## _cr1241 - 2010. This rebound was propelled by a pickup in mineral exports, domestic demand

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---

### Recent economic developments
- GDP developments:
  - GDP declined by 0.4 percent in 2009 and grew by an estimated 6.6 percent in 2010.
  - Activity appears to have weakened in 2011, with real GDP possibly rising by 3½ - 4 percent.
  - Growth is projected at 3½ to 4 percent in 2011, improving to around 4½ percent over the medium term.
- Inflation and trade:
  - Inflation is expected to remain within single-digit rates.
  - Imported inflation is important: about 80 percent of food staples are estimated to be imported from South Africa.
- External position and reserves:
  - Current account: surplus of 1.8 percent of GDP in 2009; estimated deficits of 1.8 percent of GDP in 2010 and 6.3 percent in 2011.
  - International reserves: estimated at $US1.4 billion at end-2011, covering 2.4 months of prospective imports of goods and services; peak was $US1.9 billion (4.7 months import cover) at end-2009.
  - Overvaluation estimates for the REER currently vary in a range of 1 to 10 percent; staff’s overall view is that the exchange rate does not deviate significantly from its equilibrium value.

### Fiscal stance and TIPEEG initiative
- Fiscal outcomes and projections:
  - Fiscal stance has become much more expansionary since FY2009/10.
  - Overall deficit for FY2011/12 projected to rise to 8.9 percent of GDP.
  - Non-SACU deficit projected to increase to 18 percent of GDP (from 12.9 percent in FY2010/11).
  - Public debt projected to increase from 16.2 percent of GDP in FY2010/11 to 24.5 percent of GDP by end FY2011/12.
  - FY2011/12 deficit financed domestically, regionally, and via a $US500 million Eurobond issued in October 2011.
- TIPEEG (Targeted Intervention Program for Employment and Economic Growth):
  - Projected to add $N14.6 bn. in government spending over FY2011/12 to FY2013/14 (about 15 percent of current year GDP), comprising increases in both current and capital spending.
  - Aims to preserve or create about 104,000 direct and indirect jobs out of a 15+ population of just under 1 million.
  - Four sectors targeted: Agriculture; Tourism; Transport; Housing and sanitation.
  - Implementation has been slow and is widely expected to fall far short of 100 percent, at least in FY2011/12; government moving to reform procurement processes to strengthen decentralization of TIPEEG-related spending.

### Monetary and financial stability
- Monetary policy:
  - Bank of Namibia lowered its policy rate to 6 percent in December 2010, a cumulative reduction of 450 basis points since December 2008; the rate remains at 6 percent.
  - Monetary stance supportive of the peg to the South African rand; authorities reaffirmed intention to support the exchange rate peg.
- Banking sector and financial regulation:
  - Total bank earnings grew by 12.4 percent in 2010.
  - Non-performing loans fell to 1.6 percent of total loans at end-November 2011, down from 2.7 percent at end-2009.
  - Regulation of non-bank financial intermediaries being strengthened.
  - Staff view: direct exposure to current international financial pressures may be limited, but increased vigilance on indirect exposures and housing-market vulnerabilities is warranted.

### Structural issues, employment, and competitiveness
- Labor and inequality:
  - Official unemployment rate widely cited at 51 percent (including “discouraged workers”); excluding discouraged workers, unemployment reaches 38 percent.
  - Income inequality described as very high by international standards.
- Business climate and diversification:
  - Authorities taking steps to lower the cost of doing business and support private investment, job creation, and export diversification.
  - Structural reforms emphasized to foster diversification and employment growth.
- Competitiveness and REER assessment:
  - Three CGER approaches yield REER assessments: macro balance approach (1 percent above equilibrium), external sustainability approach (overvaluation of 9½ percent), and equilibrium exchange rate approach (overvaluation of 3½ percent).
  - Estimates show relatively poor explanatory power, particularly in the past decade given REER volatility.

### Outlook, risks, and recommended policy priorities
- Outlook:
  - Medium-term output growth projected to average around 4½ percent.
  - Staff baseline envisages current account deficits of about 3 percent of GDP on average over 2012-16; external debt trajectory impact projected to remain modest because much of projected imports relate to foreign direct investment in the mineral sector.
- Downside risks:
  - Turmoil in Europe and implications for global economy and commodity markets.
  - Risk that investment plans in the resource sector could be delayed or put on hold.
  - Expansionary fiscal stance could increase domestic demand and imports, putting upward pressure on non-tradable prices and weakening external position and competitiveness.
  - Prospect of future SACU revenue declines if regional economy slows or revenue-sharing formula revised.
- Policy recommendations:
  - Reestablish fiscal policy buffers and undertake fiscal consolidation to keep public debt manageable and provide room for maneuver against shocks.
  - Strengthen expenditure and revenue management and practice fiscal restraint.
  - Reinforce monetary and financial stability through vigilance on indirect exposures and housing-market vulnerabilities.
  - Buttress structural reforms to lower the cost of doing business, promote private investment, job creation, and export diversification.
  - Prioritize rigorous implementation, prioritization, and monitoring of TIPEEG projects to ensure effectiveness and avoid undermining fiscal and external objectives.

*Source: 2011 Article IV Report — Namibia (staff report text, January 23, 2012).*

### Fiscal stance — key issues and findings (from “Discussions on the fiscal stance”)
- Ensuring room for maneuver:
  - Public debt projected to rise rapidly in FY2011/12; continued sizeable deficits would impair room for maneuver.
  - Reserves comfortable by some indicators but below the widely-used benchmark of 3 months cover.
- Preparing for potential decline in SACU revenues:
  - Short-term SACU outlook promising, but long-term prospects uncertain.
  - Non-SACU fiscal deficit deteriorated from 9 percent of GDP in FY2008/9 to a projected 18 percent in FY2011/12.
  - SACU revenues currently provide over 25 percent of total budget revenues.
- Strengthening revenue performance:
  - Scope for improving revenue through tax policy and administration reforms: improve tax compliance, streamline tax system, and design mineral-sector taxation balancing revenues and investment incentives.
- Ensuring high quality public spending:
  - Challenges increased with acceleration of spending and TIPEEG procurement plans; public sector wage bill relatively high by regional standards.

### Authorities’ views on fiscal stance
- Authorities view current fiscal expansion as temporary and aimed at addressing supply bottlenecks and catalyzing economic and employment growth.
- Intention signaled to keep public debt below 35 percent of GDP, consistent with staff baseline projections.
- Authorities noted possible favorable medium-term fiscal outturns due to under-execution of capital expenditures, stronger growth, and improvements in revenue and spending management.
- On reserves:
  - Authorities stressed importance of adequate reserves to protect the peg and as a buffer; noted import-cover metric may be less appropriate because large capital imports may be self-financed by FDI.
  - Staff notes import cover is close to 3 months if FDI-related imports excluded.
- Policy actions highlighted by authorities:
  - Tax amendments presented to Parliament and policy reforms to close loopholes and increase reliance on stable tax sources.
  - Tax administration strengthening: streamline SME procedures, improve computerization, move toward taxpayer self-assessment.
  - Regular review of tax incentives and improvements in spending quality: program-based budgeting, electronic transfers, real-time reconciliation, better prioritization and monitoring of development spending.

### Potential growth and measurement (Box 3) — key figures and findings
- Staff estimate of potential output growth just over 4 percent.
- Statistical methods: Hodrick-Prescott, Baxter-King, unobserved component method.
- Estimates suggest potential growth around 4¼ percent.
- Output gap:
  - 2009 output gap moved sharply negative, to about 2½ percent, from a positive level of 2–2½ percent in previous two years.
  - Output gap narrowed with 2010 growth; projected to remain negative until converging to zero in 2015–16.
- Historical growth:
  - Average growth in 2000-08 about 4.9 percent per annum; 1990–99 average 4.1 percent.

### Reclassification and development finance concerns
- Namibia reclassified as an upper middle-income country (2009 GNI per capita of $4,130 exceeds World Bank threshold $3,946).
- Authorities concerned about ineligibility for Millennium Challenge Corporation assistance and reduced access to EU concessional financing.
- Staff PPP-based analysis highlights relatively low ranking in living standards and consumption vis-à-vis regional comparators.

### Monetary and financial stability — issues and authorities’ views
- Policy rate adjustment:
  - Monetary policy largely passive due to the peg; BoN policy rate currently 50 points above that of South Africa.
  - BoN rate re-evaluated based on prices and output within about +/- 50 basis points of SARB rate.
  - Authorities agreed tighter fiscal stance would allow greater alignment of BoN with SARB rate.
- Banking sector robustness:
  - Financial indicators suggest banks well capitalized and profitable; indirect exposures via South African parents possible.
- Housing market:
  - Banks have significant exposure to housing; First National Bank House Price Index indicates prices more than quadrupled since 2000, including ~18 percent increase in the year to June 2011.
  - Price growth appears driven mainly by cross-border capital flows (notably from Angola) and limited domestic supply.
- NBFI supervision:
  - NAMFISA strengthening with external technical assistance; new FIM bill expected in first half of 2012.
  - Authorities agreed close monitoring of mortgage exposure warranted.

### Structural reforms to foster diversification and employment growth
- Key areas:
  - TIPEEG impact and infrastructure expansion (Walvis Bay port/corridors).
  - Lowering cost of doing business: Doing Business 2011 rankings: starting a business 124/183; registering property 136.
  - Labor market reforms to balance flexibility and job security per ILO agenda.
  - Identify growth sources with comparative advantage: mining, services, tourism, health services for Angolan population, food and beverages processing, jewel manufacturing.
- Authorities’ commitments:
  - Fourth National Development Plan (NDP4) to include structural measures for diversification.
  - Simplified business registration and steps to address land registration delays.

### Staff appraisal — summary recommendations and risks
- Outlook favorable but subject to downside risks from global fragility and commodity price spillovers.
- Priorities:
  - Reign in current fiscal expansion.
  - Preserve adequate official reserves.
  - Pursue ambitious structural reforms to support diversified growth and employment.
- Specific caution:
  - Moderation in TIPEEG implementation desirable to limit risks of raising non-tradable prices and undermining external competitiveness.

*Source: _cr1241 - 11.      Discussions on the fiscal stance (Namibia 2011 Article IV Report, IMF).*

### Fiscal consolidation is needed — objectives and recommendations
- Objective: keep public debt below 35 percent of GDP over the medium-term; staff urges staying well within the 35 percent limit.
- Policy implications:
  - Increases in current and capital spending planned under TIPEEG need to be unwound at the end of the initiative, if not before.
  - Present fiscal goals as formal commitments in the fiscal framework beginning FY2012/13 and adhere to them.
- Revenue mobilization:
  - Urgent implementation of measures to strengthen the tax base and revenue collection.
  - Contain revenue losses from tax incentives: full accounting of tax expenditures, updating/streamlining incentive regime, sunset provisions on exemptions.
- Prioritization and monitoring:
  - Rigorous prioritization and monitoring of development spending; ensure sound execution of public investment.
  - Apply transparent procurement processes; streamline and decentralize procurement while maintaining transparency.
- External position and reserves:
  - Support authorities’ goal of 3 months import cover as a reserve adequacy benchmark, with caveat for resource-intensive economies.
  - Fiscal restraint needed to preserve external position and sustainability of the peg.
- Financial sector soundness:
  - Enhanced monitoring of mortgage exposure; assess banks’ risk management and deploy pre-emptive measures as needed.
- Structural reforms and unemployment:
  - Wide-ranging reforms crucial to raise potential output and reduce high unemployment: improve business environment, streamline registration, support entry-level jobs, ease migration rules for skill shortages, strengthen education and training.

*Source: NAMIBIA 2011 ARTICLE IV REPORT, INTERNATIONAL MONETARY FUND*

### Staff recommends that the next Article IV Consultation
- Recommendation:
  - Staff recommends that the next Article IV Consultation with Namibia take place on the standard 12-month cycle.

### Selected national accounts, external, fiscal, and financial indicators (as presented)
- National accounts and prices (selected indicators and projections):
  - GDP at constant prices: 5.4; 3.4; -0.4; 6.6; 3.6; 4.2; 4.4; 4.4; 4.4; 4.4
  - GDP deflator: 9.0; 13.7; 4.2; 1.0; 5.0; 5.7; 5.5; 5.4; 5.0; 4.7
  - GDP at market prices (N$ billions): 62.1; 72.9; 75.7; 81.5; 88.6; 97.6; 107.5; 118.3; 129.7; 141.7
  - GDP per capita (US$, constant 2000 exchange rate): 441; 450; 945; 1,895; 543; 597; 865; 307; 713; 377; 818; 461; 917; 0
  - Consumer prices (end of period): 7.1; 10.9; 7.0; 3.1; 5.7; 5.5; 5.2; 5.2; 4.5; 4.5
- External sector (selected indicators and projections):
  - Current account balance (including official grants, percent of GDP): 9.1; 2.8; 1.8; -1.8; -6.3; -2.5; -3.6; -3.9; -3.3; -1.6
  - Gross official reserves (US$ millions, end of period): 906.6; 1,394.7; 1,918.7; 1,380.1; 1,438.7; 1,541.9; 1,459.0; 1,385.7; 1,537.4; 2,092.2
  - Months of imports of goods and services (reserves): 2.4; 3.4; 3.9; 2.3; 2.3; 2.3; 2.1; 1.9; 2.0; 2.8
- Public finances — central government (selected levels, ratios, and projections):
  - Total revenue and grants (N$ millions): 20,672; 23,447; 24,017; 23,378; 28,012; 33,375; 37,154; 39,556; 43,370; 47,354
  - Expenditures and net lending (N$ millions): 17,541; 21,898; 25,712; 28,142; 36,124; 38,053; 42,209; 44,662; 47,140; 50,808
  - Overall balance (percent of GDP): 4.8; 2.1; -2.2; -5.7; -8.9; -4.7; -4.6; -4.2; -2.9; -2.4
  - Public debt (percent of GDP): 18.4; 18.2; 15.5; 16.2; 24.5; 27.0; 27.7; 29.0; 30.3; 31.4
- Monetary developments (selected):
  - Reserve money (Bank of Namibia, end period, N$ millions): 2,124.9; 2,556; 3,244; 3,456; 3,807
  - Broad money (M2, N$ millions): 47,841; 49,568; 54,429; 55,399; 61,017
  - Credit to the private sector (percent of GDP): 45.6; 48.3; 49.9; 49.9; 49.9
- Financial sector indicators (selected, 2005–10):
  - Nonperforming loans to total gross loans: 2.3; 2.6; 2.8; 3.1; 2.7; 2.0
  - Return on assets: 3.5; 1.5; 3.5; 4.2; 3.0; 3.5
  - Number of banks: 4 (2005–2010); Private commercial banks: 1; Foreign-owned subsidiaries: 3

*Source: NAMIBIA 2011 ARTICLE IV REPORT — INTERNATIONAL MONETARY FUND (selected tables and text as provided in the source content).*

### Debt sustainability analysis — scenarios, sensitivities, and key projections
- Public debt (FY2010/11): estimated about N$13.5 billion (16.2 percent of GDP).
- Projection under current fiscal stance:
  - Expansionary stance projected to increase public debt to 35.3 percent of GDP in FY2016/17.
- Scenario 1 (historical 10-year averages):
  - Assumes real GDP growth, real interest rates, and the primary balance at historical 10-year averages; public debt to GDP would reach 19.8 percent by 2016.
- Scenario 2 (policies unchanged from 2010):
  - Assumes primary deficit stands at 3.6 percent of GDP throughout the medium term; public debt rises to 59 percent of GDP by 2016.
- Sensitivity tests:
  - Negative growth shock (decline from 4.3 percent to 2.6 percent) could increase debt-to-GDP ratio by 12 percentage points.
  - One-off depreciation of 30 percent could increase external debt ratio to around 40 percent of GDP by 2016.
  - Persistent non-interest current account shock could raise external debt ratio to 44 percent of GDP.

*Source: 2011 ARTICLE IV REPORT—INFORMATIONAL ANNEX / STAFF REPORT FOR THE 2011 ARTICLE IV CONSULTATION—DEBT SUSTAINABILITY ANALYSIS (January 23, 2012).*

### Executive Board assessment and policy recommendations (excerpts)
- Directors welcomed the strong recovery and favorable medium-term outlook but cautioned about substantial downside risks, high unemployment, and income inequality.
- Recommended actions:
  - Rebuild policy buffers via prudent fiscal policies and prioritized public spending.
  - Safeguard reserves and pursue structural reforms to boost growth potential.
  - Timely unwinding of current fiscal stimulus, particularly if external conditions deteriorate.
  - Strengthen domestic revenue base and rigorously prioritize and monitor public spending given mineral and SACU revenue volatility.
  - Remain vigilant on financial sector risks, notably banks’ exposure to housing and rapid house-price increases.
  - Consider closer alignment of BoN policy rate with SARB if fiscal stimulus is unwound or the domestic economy slows.
  - Focus on wide-ranging structural reforms to address unemployment and inequality: stronger private investment, improved education and training, better functioning labor and product markets, and easing business registration procedures.
- Directors noted the rand peg has served Namibia well and that the exchange rate appears broadly in line with fundamentals.
- Some Directors supported authorities’ request for donors to postpone phasing out concessional support given ongoing development challenges.

*Source: IMF staff report excerpts from "NAMIBIA 2011 ARTICLE IV REPORT—DEBT SUSTAINABILITY ANALYSIS".*

*Source: _cr1241 - 2010. This rebound was propelled by a pickup in mineral exports, domestic demand (Namibia 2011 Article IV Report, IMF)._

### 2010. This rebound was propelled by a pickup in mineral exports, domestic demand

### _cr1241 - 2010. This rebound was propelled by a pickup in mineral exports, domestic demand

### Recent economic developments
- GDP developments:
  - GDP declined by 0.4 percent in 2009 and grew by an estimated 6.6 percent in 2010.
  - Activity appears to have weakened in 2011, with real GDP possibly rising by 3½ - 4 percent.
  - Growth is projected at 3½ to 4 percent in 2011, improving to around 4½ percent over the medium term.
- Inflation and trade:
  - Inflation is expected to remain within single-digit rates.
  - Imported inflation is important: about 80 percent of food staples are estimated to be imported from South Africa.
- External position and reserves:
  - Current account: surplus of 1.8 percent of GDP in 2009; estimated deficits of 1.8 percent of GDP in 2010 and 6.3 percent in 2011.
  - International reserves: estimated at $US1.4 billion at end-2011, covering 2.4 months of prospective imports of goods and services; peak was $US1.9 billion (4.7 months import cover) at end-2009.
  - Overvaluation estimates for the REER currently vary in a range of 1 to 10 percent; staff’s overall view is that the exchange rate does not deviate significantly from its equilibrium value.

### Fiscal stance and TIPEEG initiative
- Fiscal outcomes and projections:
  - The fiscal stance has become much more expansionary since FY2009/10.
  - Overall deficit for FY2011/12 is projected to rise to 8.9 percent of GDP.
  - Non-SACU deficit projected to increase to 18 percent of GDP (from 12.9 percent in FY2010/11).
  - Public debt is projected to increase from 16.2 percent of GDP in FY2010/11 to 24.5 percent of GDP by end FY2011/12.
  - The FY2011/12 deficit is being financed from domestic and regional sources, and through the issuance of a $US500 million Eurobond in October 2011.
- TIPEEG (Targeted Intervention Program for Employment and Economic Growth):
  - Projected to add $N14.6 bn. in government spending over FY2011/12 to FY2013/14 (about 15 percent of current year GDP), comprising increases in both current and capital spending.
  - Aims to preserve or create about 104,000 direct and indirect jobs out of a 15+ population of just under 1 million.
  - Four sectors targeted: Agriculture; Tourism; Transport; Housing and sanitation.
  - Implementation has been slow and is widely expected to fall far short of 100 percent, at least in FY2011/12; government has moved to reform procurement processes to strengthen decentralization of TIPEEG-related spending.

### Monetary and financial stability
- Monetary policy:
  - The Bank of Namibia lowered its policy rate to 6 percent in December 2010, representing a cumulative reduction of 450 basis points since December 2008; the rate remains at 6 percent.
  - Monetary stance remains supportive of the peg to the South African rand; authorities reaffirmed intention to support the exchange rate peg.
- Banking sector and financial regulation:
  - Total bank earnings grew by 12.4 percent in 2010.
  - Non-performing loans fell to 1.6 percent of total loans at end-November 2011, down from 2.7 percent at end-2009.
  - Regulation of non-bank financial intermediaries is being strengthened.
  - Staff view: Namibia’s direct exposure to current international financial pressures may be limited, but increased vigilance to address possible indirect exposures and other vulnerabilities, including from the housing market, is warranted.

### Structural issues, employment, and competitiveness
- Labor and inequality:
  - Official unemployment rate widely cited at 51 percent (including “discouraged workers”); excluding discouraged workers, unemployment reaches 38 percent.
  - Income inequality described as very high by international standards.
- Business climate and diversification:
  - Authorities are taking steps to lower the cost of doing business and to support private investment growth, job creation, and export diversification.
  - Structural reforms emphasized to foster diversification and employment growth.
- Competitiveness and REER assessment:
  - Three CGER approaches yield REER assessments: macro balance approach (1 percent above equilibrium), external sustainability approach (overvaluation of 9½ percent), and equilibrium exchange rate approach (overvaluation of 3½ percent).
  - Estimates show relatively poor explanatory power, particularly in the past decade given REER volatility.

### Outlook, risks, and recommended policy priorities
- Outlook:
  - Medium-term output growth projected to average around 4½ percent.
  - Staff’s baseline scenario envisages current account deficits of about 3 percent of GDP on average over 2012-16; impact on external debt trajectory projected to remain modest because much of projected imports relate to foreign direct investment in the mineral sector.
- Downside risks:
  - Main downside risks stem from turmoil in Europe and potential implications for the global economy and commodity markets.
  - Risks that investment plans in the resource sector could be delayed or put on hold if the global economic climate deteriorates.
  - Expansionary fiscal stance could increase domestic demand and imports, putting upward pressure on prices of non-tradables and weakening the external position and competitiveness.
  - Prospect that future SACU revenues may decline if the regional economy slows or the revenue-sharing formula is revised.
- Policy recommendations emphasized:
  - Reestablish fiscal policy buffers and undertake fiscal consolidation to keep public debt manageable, support the external position, and provide room for maneuver against shocks (including potential falls in SACU revenues).
  - Strengthen expenditure and revenue management and practice fiscal restraint.
  - Reinforce monetary and financial stability through vigilance on indirect exposures and housing-market vulnerabilities.
  - Buttress structural reforms to lower the cost of doing business, promote private investment, job creation, and export diversification.
  - Prioritize rigorous implementation, prioritization, and monitoring of TIPEEG projects to ensure effectiveness and avoid undermining fiscal and external objectives.

*Source: 2011 Article IV Report — Namibia (staff report text, January 23, 2012).*

### 11.      Discussions on the fiscal stance

### 11.      Discussions on the fiscal stance

### Fiscal stance — key issues and findings
- Ensuring room for maneuver in the event of shocks:
  - Public debt is projected to rise rapidly in FY2011/12.
  - If sizeable deficits were to continue, Namibia’s room for maneuver in the event of further economic shocks would be impaired.
  - The current global climate and Namibia’s susceptibility to commodity market volatility highlight the need for sound fiscal buffers.
- Safeguarding Namibia’s external position:
  - Fiscal expansion risks putting upward pressure on non-tradable goods prices, imports, and the current account deficit.
  - The potential deterioration in external balance could lead to official reserves falling below desired levels.
  - Reserves are currently comfortable by some indicators, but are below the widely-used international benchmark of 3 months cover.
- Preparing for a potential decline in SACU revenues:
  - Although the short-term outlook for SACU revenues appears promising, there is considerable uncertainty over their longer-term prospects.
  - The non-SACU fiscal deficit has deteriorated significantly—from 9 percent of GDP in FY2008/9 to a projected 18 percent in FY2011/12.
  - SACU revenues currently provide over 25 percent of total budget revenues.
- Strengthening revenue performance:
  - There is scope for significantly improving revenue performance through reforms in tax policy and administration.
  - Reforms would target improved tax compliance, a more streamlined and robust tax system, and a taxation regime for the mineral sector that balances revenue collection with incentives to invest.
- Ensuring high quality public spending:
  - Challenges of strengthening the quality of public spending have increased with the acceleration of spending and associated procurement processes planned under TIPEEG.
  - Namibia’s public sector wage bill is already relatively high by regional standards (see Figure).

### Authorities’ views on fiscal stance
- The authorities recognize the need to ensure internal and external balance.
- The current fiscal expansion is described as temporary, aimed at addressing supply bottlenecks and providing a catalyst for economic and employment growth.
- Authorities signaled their intention to keep public debt below 35 percent of GDP, consistent with staff’s baseline fiscal projections (Tables 3b).
- They noted medium-term fiscal outturns may be more favorable than currently budgeted due to:
  - under-execution of capital expenditures;
  - stronger economic growth;
  - improvements in revenue and spending management.
- Authorities agreed Namibia should have adequate fiscal buffers to guard against shocks, citing past record of reining in public spending and debt.
- On reserves:
  - Authorities concurred it is essential to ensure adequate reserves to protect the exchange rate peg and as a buffer against shocks.
  - They noted that months of import cover may not be fully appropriate for Namibia because large capital imports (e.g., for the resource sector) may be self financed through FDI and other inflows.
  - Staff notes that the import cover of official reserves is currently close to 3 months if imports stemming from foreign direct investment (which is mainly directed at the resource sector) are excluded.
- Policy actions highlighted by authorities:
  - A range of tax amendments recently presented to Parliament and broader policy reforms to close tax loopholes and increase reliance on relatively stable tax sources.
  - Tax administration strengthening via streamlined procedures for SMEs, improved computerization of tax collection, and movement toward taxpayer self-assessment.
  - Regular review of tax incentives to avoid erosion of the tax base while being mindful of competitiveness for FDI.
  - Improvements in spending quality via program-based budgeting, electronic transfers to budgetary units, real-time reconciliation of government accounts, and better prioritization and monitoring of development spending.

### Potential growth and measurement (Box 3) — key figures and findings
- Staff estimate of potential output growth is just over 4 percent.
- Statistical estimation methods used include Hodrick-Prescott, Baxter-King, and an unobserved component method.
- The estimates suggest Namibia’s potential growth is around 4¼ percent.
- Historical and projected output gap:
  - During 2009 the output gap moved sharply negative, to about 2½ percent, from a positive level of 2–2½ percent in the previous two years.
  - With strong growth in 2010 the output gap narrowed significantly (average of three estimations).
  - With projected subdued growth in 2011 and modest recovery thereafter, the output gap is projected to remain negative until it converges to zero in 2015–16.
- Historical context:
  - Average growth in 2000-08 stood at about 4.9 percent per annum, higher than the average in 1990–99 (4.1 percent).

### Reclassification and development finance concerns
- Namibia’s reclassification as an upper middle-income country (2009 GNI per capita of $4,130 exceeds the World Bank’s threshold of $3,946 between lower and upper middle-income countries) has financial implications.
- Authorities expressed concerns about:
  - Ineligibility for renewed Millennium Challenge Corporation assistance.
  - Reduced access to EU concessional financing.
- Staff analysis on a PPP basis highlights Namibia’s relatively low ranking in living standards and consumption patterns vis-à-vis regional comparators (Box 4).

### Monetary and financial stability — issues and authorities’ views
- Potential adjustment in the policy rate:
  - Monetary policy is largely passive given the exchange rate peg.
  - The Bank of Namibia (BoN) policy rate is currently 50 points above that of South Africa.
  - The BoN rate is regularly re-evaluated based on prices and output, within a small margin for maneuver (about +/- 50 basis points) around the SARB rate.
  - Authorities agreed that a tighter fiscal stance would provide greater room for bringing the BoN rate into full alignment with the SARB rate.
- Banking sector robustness:
  - Current financial indicators suggest the banking sector is well capitalized and profitable.
  - Commercial banks, mainly owned in South Africa, have little direct exposure to current financial market concerns in Europe but may have indirect exposures through South African parent institutions.
- Housing market exposure:
  - Banks have significant exposure to the housing sector; loan-to-value ratios appear well below 100 percent.
  - The First National Bank House Price Index indicates prices have more than quadrupled since 2000, including an increase of around 18 percent in the year to June 2011.
  - Price growth appears to stem mainly from cross-border capital flows (notably from Angola) combined with limitations on domestic supply.
- Non-bank financial institutions (NBFIs) supervision:
  - The NBFI sector has been growing rapidly and increased interconnectedness with other parts of the financial sector.
  - NAMFISA is strengthening its capacity to regulate and supervise NBFIs with external technical assistance (IMF and World Bank), increased hiring and training of professional staff.
  - A new Financial Institutions and Market (FIM) bill is expected to be sent to Parliament in the first half of 2012.
- Authorities acknowledged increased financial sector vulnerabilities and noted ongoing measures to strengthen NAMFISA and BoN capacity.
- The Financial Sector Strategy 2010–20 aims to deepen and strengthen domestic financial markets, including regulation, access, and consumer protection.
- Authorities agreed close monitoring of banks’ exposure to mortgage lending is warranted.

### Structural reforms to foster diversification and employment growth — issues and authorities’ views
- Key reform areas discussed:
  - Impact of TIPEEG (targeted initiative to increase employment and growth in four sectors and strengthen infrastructure).
  - Lowering the cost of doing business: Namibia’s Doing Business 2011 ranking is well below South Africa and Botswana; starting a business ranked 124 out of 183; registering property ranked 136.
  - Improving labor market functioning: rigid regulations, restrictive immigration policies, weak links between pay and productivity, and skill shortages.
  - Identifying sources of output and export growth in sectors with comparative advantage (mining, services, tourism, health services serving Angolan population, food and beverages processing, jewel manufacturing).
- Authorities’ positions:
  - TIPEEG expected to have catalytic effects on private investment and employment growth, with scope for expansion of transport and trade (Walvis Bay port and corridors).
  - Forthcoming Fourth National Development Plan will be a forum for structural measures to diversify and strengthen the economy.
  - Authorities acknowledged scope for improvement in business climate indicators and have simplified registration processes for starting a business and are addressing land registration delays through better land surveys.
  - Labor market reforms to strike a balance between flexibility and job security, pursued in line with the ILO agenda for decent work; measures leading to a “race to the bottom” would be unacceptable under the Constitution.

### Staff appraisal — summary recommendations and risks
- Outlook:
  - The outlook for GDP growth appears favorable but subject to downside risks, notably from global fragility and commodity market spillovers.
  - Prospects include further investment in the resource sector and growth of non-resource intensive activities.
- Policy priorities to ensure adequate buffers against risks:
  - Reign in the current fiscal expansion.
  - Preserve an adequate level of official reserves.
  - Push ahead with ambitious structural reforms to support stronger and more diversified growth in output and employment.
- Specific caution:
  - Moderation in the envisaged implementation of the TIPEEG initiative would be desirable to limit risks that the program could increase prices of non-tradables and reduce external competitiveness, which would undermine program objectives.

*Source: _cr1241 - 11.      Discussions on the fiscal stance (Namibia 2011 Article IV Report, IMF).*

### 28.      Fiscal consolidation is needed to

### _cr1241 - 28.      Fiscal consolidation is needed to

### Fiscal consolidation and public debt
- Objective: keep public debt below 35 percent of GDP over the medium-term.
- Staff view: agrees with authorities’ intention and urges staying well within the 35 percent limit.
- Rationale: objective is consistent with staff’s baseline scenario, appropriate given the weak global outlook and potential decline in SACU revenues.
- Policy implication: increases in current and capital spending planned under TIPEEG need to be unwound at the end of this initiative, if not before, to avoid these increases becoming locked into permanent growth in public spending.
- Institutional recommendation: present fiscal goals as formal commitments reflected in the fiscal framework beginning in FY2012/13, and then adhere to them.

### Revenue mobilization and tax policy
- Urgent action: measures proposed to strengthen the tax base and revenue collection need to be rapidly implemented.
- Tax incentives: revenue losses from tax incentives should be contained.
- Specific steps: full accounting of tax expenditures, updating and streamlining the incentive regime, and sunset provisions on the granting of exemptions.

### Prioritization and monitoring of development spending
- Need: rigorous prioritization and monitoring of development spending is essential.
- Quality of spending: ensure high-quality public spending, including sound execution of public investment.
- Capacity constraint: current plans for spending growth may need to be reined in to align with capacities to assess and implement development projects.
- Governance: apply transparent procurement processes; streamline and decentralize procurement while not compromising transparency.

### External position, reserves, and exchange rate policy
- Reserve adequacy goal: authorities’ goal of ensuring reserve adequacy by the benchmark of 3 months import cover for official reserves, along with other metrics, is supported by staff.
- Caveat: the 3 months import cover benchmark may not be entirely suitable for a resource intensive economy such as Namibia.
- Policy link: fiscal restraint is needed to help preserve a sound external position and the sustainability of the peg.
- Exchange rate peg: the peg to the rand has anchored macroeconomic and financial stability; at its current level the exchange rate appears broadly in line with its equilibrium value.
- Monetary policy alignment: further alignment of the BoN policy rate with that of SARB should be considered, particularly if fiscal consolidation takes place and if the weakening external environment spills over to the Namibian economy.

### Financial sector soundness
- Performance: Namibian banks have weathered the global financial crisis well.
- Remaining risks: vulnerabilities need to be contained given heightened global uncertainty.
- Regulatory progress: staff welcomes authorities’ progress in strengthening regulation and supervision of non-bank financial institutions and broader reforms under the new Financial Sector Strategy.
- Monitoring: enhanced monitoring of commercial banks’ exposure to mortgage lending is appropriate.
- Risk management: banks’ risk management practices should be carefully assessed, with pre-emptive measures deployed as needed to ensure banks have sufficient capacity to absorb shocks.

### Structural reforms, growth, and unemployment
- Importance: wide-ranging structural reforms are crucial to raise potential output growth and reduce high unemployment.
- Business environment: some survey-based measures of the business climate may be open to question, but there appears scope for strengthening business and trade conditions.
- TIPEEG: includes potentially useful measures, including improvements in transport infrastructure and in the tourism and agriculture sectors.
- Administrative reform: current efforts to streamline business registration procedures are welcomed.
- Labor market and skills: scope for further efforts to support creation of entry-level jobs (and hence on-the-job training), ensure migration rules allow businesses to overcome local skill shortages, and strengthen formal education and training systems.
- Expected outcome: these measures, together with reforms to improve the operation of labor markets, would support private investment and business formation.

### Development challenges and inequality
- Concern: widespread concerns by authorities and development partners about Namibia’s upper middle-income classification are striking.
- Need: ongoing domestic efforts, backed by external support, will be needed to tackle challenges posed by Namibia’s high level of income inequality and significant development needs.

*Source: NAMIBIA 2011 ARTICLE IV REPORT, INTERNATIONAL MONETARY FUND*

### 36.      Staff recommends that the next

### _cr1241 - 36.      Staff recommends that the next

### Recommendation
- Staff recommends that the next Article IV Consultation with Namibia take place on the standard 12-month cycle.

### National accounts and prices (selected indicators and projections)
- GDP at constant prices: 5.4; 3.4; -0.4; 6.6; 3.6; 4.2; 4.4; 4.4; 4.4; 4.4
- GDP deflator: 9.0; 13.7; 4.2; 1.0; 5.0; 5.7; 5.5; 5.4; 5.0; 4.7
- GDP at market prices (N$ billions): 62.1; 72.9; 75.7; 81.5; 88.6; 97.6; 107.5; 118.3; 129.7; 141.7
- GDP per capita (US$, constant 2000 exchange rate): 441; 450; 945; 1,895; 543; 597; 865; 307; 713; 377; 818; 461; 917; 0 (note: entries in source are continuous string; preserved as presented)
- Consumer prices (end of period): 7.1; 10.9; 7.0; 3.1; 5.7; 5.5; 5.2; 5.2; 4.5; 4.5

### External sector (selected indicators and projections)
- Exports (US$ growth): 9.9; 8.7; -1.7; 32.0; 12.0; 5.8; 6.0; 5.9; 6.8; 7.2
- Imports (US$ growth): 20.7; 24.8; 12.6; 20.4; 23.4; 3.5; 5.2; 5.0; 5.0; 5.8
- Export volume: -0.7; 6.4; 16.0; 8.1; -2.7; 6.3; 6.8; 6.8; 6.8; 6.8
- Import volume: 11.8; 13.1; 21.0; 0.5; 13.0; 3.0; 4.8; 4.5; 4.4; 5.0
- Terms of trade (deterioration -): 2.0; -6.9; -5.3; 0.3; 3.0; -1.0; -1.2; -1.3; -0.6; -0.4
- Real effective exchange rate (period average): -3.6; -3.9; 4.2; 4.3; ..................
- Current account balance (including official grants, percent of GDP): 9.1; 2.8; 1.8; -1.8; -6.3; -2.5; -3.6; -3.9; -3.3; -1.6
- Current account balance (excluding official grants, percent of GDP): -2.0; -9.8; -12.1; -12.7; -18.1; -15.3; -15.6; -14.8; -13.9; -12.1
- Gross official reserves (US$ millions, end of period): 906.6; 1,394.7; 1,918.7; 1,380.1; 1,438.7; 1,541.9; 1,459.0; 1,385.7; 1,537.4; 2,092.2
- Months of imports of goods and services (reserves): 2.4; 3.4; 3.9; 2.3; 2.3; 2.3; 2.1; 1.9; 2.0; 2.8
- External debt/GDP (percent): 25.7; 22.7; 24.6; 20.5; 23.2; 23.5; 23.8; 24.3; 24.8; 25.3
- Exchange rate (N$/US$, end of period): 6.8; 9.3; 7.4; 7.1; .................. 

### Balance of payments (selected levels and ratios)
- Current account (US$ millions): 804.9; 244.0; 164.5; -201.4; -777.3; -337.3; -500.6; -585.8; -522.2; -261.3
- Trade balance (US$ millions): -172.0; -682.7; -1,225.1; -1,114.9; -1,845.6; -1,807.1; -1,864.7; -1,909.4; -1,910.1; -1,936.0
- Exports, f.o.b. (US$ millions): 2,915.5; 3,169.7; 3,114.5; 4,111.0; 4,605.5; 4,870.7; 5,163.5; 5,468.4; 5,838.5; 6,261.0
  - Diamonds (US$ millions): 909.9; 770.7; 540.2; 827.2; 884.4; 893.1; 911.0; 929.2; 947.8; 966.7
  - Other minerals (US$ millions): 804.7; 939.6; 728.6; 938.4; 1,207.3; 1,301.8; 1,440.4; 1,577.9; 1,746.2; 1,941.4
  - Fish (US$ millions): 445.1; 367.0; 339.9; 408.9; 478.3; 494.4; 509.4; 524.3; 545.1; 569.4
- Imports, f.o.b. (US$ millions): -3,087.5; -3,852.4; -4,339.6; -5,226.0; -6,451.1; -6,677.7; -7,028.2; -7,377.7; -7,748.6; -8,197.1
- Services (net): 85.9; -41.9; 71.2; 147.6; 94.2; 178.2; 188.2; 308.2; 449.5; 577.6
- Income (net): -109.0; -156.3; 60.1; -466.4; -498.9; -432.2; -537.7; -615.8; -743.9; -662.9
- Current transfers (US$ millions): 1,000.1; 1,124.9; 1,258.2; 1,232.3; 1,473.0; 1,723.8; 1,713.6; 1,631.2; 1,682.2; 1,760.1
  - Of which: SACU receipts (US$ millions): 957.1; 959.8; 1,015.0; 937.0; 1,238.5; 1,466.1; 1,451.1; 1,379.6; 1,425.0; 1,503.0
- Capital and financial account (US$ millions): -694.9; -1,392.6; 23.4; 458.9; 835.9; 440.5; 417.7; 512.4; 674.0; 816.0
- Financial account (US$ millions): -778.1; -1,468.9; -42.8; 348.5; 756.5; 360.1; 337.7; 432.5; 593.9; 736.0
  - Direct investment (US$ millions): 729.2; 716.1; 521.3; 851.4; 987.6; 1,028.2; 1,130.4; 1,164.5; 1,304.6; 1,369.7
  - Portfolio investment (US$ millions): -1,470.3; -1,021.5; -590.7; -715.2; -865.5; -951.8; -1,044.2; -1,034.9; -1,022.9; -1,008.7
  - Reserve assets (increase -) (US$ millions): -444.2; -483.7; -525.9; 535.8; -58.6; -103.2; 82.9; 73.3; -151.7; -554.7
- Memorandum: Exports/GDP (percent): 39.9; 42.2; 42.1; 44.6; 44.7; 44.0; 44.3; 44.6; 45.2; 46.1
- Memorandum: Imports/GDP (percent): 40.8; 50.4; 55.0; 53.3; 58.8; 56.2; 56.3; 55.3; 54.5; 54.3
- Gross International reserves (end of period): 907; 1,395; 1,919; 1,380; 1,439; 1,542; 1,459; 1,386; 1,537; 2,092
- Months of imports of goods and services (memorandum): 3.0; 3.8; 4.7; 2.8; 2.4; 2.5; 2.2; 2.0; 2.1; 2.8
- Short-term debt (US$ millions): 718.8; 345.8; 211.3; 230.5; 230.5; 230.5; 230.5; 230.5; 230.5; 230.5
- GDP at market prices (US$ Millions): 8,811.7; 8,829.9; 8,931.0; 11,119.8; 12,372.5; 13,339.1; 14,074.7; 14,899.9; 15,756.9; 16,626.3

### Public finances — central government (selected levels, ratios, and projections)
- Total revenue and grants (N$ millions): 20,672; 23,447; 24,017; 23,378; 28,012; 33,375; 37,154; 39,556; 43,370; 47,354
- Revenue (N$ millions): 20,594; 23,364; 23,816; 23,354; 27,782; 33,145; 37,053; 39,445; 43,248; 47,221
- Tax revenue (N$ millions): 19,027; 21,086; 22,138; 21,393; 26,185; 31,383; 35,166; 37,372; 40,978; 44,741
  - Personal income tax (N$ millions): 3,714; 4,606; 5,084; 5,945; 6,832; 7,413; 8,462; 9,296; 10,179; 11,122
  - Corporate income tax (N$ millions): 2,834; 3,269; 2,852; 3,585; 4,944; 5,029; 6,631; 7,284; 7,976; 8,714
  - Taxes on international trade (includes SACU receipts) (N$ millions): 8,085; 8,502; 8,585; 5,976; 7,137; 11,118; 11,076; 10,910; 12,001; 13,081
- Nontax revenue (N$ millions): 1,568; 2,277; 1,678; 1,961; 1,597; 1,761; 1,887; 2,073; 2,270; 2,480
- Grants (N$ millions): 788; 320; 124; 230; 230; 102; 112; 122; 134; (projection entries continue)
- Expenditures and net lending (N$ millions): 17,541; 21,898; 25,712; 28,142; 36,124; 38,053; 42,209; 44,662; 47,140; 50,808
  - Current expenditures (N$ millions): 13,812; 16,854; 19,708; 22,153; 28,004; 30,848; 34,438; 36,315; 38,759; 41,255
  - Personnel (N$ millions): 6,805; 7,559; 9,045; 10,797; 13,375; 14,744; 16,187; 17,022; 17,979; 18,344
  - Interest payments (N$ millions): 1,179; 1,111; 1,197; 966; 1,838; 2,754; 3,264; 3,721; 4,257; 4,858
  - Capital expenditure (N$ millions): 2,530; 3,925; 5,334; 5,989; 7,852; 6,949; 7,467; 8,014; 8,015; 9,154
- Overall balance (N$ millions): 3,131; 1,549; -1,695; -4,764; -8,112; -4,678; -5,055; -5,106; -3,769; -3,454
- Overall balance excluding extrabudgetary spending (N$ millions): 3,486; 1,774; -893; -4,764; -6,757; -4,376; -4,752; -4,774; -3,406; -3,057
- Primary balance (N$ millions): 4,310; 2,659; -497; -3,798; -6,274; -1,924; -1,791; -1,385; 487; 1,404
- Financing (N$ millions): -3,131; -1,549; 1,695; 4,764; 8,112; 4,678; 5,055; 5,106; 3,769; 3,454
- Public and publicly guaranteed debt (N$ millions): 15,338; 16,418; 14,557; 15,482; 24,543; 29,645; 33,669; 38,545; 44,165; 50,021
- Public debt (N$ millions): 11,925; 13,389; 11,922; 13,470; 22,238; 26,983; 30,441; 34,999; 40,088; 45,344
- Net public and publicly guaranteed debt (N$ millions): 10,496; 9,184; 12,114; 15,361; 23,636; 28,829; 33,732; 38,615; 44,241; 50,104
- GDP at current market prices (N$ millions): 64,798; 73,629; 77,136; 83,291; 90,846; 99,909; 109,890; 120,711; 132,185; 144,423

### Fiscal ratios (percent of GDP)
- Total revenue and grants: 31.9; 31.8; 31.1; 28.1; 30.8; 33.4; 33.8; 32.8; 32.8; 32.8
- Expenditure and net lending: 27.1; 29.7; 33.3; 33.8; 39.8; 38.1; 38.4; 37.0; 35.7; 35.2
- Overall balance (percent of GDP): 4.8; 2.1; -2.2; -5.7; -8.9; -4.7; -4.6; -4.2; -2.9; -2.4
- Primary balance (percent of GDP): 6.7; 3.6; -0.6; -4.6; -6.9; -1.9; -1.6; -1.1; 0.4; 1.0
- Public and publicly guaranteed debt (percent of GDP): 23.7; 22.3; 18.9; 18.6; 27.0; 29.7; 30.6; 31.9; 33.4; 34.6
- Public debt (percent of GDP): 18.4; 18.2; 15.5; 16.2; 24.5; 27.0; 27.7; 29.0; 30.3; 31.4

### Monetary developments (Bank of Namibia and monetary survey)
- Reserve money (Bank of Namibia, end period, N$ millions): 2,124.9; 2,556; 3,244; 3,456; 3,807
  - Currency: 1,657; 1,705; 1,909; 2,035; 2,241
  - Reserves: 468; 851; 1,334; 1,422; 1,566
- Net foreign assets (Bank of Namibia, N$ millions): 12,859; 14,079; 9,098; 9,500; 10,699
- Net domestic assets (Bank of Namibia, N$ millions): -10,734; -11,523; -5,854; -6,044; -6,893
- Broad money (M2, N$ millions): 47,841; 49,568; 54,429; 55,399; 61,017
  - Currency (M2 component): 1,140; 1,157; 1,292; 1,807; 1,984
  - Deposits: 46,720; 48,432; 51,903; 53,592; 59,034
- Net foreign assets (monetary survey, N$ millions): 13,575; 16,933; 20,598; 21,046; 22,762
- Domestic credit (monetary survey, N$ millions): 25,840; 23,962; 32,603; 39,053; 44,749
  - Claims on central government (net): -4,643; -5,846; -1,839; 1,598; 3,497
  - Claims on private sector: 33,260; 36,578; 40,663; 44,219; 48,704
- M2-to-GDP ratio (percent): 65.6; 65.5; 66.8; 62.5; 62.5
- Credit to the private sector (percent of GDP): 45.6; 48.3; 49.9; 49.9; 49.9
- Base money multiplier (M2/base money): 22.5; 19.4; 16.8; 16.0; 16.0
- Reserve money annual percent change: 29.0; 20.3; 26.9; 6.6; 10.1
- Private sector credit annual percent change: 7.3; 10.0; 11.2; 8.7; 10.1
- Domestic interest rates (end of period): Deposit rate 8.6; 5.1; ....; Lending rate 13.7; 10.8; ....; BoN repo rate 10.6; 7.0; ....; Three-month T-bill rate 10.6; 7.1; .... 

### Millennium Development Goals (selected indicators, 1990–2009)
- Malnutrition prevalence, weight for age (% of children under 5): 21.5; ...; 20.3; 17.5
- Prevalence of undernourishment (% of population): 29.0; 29.0; 21.0; ...
- Literacy rate, youth female (% of females ages 15–24): 90.0; ...; 93.0; 95.0
- Literacy rate, youth male (% of males ages 15–24): 86.0; ...; 91.0; 91.0
- Primary completion rate, total (% of relevant age group): ...; 71.0; 92.0; 81.0
- Ratio of girls to boys in primary education (%): 108.0; 100.0; 101.0; 99.0
- 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
- Mortality rate, under-5 (per 1,000): 72.0; 71.0; 77.0; 42.0
- Births attended by skilled health staff (% of total): 68.0; ...; 76.0; 81.0
- Incidence of tuberculosis (per 100,000 people): 322.0; 465.0; 671.0; 747.0
- Prevalence of HIV, total (% of population ages 15–49): ...; ...; ...; 15.3
- Mobile phone subscribers (per 100 people): 0.0; 0.0; 0.0; 49.0
- Internet users (per 100 people): 0.0; 0.0; 1.6; 5.3

### Financial sector indicators (selected, 2005–10)
- Capital to assets: 7.8; 7.5; 7.9; 8.0; 7.9; 8.4
- Regulatory capital to risk-weighted assets: 14.6; 14.2; 15.7; 15.5; 15.0; 15.3
- Nonperforming loans to total gross loans: 2.3; 2.6; 2.8; 3.1; 2.7; 2.0
- Bank provisions to nonperforming loans: 85.3; 90.3; 77.2; 64.7; 66.2; ...
- Return on assets: 3.5; 1.5; 3.5; 4.2; 3.0; 3.5
- Return on equity: 45.6; 19.9; 44.9; 52.1; 38.4; 41.9
- Liquidity: Liquid assets to total assets: 1.2; 1.0; 1.1; 1.1; 1.0; 1.0
- Customer deposits to total (non-interbank) loans: 94.6; 101.8; 97.8; 103.9; 109.8; 106.2
- Foreign currency-denominated liabilities to total liabilities: 1.1; 2.5; 2.7; 1.6; 2.0; 3.7
- Number of banks: 4 (2005–2010); Private commercial banks: 1; Foreign-owned subsidiaries: 3

*Source: NAMIBIA 2011 ARTICLE IV REPORT — INTERNATIONAL MONETARY FUND (selected tables and text as provided in the source content).*

### 1. Common Indicators Required for Surveillance __________________________________________ 8

### 1. Common Indicators Required for Surveillance

### Fund relations and membership
- Joined September, 1990; Article VIII.
- Quota: 136.50 SDR (million) — 100.00 percent of Quota.
- Fund holdings of currency: 136.43 — 99.95 percent of Quota.
- Reserve position in Fund: 0.08 — 0.06 percent of Quota.
- SDR Department net cumulative allocation: 130.39 — 100.00 percent of Quota.
- SDR Department holdings: 5.27 — 4.04 percent of Quota.
- Outstanding Purchases and Loans: None.
- Financial Arrangements: None.
- Project Obligations to Fund: None.
- Implementation of HIPC Initiative: None.

### Exchange rate arrangements and Article IV consultations
- The exchange rate of the Namibian dollar is a fixed peg to the South African Rand.
- Namibia accepted the obligations of Article VIII, Sections 2, 3, and 4 of the Fund’s Articles of Agreement, as of September 20, 1996.
- Staff is gathering information to assess whether measures limiting provision of foreign exchange for advance payment for the import of capital goods (limit: 50 percent of the ex-factory cost) may give rise to exchange restrictions subject to Fund jurisdiction.
- Namibia is on a standard 12-month consultation cycle.
- The last Article IV consultation was concluded by the Executive Board on July 23, 2010.

### Technical assistance, 2006–11 (by Department and purpose)
- FAD (selected entries):
  - February 2006: Modernizing Tax Administration.
  - February 2006: Fiscal Regime for Mining and Processing.
  - June 2006: ROSC.
  - April 2007: Revenue Modeling and Forecasting.
  - September 2008: Public Financial Management.
  - April 2009: Incorporating Budget Programs in the Government Accounting System.
  - June 2009: PPPs: Building a Framework for managing fiscal Risks.
  - November 2009: Follow up to Program Budgeting.
  - January 2011: Initiating Tax Administration Reform.
  - January 2011: Developing the Agenda for Tax Reform.
  - February-March 2011: Managing the Budget on a Program Basis (MBPB).

- MCM (MFD) (selected entries):
  - June 2005: Payment Oversights.
  - April 2006: Payment Systems.
  - May 2006: Nonbank Financial Institutions Supervision.
  - October 2006: Lending policy, Monetary Operations, and Bank Supervision.
  - March 2007; August 2007; April 2008; November 2008; July 2009; March 2010: Risk-based Supervision / Payments Systems.
  - January 2011: Supervision of NBFIs.
  - December 2011: Stress testing training.

- STA (selected entries):
  - May 2006: National Accounts (GDDS Project).
  - June 2006: Government Finance Statistics (GDDS Project).
  - November 2006: SDDS Project.
  - October 2007: Monetary and Financial Statistics.
  - April 2008; May 2008; July 2008; Nov-Dec 2010; May 2011: National Accounts, Government Finance Statistics, Balance of Payments Statistics, Quarterly National Accounts, Monetary and Financial Statistics (EDDI Project).
  - Jan.-Feb. 2010; April 2010: National Accounts; Balance of Payments Statistics.

### Joint World Bank and IMF work program (as of December 1, 2011)
- World Bank indicative work program in the next 12 months (selected):
  - Policy notes on growth and employment: ongoing; dissemination workshop: Feb 2012.
  - Integrated Resource Plan TA (20-year energy investment strategy): 2011-12; Provisional Timing of Missions: July; Expected Delivery Date: 2012.
  - Statistical capacity building TA: Several missions throughout 2012; Launch in Feb 2012; to be completed in 2013.
  - Industrial competitiveness and technological capability study: Feb/Mar 2012; Completed by Dec 2012.
  - Money laundering risk assessment of financial inclusion products (tentative): Feb, mid-2012; Completed by Dec 2012.
  - Debt management TA (DeMPA and assistance with MTDS) (tentative): Feb/Mar and Jul/Aug 2012; Completed by Dec 2012.

- IMF indicative work program in the next 12 months (selected):
  - 2011 Article IV consultation: Nov 2011; Board meeting Feb 2012.
  - Technical assistance (TA): stress testing: Dec 2011.
  - TA: strengthening NAMFISA: 2011-12.
  - TA: tax administration: 2011-12.
  - TA: tax policy: 2012.
  - TA: national accounts and CPI (tentative): 2012.
  - 2012 Article IV consultation: Nov 2012.

- Joint products in next 12 months:
  - Debt sustainability analysis: December 2011.

### Statistical issues — assessment, standards, and reporting
- General: Data provision has some shortcomings, but is broadly adequate for surveillance.
  - Core monthly data are provided with a lag of one to two months, except national accounts and international trade data (quarterly and annually with longer lags).
  - A recently completed Household Income and Expenditure Survey will allow updating the CPI basket and re-estimating Gini coefficients.
- National Accounts:
  - Need to rebase national accounts (current base year: 2004).
  - Update tentatively scheduled for FY2012/13.
  - Seasonally adjusted quarterly national accounts (QNA) at 2004 prices are disseminated on Namibia’s National Planning Commission’s website; source data need improvement.
- Price Statistics:
  - Nation-wide CPI available from January 2002 (introduced February 2005).
  - CPI weights derived from 1993–94 National Household Income and Expenditure Survey; seasonal items and new products are excluded.
- Labor market data: Labor force, employment, and wages are not regularly collected.
- Government Finance Statistics:
  - Annual budgetary central government data by fiscal year reported on a cash basis in GFSM 2001 format; reasonably complete though with some detail gaps.
  - No fiscal statistics compiled for extra budgetary institutions, consolidated central government, or consolidated general government.
- Monetary and Financial Statistics:
  - Monthly monetary statistics for the Bank of Namibia (BoN) and ODCs reported regularly; timeliness for BoN can be improved.
  - Since April 2002, data based on standardized report forms consistent with Monetary and Financial Statistics Manual.
- Balance of Payments and IIP:
  - BoN reports balance of payments quarterly with a lag of one quarter; data subject to substantial revisions.
  - Methodology consistent with BPM5.
  - IIP compiled quarterly with a lag of one quarter; coverage needs expansion and restatement for comparison with balance of payments.
- Data Standards and Quality:
  - Namibia has participated in the GDDS since late 2002.
  - A ROSC (Data Module) was published in 2002 and updated in 2005.
- Reporting to STA:
  - MOF reports annual data for the Government Finance Statistics Yearbook; work on establishing monthly reporting is in progress.
  - BoN reports monetary and financial statistics to STA regularly.
  - Balance of payments and IIP data published in International Financial Statistics (IFS) and in the Balance of Payments Yearbook.

### Table 1 (Common Indicators Required for Surveillance — selected entries, As of December 21, 2011)
- Exchange rates: Date of Latest Observation 12/09/2011; Date Received 12/09/2011; Frequency of Data D; Frequency of Reporting D; Frequency of Publication D.
- International reserve assets and reserve liabilities of the monetary authorities: Date of Latest Observation Nov. 2011; Date Received Nov. 2011; Frequency M; Frequency of Reporting M; Frequency of Publication M.
- International investment position: Date of Latest Observation Jun. 2011; Date Received Oct 2011; Frequency Q; Frequency of Reporting Q; Frequency of Publication Q.
- Reserve/base money: Date of Latest Observation Jun. 2011; Date Received Oct. 2011; Frequency 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 Jun. 2011; Date Received Oct. 2011; Frequency M; Frequency of Reporting M; Frequency of Publication M.
- Central bank balance sheet: Date of Latest Observation Jun. 2011; Date Received Oct. 2011; Frequency M; Frequency of Reporting M; Frequency of Publication M.
- Consolidated balance sheet of the banking system: Date of Latest Observation Jun. 2011; Date Received Oct. 2011; Frequency M; Frequency of Reporting M.
- Interest rates: Date of Latest Observation 12/09/2011; Date Received 12/09/2011; Frequency D; Frequency of Reporting D; Frequency of Publication D.
- Consumer price index: Date of Latest Observation Oct. 2011; Date Received Nov. 2011; Frequency M; Frequency of Reporting M; Frequency of Publication M.
- Revenue, expenditure, balance, and composition of financing — central government: Date of Latest Observation Mar. 2011; Date Received Nov. 2011; Frequency A/Q/M; Frequency of Reporting Q; Frequency of Publication Q.
- Stocks of central government and central government-guaranteed debt: Date of Latest Observation Jun. 2011; Date Received Oct. 2011; Frequency A; Frequency of Reporting A; Frequency of Publication A.
- External current account balance: Date of Latest Observation 2011 Q3; Date Received Oct. 2011; Frequency A/Q; Frequency of Reporting A; Frequency of Publication A.
- Exports and imports of goods: Date of Latest Observation 2011 Q3; Date Received Oct. 2011; Frequency M; Frequency of Reporting M; Frequency of Publication M.
- GDP/GNP: Date of Latest Observation 2010; Date Received Oct. 2011; Frequency A; Frequency of Reporting A; Frequency of Publication A; Data Quality—Methodological Soundness: O, O, O, LO; Data Quality—Accuracy and Reliability: LNO, LO, LO, LO, O.
- Gross external debt: Date of Latest Observation Jun. 2011; Date Received Oct. 2011; Frequency A/Q; Frequency of Reporting A/Q; Frequency of Publication A/Q.

### Debt Sustainability Analysis — key findings, scenarios, and risks
- Public debt for FY2010/11: estimated at about N$13.5 billion (16.2 percent of GDP).
- Debt composition: About 24 percent owed to bilateral, multilateral and private foreign creditors; the rest is domestic debt.
- Historical trend:
  - Public debt fell from 26 percent of GDP in 2005/6 to 15.5 percent in 2009/10.
  - Domestic debt declined from 22.2 percent of GDP to 11.5 percent over the same period.
- Projection under current fiscal stance:
  - The current expansionary stance of fiscal policy is projected to increase debt sharply, bringing overall public debt to 35.3 percent of GDP in FY2016/17.
  - Further upside risks stem from a potential future decline in SACU revenues.

- Two scenarios (Table 2 summary):
  - Scenario 1 (historical 10-year averages):
    - Assumes real GDP growth, real interest rates, and the primary balance remain at their historical 10-year averages.
    - Public debt to GDP would reach 19.8 percent of GDP by 2016.
  - Scenario 2 (policies unchanged from 2010):
    - Assumes the primary deficit stands at 3.6 percent of GDP throughout the medium term.
    - Public debt rises sharply to 59 percent of GDP, breaching the authorities’ indicative limit of 35 percent of GDP.

- Sensitivity and bounds tests:
  - A negative growth shock (decline from 4.3 percent to 2.6 percent) could result in a 12 percentage point increase in the debt to GDP ratio.
  - Public debt is highly sensitive to shocks to the primary balance and contingent liabilities.

- External debt outlook:
  - In 2011, external debt is estimated to have increased by 3 percentage points to 23 percent of GDP, reflecting deterioration in the external position and the issuance of a Eurobond by the government (US$500 million).
  - External debt ratio projected to reach 25 percent of GDP in 2016.
  - Projected current account deficits are moderating but persist; impact on external debt is projected to remain modest because a large share of projected imports are related to foreign direct investment in the mineral sector.

*Source: 2011 ARTICLE IV REPORT—INFORMATIONAL ANNEX / STAFF REPORT FOR THE 2011 ARTICLE IV CONSULTATION—DEBT SUSTAINABILITY ANALYSIS (January 23, 2012).*

### 5.      The rising external debt ratio increases

### 5.      The rising external debt ratio increases

### Vulnerabilities and stress-test findings
- Namibia’s external debt ratio is increasingly vulnerable to external shocks, although risks are described as manageable.
- Stress tests indicate the external debt is mostly sensitive to a persistent non-interest current account shock:
  - That scenario would increase the external debt ratio to 44 percent of GDP.
  - The scenario can be interpreted as a sharp drop in external demand for Namibia’s mineral exports in a protracted global slowdown.
  - The report notes these should be seen as upper bound estimates, particularly because a standard DSA scenario does not capture likely impacts on relative prices.
- A one-off depreciation of 30 percent is estimated to sharply increase the debt ratio to around 40 percent of GDP by 2016.
- A scenario combining a relatively moderate shock to both current account balance and GDP growth is also estimated to increase the debt ratio to around 40 percent of GDP by 2016.
- A separate shock to GDP growth and interest rates is projected to have a relatively moderate impact on the external debt trajectory.

### Key projections and debt dynamics (public sector and external)
- Public sector debt (percent of GDP) — baseline series:
  - 2006: 21.0
  - 2007: 13.0
  - 2008: 8.8
  - 2009: 11.4
  - 2010: 15.2
  - 2011: 21.8
  - 2012: 25.6
  - 2013: 27.4
  - 2014: 29.4
  - 2015: 31.9
  - 2016: 34.7
- Public sector debt—foreign-currency denominated (percent of GDP):
  - 2006: 4.6
  - 2007: 4.9
  - 2008: 4.8
  - 2009: 4.2
  - 2010: 5.2
  - 2011: 4.9
  - 2012: 4.6
  - 2013: 4.7
  - 2014: 5.4
  - 2015: 6.2
  - 2016: 6.9
- Change in public sector debt (percent of GDP):
  - 2006: -6.1
  - 2007: -8.0
  - 2008: -4.2
  - 2009: 2.7
  - 2010: 3.8
  - 2011: 6.6
  - 2012: 3.8
  - 2013: 1.8
  - 2014: 2.0
  - 2015: 2.5
  - 2016: 2.8
- Identified debt-creating flows (percent of GDP):
  - 2006: -5.7
  - 2007: -7.2
  - 2008: -3.0
  - 2009: -0.1
  - 2010: 4.0
  - 2011: 7.0
  - 2012: 3.7
  - 2013: 2.3
  - 2014: 2.5
  - 2015: 1.8
  - 2016: 1.6
- Primary deficit (percent of GDP):
  - 2006: -4.4
  - 2007: -6.4
  - 2008: -4.2
  - 2009: -0.4
  - 2010: 3.6
  - 2011: 6.4
  - 2012: 3.1
  - 2013: 1.7
  - 2014: 2.0
  - 2015: 1.1
  - 2016: 0.8
- Public sector debt-to-revenue ratio (percent):
  - 2006: 71.2
  - 2007: 40.8
  - 2008: 28.1
  - 2009: 36.2
  - 2010: 52.6
  - 2011: 72.0
  - 2012: 77.9
  - 2013: 81.2
  - 2014: 89.2
  - 2015: 97.3
  - 2016: 106.0
- Gross financing need (percent of GDP):
  - 2006: 9.5
  - 2007: 6.3
  - 2008: 5.8
  - 2009: 9.8
  - 2010: 12.4
  - 2011: 15.6
  - 2012: 15.9
  - 2013: 16.6
  - 2014: 17.5
  - 2015: 17.8
  - 2016: 18.9
- Gross financing need (in billions of U.S. dollars):
  - 2006: 0.8
  - 2007: 0.6
  - 2008: 0.5
  - 2009: 0.9
  - 2010: 1.4
  - 2011: 1.9
  - 2012: 2.1
  - 2013: 2.3
  - 2014: 2.6
  - 2015: 2.8
  - 2016: 3.1

- External debt (percent of GDP) — baseline series:
  - 2006: 28.1
  - 2007: 25.7
  - 2008: 22.7
  - 2009: 24.6
  - 2010: 20.5
  - 2011: 23.2
  - 2012: 23.5
  - 2013: 23.8
  - 2014: 24.3
  - 2015: 24.8
  - 2016: 25.3
- Change in external debt (percent of GDP):
  - 2006: 2.7
  - 2007: -2.5
  - 2008: -3.0
  - 2009: 1.9
  - 2010: -4.1
  - 2011: 2.7
  - 2012: 0.2
  - 2013: 0.4
  - 2014: 0.5
  - 2015: 0.5
  - 2016: 0.5
- Identified external debt-creating flows (percent of GDP):
  - 2006: -7.2
  - 2007: -3.4
  - 2008: 0.6
  - 2009: -1.3
  - 2010: -2.8
  - 2011: 3.9
  - 2012: 1.9
  - 2013: 1.1
  - 2014: -0.1
  - 2015: -0.3
  - 2016: -0.4
- Current account deficit, excluding interest payments (percent of GDP):
  - 2006: -25.0
  - 2007: -21.4
  - 2008: -13.2
  - 2009: -8.3
  - 2010: -0.1
  - 2011: 2.9
  - 2012: 1.4
  - 2013: 0.9
  - 2014: -0.2
  - 2015: -0.5
  - 2016: 2.1
- External debt-to-exports ratio (percent):
  - 2006: 70.6
  - 2007: 64.4
  - 2008: 53.8
  - 2009: 58.3
  - 2010: 45.9
  - 2011: 52.0
  - 2012: 54.9
  - 2013: 55.3
  - 2014: 56.2
  - 2015: 56.5
  - 2016: 56.4
- Gross external financing need (in billions of US dollars):
  - 2006: 0.4
  - 2007: 1.0
  - 2008: 1.3
  - 2009: 0.7
  - 2010: 0.9
  - 2011: 1.4
  - 2012: 1.2
  - 2013: 1.2
  - 2014: 1.1
  - 2015: 1.2
  - 2016: 0.7
- Gross external financing need (percent of GDP):
  - 2006: 4.8
  - 2007: 11.6
  - 2008: 15.0
  - 2009: 8.1
  - 2010: 8.4
  - 2011: 11.1
  - 2012: 9.3
  - 2013: 8.7
  - 2014: 7.6
  - 2015: 7.4
  - 2016: 4.2

### Key macroeconomic assumptions underlying baseline projections
- Real GDP growth (in percent):
  - 2006: 7.1
  - 2007: 5.4
  - 2008: 3.4
  - 2009: -0.4
  - 2010: 6.6
  - 2011: 3.6 (table) / 4.7 (external DSA table)
  - 2012: 4.2 (table) / 3.5 (external DSA table)
  - 2013–2016: 4.4 each year (public DSA table) / 3.6–4.4 range (external DSA table)
- Average nominal interest rate on public debt (in percent):
  - 2006: 9.9
  - 2007: 10.6
  - 2008: 14.0
  - 2009: 18.4
  - 2010: 11.8
  - 2011: 13.1
  - 2012: 13.1
  - 2013: 12.6
  - 2014: 12.3
  - 2015: 12.2
  - 2016: 12.3
- Inflation rate (GDP deflator, in percent):
  - 2006: 9.3
  - 2007: 9.0
  - 2008: 13.7
  - 2009: 4.2
  - 2010: 1.0
  - 2011: 5.0
  - 2012: 5.7
  - 2013: 5.5
  - 2014: 5.4
  - 2015: 5.0
  - 2016: 4.7

### Macroeconomic outlook, external position, and reserves (excerpts)
- Economic rebound and growth:
  - GDP is estimated to have increased by 6.6 percent in 2010, supported by rising diamond and uranium production and growth in non-mining sectors.
  - 2011 growth is assessed as having slowed, with GDP possibly rising by 3½–4 percent.
  - For 2012, growth is projected to be around 4 percent.
- Inflation and labor market:
  - Inflation remains moderate and is expected to remain within single digits.
  - Official unemployment rate from the 2008 Labor Force Survey:
    - Broad measure: 51.2 percent
    - Strict measure: 37.6 percent
  - Income inequality is described as high by international standards.
- Fiscal stance and public debt:
  - FY2011/12 fiscal stance expanded significantly with a new program to increase long-term growth and employment through increased infrastructure spending and temporary public-sector jobs.
  - Fiscal deficit in FY2011/12 is expected to be around 9 percent of GDP.
  - Public debt is projected to rise to nearly 25 percent in FY2011/12 (compared with 16 percent of GDP in FY2010/11).
- Monetary policy and financial sector:
  - Bank of Namibia policy rate maintained at 6 percent since December 2010, 50 basis points above the South African Reserve Bank rate.
  - Official foreign exchange reserves at end-2011: US$1.9 billion (including US$500 million Eurobond proceeds).
  - Reserves provide around 3.0 months of import cover.
  - Banking sector conditions improved; supervision of non-bank financial institutions is being strengthened.
- External position risks:
  - Despite a rebound in exports, Namibia’s external position weakened over 2010–11 due to strong import growth (supported by expansionary fiscal stance) and lower SACU revenues in 2010.
  - The fragile external climate poses downside risks for commodity demand and prices.
  - Expansionary fiscal stance could lead to strong domestic demand and import growth, putting upward pressure on non-tradable prices and weakening competitiveness and diversification efforts.

### Executive Board assessment and policy recommendations
- Executive Directors welcomed the strong recovery and favorable medium-term outlook, but cautioned about substantial downside risks, including global spillovers, high unemployment, and income inequality.
- Recommended policy actions:
  - Rebuild policy buffers by pursuing prudent fiscal policies and prioritizing public spending.
  - Safeguard reserves and press ahead with structural reforms to boost growth potential.
  - Timely unwinding of the current fiscal stimulus, particularly if external conditions deteriorate.
  - Strengthen the domestic revenue base and rigorously prioritize and monitor public spending to address volatility in mineral and SACU revenues.
  - Remain vigilant on financial sector risks, especially banks’ exposure to the domestic housing sector and rapid house-price increases.
  - Consider closer alignment of the Bank of Namibia’s policy rate with that of the South African Reserve Bank if fiscal stimulus is unwound or if the domestic economy slows.
  - Focus on wide-ranging structural reforms to address unemployment and inequality—emphasize stronger private investment, improved education and training, better functioning labor and product markets, and easing business registration procedures.
- Directors noted the peg to the South African rand has served Namibia well and that the exchange rate appears broadly in line with fundamentals.
- Directors welcomed Namibia’s reclassification as an upper middle income country, while some Directors supported the authorities’ request for donors to postpone phasing out concessional support given ongoing development challenges.

*Source: IMF staff report excerpts from "NAMIBIA 2011 ARTICLE IV REPORT—DEBT SUSTAINABILITY ANALYSIS".*

### Introduction

### _cr1241 - Introduction

### Authorities' assessment and objectives
- Authorities appreciate constructive engagement with staff and find the staff report "informative, well balanced, and a source of meaningful advice on the country's economic program and policy challenges."
- Primary objectives:
  - Address pervasive unemployment and preserve macroeconomic stability.
  - Sustain growth momentum.
  - Achieve Vision 2030: "industrial, knowledge-based society with high per capital income and near full employment by the year 2030."
- Recent initiative:
  - Targeted Intervention Program for Employment and Economic Growth (TIPEEG): a three-year, specialized short-term program launched in 2011 focusing on agriculture, tourism, transport, and housing and sanitation.
  - Fiscal expansion under TIPEEG estimated at about 15% of GDP in FY2011/12 (first year).
  - Expected outcomes: preservation and creation of over 100,000 direct and indirect job opportunities.
  - Authorities commit to unwinding the TIPEEG spending intervention at the end of the current MTEF.

### Recent economic developments and prospects
- Pre-crisis performance:
  - Growth averaged 6.3 percent between 2004 and 2008.
  - Inflation at single digits prior to crises.
  - Public debt reduced from 28 percent in 2004 to 16 percent in 2009.
- Crisis and recovery:
  - Growth rebounded to a real increase of 6.6 percent in 2010.
  - Growth slowed to an estimated 3.8 percent in 2011.
  - Average annual inflation rate for 2011 at 5.0 percent (2010: 4.5 percent).
  - Official foreign exchange reserves increased via $US500 million Eurobonds issuance; as at end-December 2011 reserves stood at around US$1.86 billion, representing over 3 months of forward-looking import cover.
  - Economy projected to grow by 4.2 percent during 2012.
- Medium-term outlook and risks:
  - Upside supports: potential increase in diamond and uranium production, infrastructural development partly due to TIPEEG, growth in non-mining sectors, and prospects for future oil production.
  - Downside risks: sovereign debt crisis in the Euro Area and weaker-than-anticipated global recovery could lower commodity prices, reduce mining output, and decrease export earnings.

### Fiscal policy developments and outlook
- Fiscal stance:
  - Prudent fiscal policy aimed at promoting growth, service delivery, and socio-economic welfare while maintaining macroeconomic stability.
  - Expansionary fiscal stance adopted in FY2009/10; significant fiscal stimulus in FY2011/12 supporting TIPEEG widened the overall deficit.
  - Public debt expected to remain relatively low, at below 25 percent of GDP for FY2011/12.
- Authorities' reactions to staff analysis:
  - Take particular note of staff’s debt sustainability analysis that highlights longer-term unsustainability of the current fiscal stance and vulnerability to negative growth shocks.
  - Confident in capacity to rein in public debt and preserve sustainability medium to long term.
- Revenue and fiscal-framework measures:
  - Commitment to widen fiscal space by enhancing revenue collection and strengthening tax administration.
  - Amendments submitted to broaden/deepen the tax base: income tax act and value added tax act.
  - Efforts: streamline tax procedures, improve computerization of tax collection, adopt taxpayer self-assessment system.
  - Exploring introduction of an export levy on raw material exports and specific environmental taxes.
  - Near-term SACU revenue outlook seems favorable but with downside risks.
  - Commitment to implement fiscal rules based on sustainable non-SACU fiscal balance and strengthen the budget framework and processes.
- Public financial management:
  - Strengthen public financial management via integrated tax management system to simplify administration and improve taxpayer services.
  - Expenditure reviews and tracking to be carried out during this MTEF period.
  - Roll-out of program-budgeting to all votes.

### Monetary and exchange rate policy
- Monetary policy constraints and actions:
  - Limited scope for independent monetary policy due to membership of the Common Monetary Area (CMA).
  - Bank of Namibia (BoN) adopted an expansionary monetary policy response to the global crises.
  - Repo rate reductions: reduced by 300 basis points in 2009 and a further 100 basis points to 6 percent in 2010.
  - BoN has maintained the repo rate at 6 percent given benign inflation and weak domestic recovery.
- Exchange rate policy:
  - Authorities view the peg to the South African rand as an appropriate monetary anchor and are committed to maintaining it.
  - Policy actions to maintain international reserves well-above the threshold of 3 months of import cover.
  - Staff assessment that the real effective exchange rate remains broadly in line with economic fundamentals is welcomed.

### Financial sector developments and reforms
- System resilience and risks:
  - Financial system resilient, sound, and well-functioning through the global crises.
  - Commercial banking sector: well capitalized, provisioned, profitable, with minimal direct exposure to foreign financial institutions.
  - Authorities mindful of risks from banks’ loan exposures to the real estate sector and stand ready to apply macroprudential measures to mitigate potential house price bubble risks from cross-border real estate purchases.
- Regulatory and inclusion reforms:
  - Plans to strengthen Namibia Financial Institutions Supervisory Authority (NAMFISA), including supervision capacity for nonbank financial institutions (NBFIs).
  - Financial Institutions and Markets Bill approved by Cabinet and expected to receive parliamentary approval in coming months.
  - Ten-year Financial Sector Strategy (FSS) launched in December 2011 to address system shortcomings and build a more resilient, competitive, and dynamic financial system.
  - FSS key focus: financial inclusion through an enabling environment, consumer literacy and protection, localization of the financial sector, financial system deepening and development.
  - An Action Plan with clearly defined expected outcomes has been developed for monitoring and evaluation.

### Structural reforms
- Commitment to far-reaching structural reforms aimed at broadening growth, reducing income inequality, and lowering unemployment.
- Ongoing initiatives:
  - TIPEEG to spur activity in strategic sectors and create jobs.
  - Legislative amendments underway to modernize: Foreign Investment Act, manufacturers’ incentives, Export Processing Zones (EPZ), and Exploration and Prospecting Licenses (EPLs).
  - Commitment to reduce cost of doing business via significant investment in infrastructure and energy.
  - Policies to foster competitiveness and enhance productivity expected to be central to NDP4.

### Reclassification and concessional financing concerns
- Concern over recent reclassification as an upper middle-income country and its financial implications:
  - Reclassification precludes access to concessional financing.
  - Authorities argue that high income inequality and development challenges are not reflected in the classification methodology.
  - Staff analysis using the World Bank’s International Comparison Program (ICP) based on purchasing power parity highlights Namibia’s low ranking in living standards and consumption patterns relative to regional comparators.
  - Reclassification consequences: ineligibility for renewal of assistance under the Millennium Challenge Corporation and limited access to EU concessional financing.
  - Authorities intend to argue for postponement of donor actions in phasing out concessional support given global downturn impacts.

### Conclusion
- Authorities remain committed to:
  - Pursuing sound macroeconomic policies.
  - Implementing far-reaching structural reforms to address high unemployment, promote external competitiveness, and enhance productivity.
  - Judicious implementation of TIPEEG to create job opportunities and unlock growth potential.
  - Unwinding fiscal expansion at the end of the initiative to preserve medium to long-term fiscal sustainability.

*Source: _cr1241 - Introduction_*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2012/_cr1241.pdf_