.1; -590.8; -401.0; -256.9.
- Current account/GDP (including transfers): 9.1, 2.7, -1.8, -2.2, -5.7, -4.7, -3.1, -1.9.
- Current account/GDP (excluding transfers): -2.0, -9.7, -14.9, -10.8, -10.7, -10.8, -11.2, -11.2.
- Gross official reserves (US$ millions, end of period): 906.6; 1,394.7; 1,405.3; 1,527.7; 1,323.7; 1,236.2; 1,393.8; 1,677.9.
- Months of imports of goods and services: 3.0; 3.8; 3.4; 3.3; 2.7; 2.5; 2.7; 3.1.
- External debt/GDP (percent): 25.7; 22.3; 24.1; 20.9; 21.8; 21.2; 20.9; 20.7.
- External debt (US$ millions, from IIP): 2,260.8; 2,001.9; 2,261.9; 2,395.6; 2,562.4; 2,642.5; 2,710.6; 2,788.1.
- Exports, f.o.b. (US$ millions): 2,915.3; 3,169.7; 3,139.0; 3,950.7; 4,221.3; 4,334.3; 4,451.8; 4,568.1.
  - Diamonds (US$ millions): 909.8; 770.6; 265.7; 409.5; 509.6; 499.9; 494.6; 489.1.
  - Other minerals (US$ millions): 804.6; 939.6; 714.8; 1,002.2; 1,052.4; 1,316.2; 1,328.2; 1,326.7.
  - Fish (US$ millions): 445.1; 367.0; 257.4; 313.3; 328.9; 337.2; 348.6; 360.3.
- Imports, f.o.b. (excluding duty, US$ millions): -3,087.3; -3,852.4; -4,268.0; -4,906.9; -5,196.3; -5,373.4; -5,553.7; -5,744.7.

### Fiscal developments (central government, baseline scenario)
- Revenue and grants (percent of GDP): 31.8, 31.1, 28.8, 24.6, 20.6, 23.1, 25.2, 26.1 (2007/08–2014/15).
- Of which: SACU receipts (percent of GDP): 12.4, 11.3, 10.5, 6.5, 2.8, 5.2, 7.3, 8.2.
- Expenditure and net lending (percent of GDP): 27.0, 29.1, 31.6, 32.9, 29.1, 28.0, 28.6, 28.7.
- Personnel expenditure (percent of GDP): 10.5, 10.0, 10.9, 11.7, 10.8, 10.4, 10.4, 10.4.
- Capital expenditure and net lending (percent of GDP): 5.7, 6.7, 7.5, 8.4, 6.1, 5.2, 5.2, 5.2.
- Primary balance (deficit = –, percent of GDP): 6.6, 3.5, -1.2, -6.9, -6.7, -2.6, -0.9, 0.0.
- Overall government deficit including grants (percent of GDP): 4.8, 2.0, -2.8, -8.3, -8.5, -4.9, -3.4, -2.6.
- Public debt/GDP (percent): 18.3, 17.8, 14.9, 19.6, 26.1, 28.2, 29.1, 29.3.
- Gross public and publicly-guaranteed debt/GDP (percent): 23.6, 21.8, 18.2, 23.1, 29.7, 32.0, 33.2, 33.6.
- Net public and publicly-guaranteed debt/GDP (percent): 15.2, 11.3, 12.5, (series incomplete), 31.2, 31.6 (later years shown).

### Central government operations (nominal N$ millions, selected lines)
- Revenue and grants (N$ millions): 20,672; 23,429; 23,541; 22,509; 20,914; 26,193; 31,289; 35,381.
- Tax revenue (N$ millions): 19,027; 21,087; 21,594; 20,232; 18,999; 24,191; 29,098; 32,989.
  - Personal income tax (N$ millions): 3,714; 4,606; 4,818; 5,334; 5,902; 6,580; 7,201; 7,862.
  - Corporate income tax (N$ millions): 2,834; 3,269; 2,763; 3,062; 3,701; 4,389; 4,804; 5,245.
  - International taxes (includes SACU receipts, N$ millions): 8,085; 8,502; 8,585; 5,975; 2,828; 5,939; 9,121; 11,179.
- Expenditures (N$ millions): 17,541; 21,898; 25,823; 30,100; 29,609; 31,742; 35,528; 38,972.
  - Current expenditure (N$ millions): 13,812; 16,854; 19,679; 22,451; 23,419; 25,887; 29,119; 31,976.
  - Personnel (N$ millions): 6,805; 7,559; 8,920; 10,694; 11,004; 11,761; 12,873; 14,054.
  - Interest payments (N$ millions): 1,179; 1,111; 1,285; 1,292; 1,829; 2,546; 3,134; 3,605.
  - Capital expenditure (N$ millions): 2,530; 3,925; 5,702; 7,138; 5,933; 5,609; 6,139; 6,702.
- Overall balance (N$ millions): 3,131; 1,531; -2,283; -7,590; -8,694; -5,549; -4,239; -3,591.
- Primary balance (N$ millions): 4,310; 2,642; -997; -6,298; -6,866; -3,003; -1,105; 15.
- Public and publicly-guaranteed debt (N$ millions): 15,338; 16,417; 14,873; 21,109; 30,229; 36,317; 41,204; 45,525.
- Government deposits (N$ millions): 5,476; 7,917; 4,633; 2,657; 2,324; 1,976; 1,976; 1,976.
- Net public and publicly-guaranteed debt (N$ millions): 9,863; 8,500; 10,240; 18,452; 27,905; 34,341; 39,227; 43,548.

### Monetary and financial sector developments
- Broad money (annual percent change): 10.2; 17.9; 5.9; 14.2; 11.7; 12.3; 9.5; 9.3.
- Credit to the private sector (annual percent change): 12.9; 7.3; 10.0; 13.1; 13.5; 13.6; 13.0; 12.6.
- Bank of Namibia reserve money (N$ millions): 1,372.6; 1,532.4; 1,647.7; 2,124.9; 2,556.4; 2,637.5; 2,979.6 (series across 2005–2011).
- Broad money (N$ millions, end of period): 17,370.2; 22,518.1; 24,808.2; 29,240.8; 30,968.2; 35,364.5; 39,490.6.
- Private sector credit levels and growth: Private sector credit (N$ millions): 23,922.4; 27,452.6; 30,990.2; 33,259.7; 36,577.6; 41,352.0; 46,917.4; annual percent change series provided above.

### Financial sector soundness and vulnerability indicators
- Capital to assets: 8.3; 8.8; 7.8; 7.5; 7.9; 8.0; 7.9 (2003–2009).
- Regulatory capital to risk-weighted assets: 14.8; 15.4; 14.6; 14.2; 15.7; 15.5; 15.0.
- Nonperforming loans to total gross loans: 3.9; 2.4; 2.3; 2.6; 2.8; 3.1; 2.7.
- Assets (N$ billions, banks): 20.0; 23.4; 28.2; 33.4; 36.5; 41.6; 47.7.
- Deposits (N$ billions, banks): 14.3; 17.2; 21.5; 26.4; 28.9; 32.7; 39.8.

### Social and development indicators
- Millennium Development Goals highlights (selected):
  - Malnutrition prevalence, weight for age (% of children under 5): 21.5; ...; 20.3; 17.5.
  - Primary completion rate, total (% of relevant age group): ...; 71.0; 92.0; 81.0 (series across years).
  - Immunization, measles (% of children ages 12–23 months): 76.0; 68.0; 69.0; 73.0.
  - Mortality rate, infant (per 1,000 live births): 49.0; 48.0; 51.0; 31.0.
  - Prevalence of HIV, total (% of population ages 15–49): ...; 15.3.
  - Mobile phone subscribers (per 100 people): 0.0; 0.0; 0.0; 4.0; 49.0 (series across years).
- Social and demographic snapshot (2007):
  - Area (thousands of square kilometers): 824.
  - Population (2005) total (millions): 2.0; annual rate of growth (percent): 1.0.
  - Urban population (percent of total): 32.
  - Life expectancy at birth: 47.
  - People living with HIV/AIDS (percent): 19.6.
  - PPP gross national income per capita (2005): 7,690.

### Public debt sustainability and staff findings (summary points from annex)
- Public Debt Sustainability Analysis: Finds that Namibia has a sustainable public debt level, which however remains vulnerable to exogenous shocks and contingent liabilities.
- Statistical issues: Statistical coverage is generally good although some data are not timely.
- Relations with the Fund: Namibia’s membership status, exchange arrangement, and financial and technical assistance from the Fund are described; Namibia has no outstanding purchases and loans from the Fund.
- JMAP Bank-Fund Matrix: Describes priorities and main activities of the World Bank Group and the IMF and areas of cooperation with Namibian authorities.

*Source: Staff Report for the 2010 Article IV Consultation—Informational Annex (Prepared by the African Department, July 7, 2010).*

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

### 1. Common Indicators Required for Surveillance

### Relations with the Fund — Key Institutional and Program Information
- Membership: Joined 9/25/90; Article VIII.
- Quota: 136.50 SDR (million) — 100.0 percent.
- Fund holdings of currency: 136.43 SDR (million) — 99.95 percent.
- Reserve position in Fund: 0.08 SDR (million) — 0.06 percent.
- Net cumulative SDR allocation: 130.39 SDR (million) — 100.00 percent.
- SDR holdings: 130.41 SDR (million) — 100.01 percent.
- Outstanding purchases and loans: None.
- Financial arrangements: None.
- Projected payments to Fund (SDR Million; based on existing use of resources and present holdings of SDRs): Principal 0.00 0.00 0.00 0.00 0.00; Charges/Interest 0.00 0.00 0.00 0.00 0.00; Total 0.00 0.00 0.00 0.00 0.00.
- Exchange rate arrangement: Namibia dollar pegged at par to the South African rand; both currencies legal tender in Namibia. Namibia accepted obligations of Article VIII Sections 2(a), 3, and 4 as of September 20, 1996.
- Article IV consultation cycle: Standard 12-month; last consultation concluded February 27, 2009 (IMF Country Report No. 09/136).

### Technical Assistance (2006–10) — Departments, Purposes, and Recipients (selected)
- FAD: Modernizing Tax Administration (February 2006, MoF); Fiscal Regime for Mining and Processing (February 2006, MoF); ROSC (June 2006, MoF); Revenue Modeling and Forecasting (April 2007, MoF); Public Financial Management (September 2008, MoF); Incorporating Budget Programs in the Government Accounting System (April 2009, MoF); PPPs: Building a Framework for managing fiscal Risks (June 2009, MoF); Follow up to Program Budgeting (November 2009, MoF).
- MCM (MFD): Payment Systems (April 2006, BoN); Nonbank Financial Institutions Supervision (May 2006, BoN); Lending policy, Monetary Operations, and Bank Supervision (October 2006, BoN); Risk-based Supervision (multiple missions in 2007–2009), Payments Systems (August 2007, March 2010).
- STA: National Accounts (GDDS Project, May 2006, CBS); Government Finance Statistics (GDDS Project, June 2006, MoF); SDDS Project (November 2006, BoN); Monetary and Financial Statistics (October 2007 and July 2008, BoN); Balance of Payments Statistics (July 2008 and April 2010, BoN); Government Financial Statistics (April 2008 and April 2009, MoF); National Accounts (May 2008, November 2008, Jan.-Feb. 2010, CBS).

### Bank-Fund Matrix — Joint Work Program Highlights
- Fund work program next 12 months: 2010 Article IV consultation; Public Debt Sustainability Analysis; 2011 Article IV consultation; technical assistance missions on program budgeting, financial stability, implementing risk-based supervision, mining taxation and rationalization of tax preferences, payments statistics, government finance statistics, national accounts statistics, supervision of other NBFIs (Microfinance schemes). Provisional timing: May 2010, July 2010, May 2011, and 2010–11 for TA missions.
- Joint product scheduled: Debt Sustainability Analysis — July 2011.
- Information sharing: Fund requested periodic updates on Bank analytical work (sectoral strategy on education, investment climate assessment); Bank requested periodic updates on macroeconomic developments and assessment of global financial crisis impact.

### Statistical Issues — Data Adequacy, Quality, and Reporting
- General assessment: Data provision has some shortcomings, but is broadly adequate for surveillance. Core monthly data provided with a lag of one to two months; national accounts and international trade data reported quarterly and annually with longer lags. Frequent revisions affected real sector statistics and the balance of payments; IIP coverage needs strengthening.
- Real sector statistics (National accounts):
  - 2008 CBS revised national accounts data for 2000–07, rebasing constant price series from 1995 to 2004 prices.
  - Result: GDP measured in current prices increased by an average of 14 percent for 2000–07 over previous estimates; growth in real GDP increased by an average of 0.7 percentage points over previous estimates.
  - Seasonally adjusted quarterly national accounts (2004 prices) disseminated on Namibia’s National Planning Commission website; source data improvements needed.
- Price and labor market statistics:
  - Nationwide CPI introduced February 2005, available from January 2002; CPI weights estimated from 1993–94 National Household Income and Expenditure Survey; seasonal items and new products excluded.
  - Labor market data not systematically collected; last labor market survey conducted in 2008 but report yet to be published.
- Government finance statistics:
  - Annual budgetary central government data by fiscal year reported on a cash basis in GFSM 2001 format and reasonably complete, despite some gaps in detail.
  - Monthly data for 2008 calendar year compiled; regular high-frequency reporting is work in progress.
  - African Department receives actual fiscal data several months after fiscal year end; no data on budget implementation during fiscal year.
- Monetary and financial statistics:
  - Monthly monetary statistics for Bank of Namibia (BoN) and ODCs reported regularly; timeliness can improve, particularly BoN data.
  - Since April 2002, data based on standardized report forms aligned with Monetary and Financial Statistics Manual.
- External sector statistics:
  - BoN reports balance of payments quarterly with a lag of one quarter; data subject to substantial revisions.
  - BOP methodology consistent with fifth edition of IMF Balance of Payments Manual.
  - IIP compiled quarterly with a lag of one quarter; BoN has expanded survey-based data collection but further work needed to expand IIP coverage and restate IIP for comparability with BOP.
- Data standards and quality:
  - Namibia participates in the General Data Dissemination System (GDDS) since December 19, 2002.
  - A ROSC (Data Module) published in 2002 and updated in 2005.
- Reporting to STA:
  - MOF initiated regular reporting of annual data for GFS Yearbook; work on monthly reporting of high frequency data in progress.
  - BoN reports monetary and financial statistics to STA regularly.
  - Revised BoP data reported for 1999Q1-2009Q4; revised IIP data reported for 2004Q4-2009Q4.

### Common Indicators Table — Observations on Frequency, Timeliness, and Quality (selected entries)
- Exchange rates: Latest observation May. 2010; Date received Jun. 2010; Frequency of data M; Frequency of reporting M; Frequency of publication M.
- International reserve assets and reserve liabilities of the monetary authorities: Latest observation Dec. 2009; Date received Mar. 2010; Frequency M.
- Reserve/Base money: Latest observation Apr. 2010; Date received Jun. 2010; Frequency M; Data quality assessments: O, O, LO, LO (methodological soundness) and O, LO, O, O, O (accuracy and reliability) as applicable in table.
- Broad money: Latest observation Apr. 2010; Date received Jun. 2010; Frequency M.
- Central bank balance sheet: Latest observation Apr. 2010; Date received Jun. 2010; Frequency M.
- Consolidated banking system balance sheet: Latest observation Apr. 2010; Date received Jun. 2010; Frequency M.
- Interest rates: Latest observation Jun. 2010; Date received Jun. 2010; Frequency M.
- Consumer price index: Latest observation Apr. 2010; Date received Apr. 2010; Frequency M; Data quality assessments: O, LNO, LO, O (methodological soundness) and LO, LNO, O, O, NA (accuracy and reliability).
- Revenue, expenditure, balance and composition of financing — central government: Latest observation Mar. 2010; Date received May. 2010; Frequency I, NA for some fields; Composition of financing noted.
- Stocks of central government and central government—guaranteed debt: Latest observation Mar. 2010; Date received May. 2010; Frequency M, I.
- External current account balance: Latest observation Q4 2009; Date received Jun. 2010; Frequency Q; Data quality assessments: O, O, O, LO (methodological soundness) and LO, LO, LO, LNO, NO (accuracy and reliability).
- Exports and imports of goods and services: Latest observation Q4 2009; Date received Jun. 2010; Frequency Q.
- GDP/GNP: Latest observation 2008; Date received Dec. 2009; Frequency A; Data quality assessments: O, O, O, LO (methodological soundness) and LNO, LO, LO, LO, O (accuracy and reliability).
- Gross external debt: Latest observation 2008; Date received Dec. 2009; Frequency A.
- International investment position: Latest observation Q4 2009; Date received Jun. 2010; Frequency Q.

### Public Debt Sustainability Analysis — Key Findings, Projections, and Scenarios
- End-2009 public debt level:
  - Public debt estimated at about N$12.9 billion, (15.7 percent of GDP).
  - About one third of the debt is owed to bilateral and multilateral foreign creditors; the remainder is domestic debt.
- Historical trends:
  - Since 2005, domestic debt declined from around 23.1 percent of GDP to 11.3 percent at end-2009 due to strong fiscal consolidation and prudent fiscal policies.
  - Privatization receipts of 1.3 percent of GDP in 2006 (sale of a telecommunications firm) contributed to the decline.
  - Authorities decided to pay off some external debts and redeem maturing domestic debts in FY 2009/10, further reducing the public debt ratio.
- Baseline medium-term projection:
  - Expansionary fiscal stance in 2009/10-2010/11 and projected drop in SACU revenue imply a steady rise in the debt-to-GDP ratio in the medium term, reaching 29.1 percent in 2015, driven largely by rising domestic debt.
  - Under the baseline, central government primary budget balance shifted into a deficit in 2009 as government revenue declined and expenditures increased to cushion the crisis.
  - SACU revenue anticipated to decline from 10.5 percent of GDP in 2009/10 to 2.8 percent of GDP in 2011/12.
  - Fiscal deficit projected to pick up to 8.3 percent of GDP in 2010/11 and 8.5 percent of GDP in 2011/12, up from 2.8 percent of GDP in 2009/10, before trending down over the medium term as fiscal consolidation takes place.
  - Consequently, public debt to GDP ratio projected to reach 29.1 percent of GDP by 2015, nearly doubling the level in 2009.
- Alternative scenarios presented (Table 1 referenced):
  - Scenario 1 (historical 10-year averages): If real GDP growth, real interest rates, and primary balance remain at their historical 10 year averages, the public debt to GDP ratio would fall to 9.9 percent of GDP by 2015. This outcome reflects more benign historical levels of key variables and a prudent fiscal stance that delivered primary surpluses in the recent past.
  - Scenario 2 (no fiscal consolidation: 2009 policies unchanged): If government’s policies in 2009 remain unchanged, with the primary balance standing at 5.6 percent of GDP, the debt ratio could escalate to 45.3 percent of GDP by the end of the forecast period, breaching the authorities’ target range of 25 to 30 percent of GDP.

*Source: IMF staff report material as of June 2010.*

### 4.      The bounds tests reveal the vulnerability of the fiscal position to exogenous shocks

### 4.      The bounds tests reveal the vulnerability of the fiscal position to exogenous shocks

### Bounds-test findings and sensitivity of debt outlook
- With different levels of standard deviation shock to key indicators, the debt-to-GDP ratio is projected to increase by between 5 to 10 percentage points of GDP depending on the shock.
- A one-time real depreciation in the South African rand of 30 percent (an unlikely event) could result in a 2 percentage point increase in the debt-to-GDP ratio, reflecting the relatively low level of external debt in Namibia.
- A negative growth shock could lead to an increase in the debt-to-GDP ratio by 9 percent of GDP compared to the baseline scenario.
- An increase in contingent liabilities could lead to an increase in the debt-to-GDP ratio by 10 percent of GDP compared to the baseline scenario.

### Table 1: Key baseline fiscal and debt figures (selected)
- Baseline: Public sector debt (in percent of GDP)
  - 2005: 27.2
  - 2006: 24.7
  - 2007: 19.9
  - 2008: 17.6
  - 2009: 15.7
  - 2010: 18.5
  - 2011: 24.7
  - 2012: 27.6
  - 2013: 29.0
  - 2014: 29.3
  - 2015: 29.1
- Foreign-currency denominated (in percent of GDP)
  - 2005: 4.1
  - 2006: 4.6
  - 2007: 4.9
  - 2008: 4.7
  - 2009: 4.4
  - 2010: 4.8
  - 2011: 5.3
  - 2012: 5.1
  - 2013: 4.8
  - 2014: 4.5
  - 2015: 4.2
- Change in public sector debt (percent of GDP)
  - 2005: -0.9
  - 2006: -2.4
  - 2007: -4.8
  - 2008: -2.3
  - 2009: -1.9
  - 2010: 2.8
  - 2011: 6.1
  - 2012: 2.9
  - 2013: 1.3
  - 2014: 0.4
  - 2015: -0.2
- Primary deficit (percent of GDP)
  - 2005: -1.4
  - 2006: -4.4
  - 2007: -6.4
  - 2008: -4.1
  - 2009: 0.1
  - 2010: 5.6
  - 2011: 6.8
  - 2012: 3.6
  - 2013: 1.3
  - 2014: 0.2
  - 2015: -0.5
- Revenue and grants (percent of GDP)
  - 2005: 27.4
  - 2006: 29.5
  - 2007: 31.8
  - 2008: 30.7
  - 2009: 29.7
  - 2010: 25.6
  - 2011: 21.6
  - 2012: 22.4
  - 2013: 24.7
  - 2014: 25.9
  - 2015: 26.6
- Primary (noninterest) expenditure (percent of GDP)
  - 2005: 26.0
  - 2006: 25.1
  - 2007: 25.4
  - 2008: 26.6
  - 2009: 29.8
  - 2010: 31.2
  - 2011: 28.4
  - 2012: 26.0
  - 2013: 26.0
  - 2014: 26.1
  - 2015: 26.0
- Automatic debt dynamics (percent of GDP)
  - 2005: 0.8
  - 2006: -1.3
  - 2007: -1.4
  - 2008: -0.1
  - 2009: -0.6
  - 2010: -0.3
  - 2011: -0.1
  - 2012: -0.6
  - 2013: 0.1
  - 2014: 0.2
  - 2015: 0.3
- Public sector debt-to-revenue ratio (percent)
  - 2005: 99.1
  - 2006: 83.8
  - 2007: 62.6
  - 2008: 57.3
  - 2009: 53.1
  - 2010: 72.5
  - 2011: 114.4
  - 2012: 123.1
  - 2013: 117.1
  - 2014: 113.2
  - 2015: 109.5

### Scenario metrics and shocks (from Figure 1 and notes)
- Individual shocks are permanent one-half standard deviation shocks.
- Permanent 1/4 standard deviation shocks applied to real interest rate, growth rate, and primary balance.
- One-time shocks in 2010:
  - Real depreciation: 30 percent (real depreciation defined as nominal depreciation measured by percentage fall in dollar value of local currency minus domestic inflation based on GDP deflator).
  - Contingent liabilities shock: 10 percent of GDP.
- Figures in the boxes (Figure 1) represent average projections for the respective variables in the baseline and scenario being presented. Ten-year historical average for the variable is also shown.
- Example boxed averages shown in Figure 1 (public debt in percent of GDP):
  - Growth shock box: Baseline 29; Growth shock 39
  - Primary balance (PB) shock box: Baseline 29; PB shock 37
  - Interest-rate shock box: Baseline 29; i-rate shock 34
  - Combined shock box: Baseline 29; Combined shock 37
  - 30% depreciation box: Baseline 29; 30% depreciation 31
  - Contingent liabilities box: Baseline 29; contingent liabilities 39

### Key macroeconomic and fiscal assumptions underlying baseline
- Real GDP growth (in percent)
  - 2005: 2.5
  - 2006: 7.1
  - 2007: 5.4
  - 2008: 4.3
  - 2009: -0.8
  - 2010: 4.4
  - 2011: 4.8
  - 2012: 4.7
  - 2013: 4.2
  - 2014: 4.2
  - 2015: 4.2
- Average nominal interest rate on public debt (in percent)
  - 2005: 9.4
  - 2006: 9.9
  - 2007: 9.0
  - 2008: 9.1
  - 2009: 9.5
  - 2010: 10.3
  - 2011: 10.3
  - 2012: 9.7
  - 2013: 9.8
  - 2014: 9.9
  - 2015: 10.0
- Average real interest rate (nominal rate minus change in GDP deflator, in percent)
  - 2005: 3.8
  - 2006: 0.6
  - 2007: -0.1
  - 2008: -5.2
  - 2009: 1.6
  - 2010: 2.8
  - 2011: 4.4
  - 2012: 2.4
  - 2013: 4.6
  - 2014: 5.0
  - 2015: 5.5
- Inflation rate (GDP deflator, in percent)
  - 2005: 5.6
  - 2006: 9.3
  - 2007: 9.0
  - 2008: 14.3
  - 2009: 8.0
  - 2010: 7.5
  - 2011: 5.8
  - 2012: 7.3
  - 2013: 5.1
  - 2014: 4.9
  - 2015: 4.6
- Growth of real primary spending (deflated by GDP deflator, in percent)
  - 2005: -2.0
  - 2006: 3.5
  - 2007: 6.7
  - 2008: 9.1
  - 2009: 11.1
  - 2010: 9.3
  - 2011: -4.5
  - 2012: -4.1
  - 2013: 4.2
  - 2014: 4.5
  - 2015: 3.9

### Policy implications and Executive Board recommendations
- A more ambitious fiscal consolidation than envisaged in the current Medium-Term Expenditure Framework (2010/11–2012/13) is key to ensuring internal and external sustainability.
- Fiscal consolidation should start from 2011/12 by targeting a reduction in the overall budget deficit to preserve macroeconomic stability.
- Priority policy actions:
  - Step up efforts at reducing public spending and mobilizing non-SACU revenue to reduce projected fiscal deficits and public debt.
  - Contain the wage bill.
  - Accelerate reforms of state-owned enterprises (SOEs).
  - Improve non-SACU revenue mobilization.
- Fiscal risks need close monitoring; complementary reforms should include:
  - Strengthening the budget process.
  - Bringing into effect the SOEs Governance Act.
  - Establishing the institutional and legal framework for Public Private Partnerships.
- Monetary policy and financial sector recommendations:
  - The exchange rate peg to the rand remains the main anchor of monetary policy.
  - Staff notes scope for reducing domestic interest rates by bringing the policy rate in line with South Africa’s.
  - Upgrade supervision of nonbank financial institutions (NBFIs).
  - Speed up approval of the Financial Institutions and Markets Bill and strengthen Namibia Financial Institutions Supervisory Authority as an independent body.
  - Closely monitor the impact of the domestic investment requirement on pension funds and insurance companies to mitigate risk-taking and safeguard long-term financial viability.

*Source: IMF staff analysis and Table 1 and Figure 1 from “Namibia: Public Sector Debt Sustainability Framework, 2005-2015” and associated Public Information Notice (PIN) No. 10/116, August 25, 2010.*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2010/_cr10269.pdf_