## Credit and GDP Growth and Financial Stability

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---

### Context: macroeconomic backdrop and recent developments
- Namibia is a small, upper middle-income country in the Common Monetary Area; the Namibian dollar is pegged at par to the South African rand, which is legal tender in the country.
- Real GDP growth: 4½ percent in 2014 (5 percent in 2013).
- Inflation: contained owing to low international commodity prices.
- Unemployment: 28.1 percent in 2014 (29.6 percent in 2013).
- Mining expected to account for 15 percent of GDP by 2018 (major projects: Otjikoto, Tschudi, Husab).
- Money supply growth: 14.3 percent (year-on-year) as of May 2015.
- Access to financial services improved: excluded ratio declined from 52 percent in 2007 to 31 percent in 2011 (FinScope).

### Credit dynamics, growth links, and financial stability concerns
- Private sector credit: average annual growth exceeded 15 percent since 2012.
- Short-term causality: VAR-based estimates did not detect Granger causality between private domestic credit (from banks) and output.
  - Possible reasons: concentration of credit to construction and real estate (~8 percent of GDP); economic activity driven by government spending and externally financed mining; coincident movements of credit and GDP.
- Long-run relation: Johansen cointegration and VECM (4 lags) indicate a 1 percent increase in real credit is associated with a 0.47 percent increase in real GDP in the long-run.
- Financial stability concerns:
  - Rapid credit expansion and concentration raise systemic risk and may push house prices above fundamentals.
  - Credit-to-GDP gap analysis: aggregate credit-to-GDP ratio below historical trend; historical trend may be biased upward by very rapid credit growth following independence.
  - Aggregate figures mask sectoral risks (e.g., personal loans growth).
- Data limitation: analysis based on bank credit to the private sector; NBFIs not included (NBFIs invest mainly in government bonds, bank deposits, and dual listed companies).

### Key statistics on credit, housing, and reserves
- Private sector credit growth: average annual growth exceeded 15 percent since 2012.
- Money supply growth: 14.3 percent (y/y) as of May 2015.
- House prices: increased by 87 percent over the last five years (Namibia: House Prices (Average, 2009=100)).
- Mortgage sector: mortgage sector accounting for 52 percent of total loans at end-2014.
- Household indebtedness: estimated at around 85 percent of disposable income in 2014 (BoN estimate).
- International reserves: US$1 billion (8¼ percent of GDP or 1½ months of imports) as of end-May 2015.

### Policy discussion: short- and longer-term priorities
- Short-term priorities:
  - Build adequate international reserves to strengthen resilience under the exchange rate peg.
  - Manage systemic risks from rapid credit growth and housing market pressures.
- Longer-term priority:
  - Promote inclusive growth and job creation through diversification and skills development.

---

### Fiscal policy stance and implications
- Fiscal policy: remained expansionary to promote growth and employment.
- 2014/15 overall fiscal deficit: 3¾ percent of GDP.
- Budget 2015/16 envisages a larger deficit with higher subsidies/transfers and capital expenditures and lower SACU revenues (declined by 1¾ percent of GDP from 2014/15).
- Staff estimate: revenue forecast underlying 2015/16 budget appears overestimated; deficit could reach 6¾ percent of GDP.
- Notable fiscal ratios (2012/13–2015/16, staff estimate; percent of GDP):
  - Total revenue and grants: 32.9, 32.2, 35.1, 35.5, 33.0.
  - Domestic revenue: 20.3, 20.7, 22.9, 25.1, 22.7.
  - SACU revenue: 12.4, 11.3, 12.1, 10.3, 10.3.
  - Expenditures: 34.5, 36.4, 38.9, 40.6, 39.7.
  - Overall balance: -1.6, -4.2, -3.8, -5.1, -6.7.
  - Overall balance (excl. SACU revenue): -14.0, -15.6, -15.8, -15.4, -17.0.
- Fiscal factors:
  - Large Taxpayer Office established June 2014.
  - Civil service salary increase: 10 percent plus a 2 percent notch increase.
  - Subsidies and transfers expected to increase by 0.9 percentage points of GDP from 2014/15.

### Public debt and financing pressures
- Staff projections (baseline): public debt would exceed the government’s target of 35 percent of GDP under the baseline.
- Public debt indicators (selected baseline series, percent of GDP unless noted):
  - Total public debt: 26.2 24.0 22.7 24.0 28.3 33.3 34.9 35.3 36.1 36.9.
  - Public gross financing needs (selected years): 3.8, 3.4, 5.8, 10.5, 14.9, 15.1, 14.1, 13.1, 11.5 (percent of GDP for years shown).
- Key finding: about 90 percent of the loans are at fixed interest rate.

---

### Reserve adequacy, vulnerability, and IMF metric
- Reserve adequacy assessment:
  - Reserves on the range of 100-150 percent of the composite IMF metric are considered adequate.
  - Current reserves are only about 60 percent of the minimum adequate level (3‒5 months of imports or 16‒20 percent of GDP).
  - Over the past fifteen years reserves were sub-optimal about seventy percent of the time.
- May 2015 reserves: US$1.1 billion (8.2 percent of GDP or 1.5 months of imports); decline of about 9 percent of GDP since 2009.
- IMF metric components and fixed-exchange-rate weights:
  - Short-term Debt 30%, Other Liabilities 20%, Broad Money 10%, Exports 10%.
- Policy implication: with bleak prospects for SACU transfers and the fixed exchange rate, securing sufficient international reserve buffers is important; recommending a mix of fiscal restraint and additional foreign financing.

---

### Staff baseline scenario (medium-term outlook)
- Baseline assumptions and outcomes:
  - Moderate fiscal consolidation with enhanced external financing (not enough to sufficiently raise international reserves).
  - Growth would rise to 6 percent by 2017/18 supported by mining and construction.
  - Fiscal balances broadly consistent with government’s medium-term indicative target (deficits of 5 percent of GDP on average over the medium term), with upfront consolidation efforts but consolidation fatigue assumed to stall pace after a few years.
  - External financing requirement: External financing of about N$12 billion (6 percent of GDP) required over the next five years to mitigate the SACU revenue shock.
  - Reserves outcome: international reserves would remain at around 1½‒2 months of imports.
  - Public debt outcome: public debt would exceed the government’s target of 35 percent of GDP.
- Selected baseline projections (selected exact figures, percent or months):
  - GDP growth (annual change): 5.1 5.1 5.1 4.5 4.8 5.0 6.2 5.8 4.5 4.4.
  - Credits to private sector (annual change): 9.3 16.9 14.5 16.5 9.5 9.0 10.4 11.4 10.3 10.0.
  - Fiscal balance: -8.5 -1.6 -4.2 -3.8 -6.7 -7.8 -5.2 -4.0 -4.0 -4.1.
  - Gross international reserves (month of imports): 3.0 2.8 2.2 1.8 1.5 1.5 1.5 1.6 1.7 1.7.

---

### Reform scenario (enhanced consolidation and external financing)
- Objective: achieve adequate international reserves and modest debt levels (below government’s debt ceiling) while safeguarding critical social and development spending.
- Required consolidation: spending cuts of 9‒10 percent of GDP over the next five years to achieve a balanced budget over the medium term and increase reserve coverage to three months of imports.
- External financing: An external bond issuance (or other external financing) of about N$12 billion over the next five years would help mitigate the SACU revenue shock while keeping public debt below 35 percent of GDP.
- Policy measures (exact sequencing preserved):
  - Contain expenditures via growth-friendly fiscal consolidation—reining in current spending (wages and transfers and subsidies to public enterprises) while preserving productive infrastructure spending.
    - Restrain non-priority spending (goods and services, subsidies, transfers to public enterprises) and the wage bill.
    - Wage-bill measures: (i) “freezing wages in real terms,” (ii) “limiting new hiring to critical areas (e.g., education, health),” and (iii) “reducing various allowances, overtime, and bonus payments.”
    - Initial step: reduce travel expenses by enforcing a limit on the number of official trips per year.
  - Enhance revenue administration: “improving tax compliance, reducing tax expenditures, and prioritizing the collection of tax arrears.”
  - Increase external financing within the government’s debt ceiling: consider “external bond (preferably rand denominated) or other options (e.g., borrowing from international partners, or credit lines),” while assessing interest rate and rollover risks.
    - Monitor liabilities of regional and local authorities and fiscal risk from increasing explicit/implicit sovereign guarantees; diversify the debt portfolio.
  - Support consolidation with structural measures: “introducing a single treasury account, conducting public expenditure reviews, enacting a new public financial management bill,” improve SOE reporting and procurement, and strengthen public investment management.
- Quantified outcome claim: “With the envisaged fiscal consolidation under the reform scenario, expenditures would return to the 2003‒2007 levels.”
- Selected reform scenario projections (selected exact figures):
  - Fiscal balance: -8.5 -1.6 -4.2 -3.8 -6.7 -7.8 -3.9 -0.9 0.2 0.7.
  - Gross international reserves (month of imports): 3.0 2.8 2.2 1.8 1.5 1.5 1.7 2.2 2.7 3.2.
  - Total public debt: 26.2 24.0 22.7 24.0 28.3 33.3 33.7 31.2 28.2 24.9.

### Authorities’ intentions and implementation steps
- Authorities affirmed intention to tighten fiscal policy stance with stepped-up revenue efforts and expenditure control along reform scenario lines.
- Scope to rationalize government transfers to public enterprises by 2¼ percentage points of GDP via strengthened monitoring.
- Authorities expect improvements from establishment of an autonomous revenue agency.
- Plans to strengthen cash management and expenditure control (e.g., introducing a real-time budget reporting system).
- Government plans a midyear budget review (in October) to update the medium-term fiscal framework with the SACU revenue shock and specify consolidation measures.

---

### Financial sector developments, systemic risks, and macroprudential recommendations
- Banking system: well capitalized and profitable, with low levels of nonperforming loans.
- NBFIs: well capitalized, average solvency exceeding statutory requirement; NBFIs are a significant funding source for banks (deposit reliance).
- Real estate: house prices increased sharply since independence; between 2009 and 2014 average residential property prices increased by about 85 percent (staff text also reports 87 percent over last five years).
- Identified systemic risks:
  - House price over-valuation estimated around 20 percent nationally; stress tests: under most adverse tail-risk scenarios some banks could face difficulty meeting capital requirements; extreme scenario: commercial bank credit could drop significantly three years after the shock and growth could potentially decline by about 10 percent.
  - Short-term wholesale deposits (70‒80 percent of total bank funding) create liquidity and maturity risks.
  - Low international reserves constrain BoN’s lender-of-last-resort capacity under the fixed exchange rate.
  - Large NBFIs and tight links with banks raise contagion potential and complicate oversight.
  - Cross-border linkages, especially with South Africa, increase contagion risk.
- Recommended macroprudential and supervisory measures:
  - Consider introducing loan-to-value ratio (LTV) and debt service-to-income ratio (DSTI) limits:
    - BoN intends LTV limits on non-primary residences to “constrain house purchases financed with mortgage loans for investment purposes.”
    - Complement LTV with DSTI limits; consider LTV limits on primary residences “as needed.”
    - Monitor leakage risk and extend limits to other financial institutions engaged in real estate business.
    - Design, calibrate, and time measures to “mitigate financial stability risks without hampering affordability for lower income groups and causing excessive house price corrections.”
    - Pair macroprudential measures with policies addressing supply constraints, serviced land delivery delays, and absence of a capital gains tax.
  - Strengthen NBFI supervision:
    - Enact the Financial Institutions and Markets (FIM) Bill.
    - NAMFISA to adopt risk-based supervision criteria capturing size, complexity, and interconnectedness.
    - Address NAMFISA’s significant resource and capacity constraints.
  - Enhance cross-border coordination:
    - Use existing MOUs with SARB, South Africa’s Financial Services Board, and Bank of Botswana; BoN participation in supervisory colleges for South African banking groups.
    - Coordinate macroprudential measures through reciprocity agreements; expand MOUs to cover resolution and crisis management; strengthen cross-border insurance cooperation.

---

### Growth, unemployment, diversification, and structural recommendations
- Labour market:
  - Youth unemployment: 39.2 percent (Labor Force Survey 2014).
  - Unemployment by education (Labor Force Survey 2014): junior secondary 34.2 percent; primary 29.5 percent; employment probability rises significantly with tertiary education.
- Diversification:
  - Limited progress in diversification and insufficient job creation; mining share increased but is not labor intensive.
  - Government intends to phase out EPZ incentives and shift incentives toward infrastructure and technology.
- Government measures and plans:
  - Introduce free secondary education (from 2016).
  - Expand vocational education, implement skills levy, establish entrepreneurship training and internships.
  - Implement “Growth at Home” strategy targeting value addition, market access, and investment climate; strategic industries include agro and fish processing, steel manufacturing, automotive, chemical, and jewelry.
  - Create one-stop shop for investors via Investment Bill and Business and Intellectual Property Authority.
- Policy recommendations to foster job creation:
  - Improve business conditions to encourage investment in labor-intensive production.
  - Facilitate financial intermediation with proper supervisory oversight.
  - Reduce skill mismatches by improving basic education quality, upgrading teacher quality, and aligning vocational training with industry needs.
  - Swiftly implement policy actions under the Fourth National Development Plan (NDP4, 2012/13-2016/17).

---

### Risks, stress tests, and staff appraisal
- Principal near-term risks:
  - Highly volatile SACU revenues without sufficient reserves.
  - Potential systemic risk from rapid real estate price increases; both risks could weaken growth and fiscal sustainability.
- Stress-test findings:
  - Scenarios (primary balance, growth, interest rate, 30 percent real depreciation, SACU revenue shock) show significant sensitivity of debt dynamics to macro-fiscal shocks.
  - External-debt bound tests: various shocks raise external debt substantially (examples cited: CA shock, combined shock, 30 percent real depreciation).
- Staff appraisal:
  - Since the global financial crisis, growth driven by construction, mining and expansionary fiscal policy; rapid credit growth accompanied these developments.
  - Despite income and some job gains, unemployment remains high and external balance pressures increased; real estate prices have risen.
- Recommended immediate actions:
  - Build an adequate international reserve buffer.
  - Implement targeted macroprudential policies promptly (e.g., LTV and DSTI limits) while assessing distributional effects.
  - Pursue tighter fiscal policy under reform scenario to ensure debt sustainability.
  - Progress economic diversification and skills development to address high youth unemployment.
  - Next Article IV consultation recommended on the standard 12-month cycle.

---

### Risk Assessment Matrix — selected high-probability risks and policy responses
- Protracted slower growth in key advanced and emerging economies:
  - Likelihood: HIGH (Euro area and Japan), MEDIUM (Emerging markets).
  - Impact: MEDIUM — lower SACU revenues, weaker demand, deteriorating external balances, lower growth.
  - Policy response: step up structural reforms, diversify export markets, build international buffer via fiscal consolidation and external financing.
- Tighter or more volatile global financial conditions:
  - Likelihood: HIGH.
  - Impact: HIGH — forced interest rate increases, worse external balance, higher debt service costs, slower consolidation.
  - Policy response: obtain additional external financing (rand denominated), fiscal consolidation, improve PFM and public sector efficiency.
- Adjustment of house prices in Namibia:
  - Likelihood: MEDIUM.
  - Impact: HIGH — increase in NPLs, erosion of bank capital, adverse growth effects.
  - Policy response: monitor systemic risks and implement targeted macroprudential policies.

*Source: IMF staff report excerpt — “Credit and GDP Growth and Financial Stability” (Namibia), and associated chapters and annexes from _cr15276.*

### 1. Credit and GDP Growth and Financial Stability __________________________________________________ 6

### 1. Credit and GDP Growth and Financial Stability

### Context: macroeconomic backdrop and recent developments
- Namibia is a small, upper middle-income country with close economic linkages to South Africa and membership in the Common Monetary Area (CMA); the Namibian dollar is pegged at par to the South African rand, which is legal tender in the country.
- Real GDP growth moderated to 4½ percent in 2014 (from 5 percent in 2013), reflecting lower global demand for main export commodities (e.g., diamond, and uranium).
- Inflation remained contained, due to low international commodity prices (e.g. fuel).
- Unemployment declined to 28.1 percent in 2014 from 29.6 percent in 2013.
- Mining is expected to account for 15 percent of GDP by 2018, supported by major projects: Otjikoto gold mine (from December 2014), Tschudi copper mine (from February 2015), and Husab uranium mine (from end 2016).
- Overall money supply grew by 14.3 percent (year-on-year) as of May 2015.
- Access to financial services improved: the ratio excluded from financial services declined from 52 percent in 2007 to 31 percent in 2011 (FinScope).

### Credit dynamics and links to growth (Box 1)
- Average annual growth of private sector credit has exceeded 15 percent since 2012, with strong demand from households and corporates (particularly construction, real estate, and trade and accommodation).
- Short-term causality:
  - VAR-based estimates did not identify the direction of short-term causality between private domestic credit (from banks) and output; no Granger causality detected.
  - Possible reasons: (i) domestic credit flows mainly to construction and real estate (about 8 percent of GDP); (ii) economic activity largely depends on government spending and mining (mostly externally financed); (iii) private credit and GDP growth may be coincident, complicating causality estimation.
- Long-run relation:
  - Cointegration analysis (Johansen test, VECM with 4 lags) indicates a long-term relationship between credit and GDP: a 1 percent increase in real credit is associated with a 0.47 percent increase in real GDP in the long-run.
  - Channels include mobilization of savings, information sharing, resource allocation, risk management, and trade finance supporting mining and construction.
- Financial stability concerns:
  - Rapid credit expansion and concentration in the loan book raise systemic risk concerns and may push house prices above fundamentals.
  - Credit-to-GDP gap analysis did not confirm excessive credit growth (credit-to-GDP ratio below historical trend), but the long-term trend may be biased upward by very rapid credit growth following independence.
  - Aggregate credit figures can mask sector-specific risks (e.g., growth in personal loans).
- Data limitation: analysis based on bank credit to the private sector; non-bank financial institution credit not included (NBFIs invest mainly in government bonds, bank deposits, and dual listed companies).

### Key statistics on credit, housing, and reserves
- Private sector credit growth: average annual growth exceeded 15 percent since 2012.
- Money supply growth: 14.3 percent (year-on-year) as of May 2015.
- House prices: increased by 87 percent over the last five years (Namibia: House Prices (Average, 2009=100)).
- International reserves: US$1 billion (8¼ percent of GDP or 1½ months of imports) as of end-May 2015.

### Fiscal policy stance and implications
- Fiscal policy remained expansionary to promote growth and employment.
- 2014/15 overall fiscal deficit: 3¾ percent of GDP.
- Budget 2015/16 envisages a larger deficit with increases in subsidies and transfers and capital expenditures and lower SACU revenues (declined by 1¾ percent of GDP from 2014/15).
- Based on recent data, the revenue forecast underlying the 2015/16 budget seems overestimated and the deficit could reach 6¾ percent of GDP.
- Notable fiscal details (2012/13–2015/16, staff estimate):
  - Total revenue and grants: 32.9, 32.2, 35.1, 35.5, 33.0 (percent of GDP) across columns 2012/13 Act, 2013/14 Act, 2014/15 Est, 2014/15 Budget, Staff estimate (2015/16).
  - Domestic revenue: 20.3, 20.7, 22.9, 25.1, 22.7 (percent of GDP).
  - SACU revenue: 12.4, 11.3, 12.1, 10.3, 10.3 (percent of GDP).
  - Expenditures: 34.5, 36.4, 38.9, 40.6, 39.7 (percent of GDP).
  - Overall balance: -1.6, -4.2, -3.8, -5.1, -6.7 (percent of GDP).
  - Overall balance (excl. SACU revenue): -14.0, -15.6, -15.8, -15.4, -17.0 (percent of GDP).
- Fiscal factors mentioned:
  - Large Taxpayer Office established June 2014 improving compliance.
  - Civil service salary increase of 10 percent and a "job evaluation and regrading" notch increase of 2 percent increased personnel costs.
  - Subsidies and transfers expected to increase by 0.9 percentage points of GDP from 2014/15 for public enterprises and social supports.

### External balances and exchange rate
- Current account continued to deteriorate in 2014 owing to increased import demand associated with mining investment and domestic construction.
- International reserves declined, with reserves at 1½ months of imports by May 2015.
- IMF staff estimates suggest Namibia’s real effective exchange rate could be about 8 percent overvalued (Annex 2); exchange rate depreciation alone may not improve the current account if fiscal policy remains expansionary.

### Political and policy priorities
- New government (post-November 2014 elections) emphasizes: (i) addressing social and development challenges, (ii) reducing unemployment, inequality, and poverty, (iii) safeguarding macroeconomic policies, and (iv) promoting economic diversification and inclusive transformation.
- Authorities acknowledge risks to SACU revenues and plan to adopt a tighter fiscal stance in response to possible SACU revenue falls to avoid crowding out private sector credit.

### Policy discussion: main challenges
- Short-term priorities:
  - Build adequate international reserves to strengthen resilience under the exchange rate peg.
  - Manage systemic risks in the financial sector raised by rapid credit growth and housing market pressures.
- Longer-term priority:
  - Promote inclusive growth and job creation.

### Notable numerical and factual items preserved from the source
- Real GDP growth: 4½ percent in 2014 (5 percent in 2013).
- Unemployment: 28.1 percent in 2014 (29.6 percent in 2013).
- Mining expected to account for 15 percent of GDP by 2018.
- Private sector credit average annual growth: exceeded 15 percent since 2012.
- Money supply growth: 14.3 percent (y/y) as of May 2015.
- House prices increased by 87 percent over the last five years.
- International reserves: US$1 billion (8¼ percent of GDP or 1½ months of imports) as of end-May 2015.
- 2014/15 overall fiscal deficit: 3¾ percent of GDP; projected possible deficit of 6¾ percent of GDP for 2015/16 given revenue risks.
- SACU revenues declined by 1¾ percent of GDP from 2014/15 (budget note).

*Source: IMF staff report excerpt — “Credit and GDP Growth and Financial Stability” (Namibia).*

### 11.      According to the IMF’s metric for market access countries, Namibia’s international

### _cr15276 - 11.      According to the IMF’s metric for market access countries, Namibia’s international

### Reserves adequacy and vulnerability
- Namibia’s international reserves are “significantly below their adequate level.”
- Current level of reserves is “only about 60 percent of the minimum adequate level (3‒5 months of imports or 16‒20 percent of GDP, Annex 1).”
- Over the past fifteen years the level of reserves has been sub-optimal “about seventy percent of the time.”
- Membership in the CMA and the peg to the South African rand increase vulnerability when reserves are sub-optimal.
- Authorities concurred with the need to build adequate international reserves and agreed with the proposed level of “3‒5 months of imports (as it coincides with the Bank of Namibia’s (BoN’s) own estimates).”

### Staff baseline scenario (medium-term outlook)
- Baseline envisages “a moderate fiscal consolidation with enhanced external financing, though not enough to sufficiently raise international reserves.”
- Growth projection: “growth would rise to 6 percent by 2017/18 supported by mining and construction.”
- Fiscal path: “Fiscal balances would be broadly consistent with the government’s current medium-term indicative target (deficits of 5 percent of GDP on average over the medium term), with upfront consolidation efforts.”
- Assumption: “pace of adjustment is assumed to stall after a few years (consolidation fatigue).”
- External financing requirement: “External financing of about N$12 billion (6 percent of GDP) would be required over the next five years to mitigate the impact of the SACU revenue shock.”
- Reserves outcome: “international reserves would remain at around 1½‒2 months of imports.”
- Public debt outcome: “public debt would exceed the government’s target of 35 percent of GDP.”

- Staff Medium-Term Projections (Baseline scenario) — selected exact figures from table (Percent of GDP, unless otherwise indicated):
  - GDP growth (annual change): 5.1 5.1 5.1 4.5 4.8 5.0 6.2 5.8 4.5 4.4
  - Credits to private sector (annual change): 9.3 16.9 14.5 16.5 9.5 9.0 10.4 11.4 10.3 10.0
  - Fiscal balance: -8.5 -1.6 -4.2 -3.8 -6.7 -7.8 -5.2 -4.0 -4.0 -4.1
  - Total revenue: 31.7 32.9 32.2 35.1 33.0 29.7 30.7 31.1 30.7 30.5
  - of which SACU revenues: 7.6 12.4 11.3 12.1 10.3 6.8 7.6 7.9 7.7 7.5
  - Total expenditure: 40.3 34.5 36.4 38.9 39.7 37.6 35.9 35.0 34.7 34.6
  - Recurrent expenditure: 29.6 27.7 29.7 30.9 31.6 29.2 28.2 27.9 27.6 27.5
  - Capital expenditure: 9.3 6.2 6.8 7.9 8.2 8.4 7.7 7.2 7.2 7.2
  - Current account balance (including grants): -2.9 -5.6 -3.9 -9.9 -12.1 -16.3 -10.7 -7.8 -6.9 -7.1
  - Gross international reserves (month of imports): 3.0 2.8 2.2 1.8 1.5 1.5 1.5 1.6 1.7 1.7
  - Total public debt: 26.2 24.0 22.7 24.0 28.3 33.3 34.9 35.3 36.1 36.9

### Reform scenario (enhanced consolidation and external financing)
- Objective: achieve adequate international reserves and modest debt levels (below government’s debt ceiling) while safeguarding critical social and development spending.
- Required consolidation: “spending cuts of 9‒10 percent of GDP over the next five years” to achieve a balanced budget over the medium term and increase reserve coverage to “three months of imports (consistent with the minimum adequate level).”
- External financing: “An external bond issuance (or other form of external financing) of about N$12 billion over the next five years would help to mitigate the SACU revenue shock, while public debt would remain below 35 percent of GDP.”
- Policy measures called for (exact text and sequencing preserved):
  - Contain expenditures, based on a growth-friendly fiscal consolidation strategy—“aiming to rein in current spending (wages and transfers and subsidies to public enterprises) while preserving productive infrastructure spending.”
    - Restrain non-priority spending (particularly in goods and services and subsidies, and transfers to public enterprises) and the wage bill.
    - Policy measures for constraining the wage bill include: (i) “freezing wages in real terms,” (ii) “limiting new hiring to critical areas (e.g., education, health),” and (iii) “reducing various allowances, overtime, and bonus payments.”
    - Initial step: government plans to reduce travel expenses (by enforcing a limit on the number of official trips per year).
  - Enhance revenue administration: “improving tax compliance, reducing tax expenditures, and prioritizing the collection of tax arrears.”
  - Increase external financing, within the government’s debt ceiling: consider “external bond (preferably rand denominated) or other options (e.g., borrowing from international partners, or credit lines),” while assessing interest rate and rollover risks.
    - Essential to monitor liabilities of regional and local authorities and fiscal risk from increasing explicit/implicit sovereign guarantees for public enterprises, and to diversify the debt portfolio.
  - Support fiscal consolidation with structural measures: “introducing a single treasury account, conducting public expenditure reviews, enacting a new public financial management bill,” improve data reporting and monitoring of state-owned enterprises, revise public procurement bill, and strengthen public investment management (e.g., improving project appraisals and implementation).
- Quantified fiscal consolidation outcome claim: “With the envisaged fiscal consolidation under the reform scenario, expenditures would return to the 2003‒2007 levels.”

- Staff Medium-Term Projections (Reform Scenario) — selected exact figures from table (Percent of GDP, unless otherwise indicated):
  - GDP growth (annual change): 5.1 5.1 5.1 4.5 4.8 5.0 6.1 5.7 4.6 4.4
  - Credits to private sector (annual change): 9.3 16.9 14.5 16.5 9.3 10.4 11.6 12.0 13.0 13.1
  - Fiscal balance: -8.5 -1.6 -4.2 -3.8 -6.7 -7.8 -3.9 -0.9 0.2 0.7
  - Total revenue: 31.7 32.9 32.2 35.1 33.0 29.7 30.5 30.9 30.5 30.2
  - of which SACU revenues: 7.6 12.4 11.3 12.1 10.3 6.8 7.6 7.9 7.7 7.5
  - Total expenditure: 40.3 34.5 36.4 38.9 39.7 37.6 34.4 31.8 30.3 29.5
  - Recurrent expenditure: 29.6 27.7 29.7 30.9 31.6 29.2 27.1 25.9 25.2 24.4
  - Capital expenditure: 9.3 6.2 6.8 7.9 8.2 8.4 7.4 5.9 5.1 5.1
  - Current account balance (including grants): -2.9 -5.6 -3.9 -9.9 -12.1 -16.3 -10.2 -6.2 -4.6 -4.8
  - Gross international reserves (month of imports): 3.0 2.8 2.2 1.8 1.5 1.5 1.7 2.2 2.7 3.2
  - Total public debt: 26.2 24.0 22.7 24.0 28.3 33.3 33.7 31.2 28.2 24.9

### Authorities’ intentions and implementation steps
- Authorities “affirmed their intention to tighten their fiscal policy stance, with stepped-up revenue efforts and expenditure control, along the lines envisaged under the reform scenario.”
- They noted scope for rationalizing government transfers to public enterprises “by 2¼ percentage points of GDP” by strengthening monitoring.
- Authorities expect improvements in tax collection from “the establishment of an autonomous revenue agency.”
- Plans to improve spending efficiency: “strengthening their cash management and expenditure control (e.g., by introducing a real-time budget reporting system).”
- Government plans to undertake “a midyear budget review (in October) to update their medium-term fiscal framework with the SACU revenue shock and specify their intended fiscal consolidation measures.”

### Financial sector developments and systemic risks
- Banking system: “well capitalized and profitable, with low levels of nonperforming loans.”
- NBFIs: “well capitalized, with the average solvency level exceeding the statutory requirement.”
- Rapid expansion of banking sector and NBFIs has supported growth via credit to construction and real estate.
- Potential buildup of macrofinancial risks due to a complex, internally and externally interconnected financial sector.
- Real estate dynamics: house prices increased sharply since independence; “between 2009 and 2014 the average price of properties in the residential segment increased by about 85 percent.”
- Mortgage sector exposure: “mortgage sector accounting for 52 percent of total loans at end-2014.”
- Household indebtedness: “high household debt of disposable income (estimated by the BoN at around 85 percent in 2014).”

- Identified systemic risk sources:
  - Possible house price correction: staff assessment estimates national house price over-valuation “around 20 percent.” Stress tests indicate banks resilient under moderate scenarios but “in the most adverse tail-risk scenarios… some banks could face difficulty in complying with the capital requirement.” Under the most extreme scenario, “commercial bank credit could drop significantly three years after the shock, and growth could potentially decline by about 10 percent.”
  - Potential outflow of banks’ wholesale deposits: “short-term wholesale deposits (70‒80 percent of total bank funding)” create liquidity and maturity risks; low international reserves challenge BoN’s lender-of-last-resort capacity under the fixed exchange rate.
  - Large NBFIs and close inter-linkages with banks: NBFIs’ deposits are the most significant source of funding for banks, raising contagion potential and complicating oversight due to data and resource gaps.
  - Cross-border financial linkages: tight links, especially with South Africa, expose Namibia to contagion and systemic risks.

### Recommended macroprudential and supervisory measures
- Consider introducing loan-to-value ratio (LTV) and debt service-to-income ratio (DSTI) limits:
  - LTV limits on non-primary residences under consideration by the BoN to “constrain house purchases financed with mortgage loans for investment purposes.”
  - Complement LTV limits with DSTI limits; consider LTV limits on primary residences “as needed” to limit households’ indebtedness and vulnerability.
  - Monitor leakage risk and extend limits to other financial institutions engaged in real estate business.
  - Design, calibrate, and time measures to “mitigate financial stability risks without hampering affordability for lower income groups and causing excessive house price corrections.”
  - Macroprudential measures should be paired with policies addressing underlying drivers (supply constraints, delays in serviced land delivery, absence of a capital gains tax) and deeper financial markets to reduce speculative housing demand.
- Further strengthen NBFI supervision:
  - Enact the Financial Institutions and Markets (FIM) Bill to provide a modernized regulatory and supervisory framework.
  - NAMFISA to adopt additional criteria for risk-based supervision capturing size, complexity, and interconnectedness.
  - Address NAMFISA’s significant resource and capacity constraints to implement the new framework.
- Further enhance cross-border coordination:
  - Existing MOUs with SARB, South Africa’s Financial Services Board, and Bank of Botswana; BoN’s participation in supervisory colleges for South African banking groups.
  - Macroprudential measures would need coordination, including through reciprocity agreements.
  - Expand MOUs with SARB to cover resolution and crisis management.
  - Strengthen cross-border cooperation for the insurance sector (including crisis management coordination).

*Source: IMF staff assessment and projections as presented in the provided content.*

### 2018. The FSSA identifies slow growth and rising interest rates as major risks to the banking sector.

### _cr15276 - 2018. The FSSA identifies slow growth and rising interest rates as major risks to the banking sector.

### Systemic risks to the financial sector and macroprudential policy
- Major risks identified:
  - Slow growth and rising interest rates as major risks to the banking sector.
  - Fast growth in real estate prices combined with high concentration of banks’ mortgage lending creates potential systemic risk.
- Institutional and regulatory measures recommended:
  - Establish a body in charge of macroprudential policy by:
    - (i) giving this body an explicit macro-prudential mandate and the necessary legal powers; and
    - (ii) providing experienced staff, availability of granular data, and an enhanced IT framework.
  - Introduce targeted macroprudential policies, including the introduction of LTV and DSTI limits.
  - Bank of Namibia (BoN) intends to introduce LTV limits for non-primary residences and explore further measures as needed; imposing LTV limits for primary residences will be difficult due to Namibia’s housing shortage.
  - Formalize the objectives and functions of the Financial Stability and Supervisory Council (FSSC) via a Memorandum of Understanding (MOU) to increase coordination across BoN, NAMFISA, and MoF.
- Data and supervisory capacity:
  - Address information and data gaps; prioritize improving granular data collection with a defined time schedule.
  - Ongoing work: BoN developing a new housing index (together with NSA and the Deeds office); NAMFISA committed to develop FSIs for the non-bank financial sector with IMF technical assistance.
  - Leverage progress in AML/CFT legislation to protect against national money laundering/terrorist financing risks and ensure financial stability; Namibia exited the Financial Action Task Force monitoring process and should prepare for the next assessment in 2017 by effectively utilizing AML/CFT tools.
- Further actions suggested:
  - Conduct a scope for an FSAP to obtain a comprehensive assessment following BoN’s intermediate assessment of the Namibia Financial Sector Strategy.

### Growth, unemployment, and economic diversification
- Key findings:
  - Persistent high unemployment, particularly among youth: youth unemployment rate is 39.2 percent (Labor Force Survey 2014).
  - Unemployment rates by education (Labor Force Survey 2014): junior secondary 34.2 percent and primary 29.5 percent; probability of employment increases significantly with tertiary education.
  - Economic diversification progress has been limited and has not led to sufficient job creation; mining share in GDP increased but is not labor intensive.
  - Modest investment in labor-intensive industries (e.g., manufacturing); export processing zones (EPZ) had limited outcomes and government intends to gradually phase out EPZ incentives toward infrastructure and technology incentives.
- Government measures and plans:
  - Introduce free secondary education (from 2016).
  - Expand secondary school system through enrolment in vocational education, implement the skills levy, and establish entrepreneurship training and internships.
  - Implement “Growth at Home” strategy focusing on: (i) supporting value addition, upgrading and diversification, (ii) securing market access, and (iii) improving the investment climate. Strategic industries expanded to include agro and fish processing, steel manufacturing and metal fabrication, automotive, chemical, and jewelry industry.
  - Create a one-stop shop for investors via the Investment Bill and the Business and Intellectual Property Authority to reduce procedures and time to start a business.
- Policy recommendations to foster job creation:
  - Further improve business conditions to encourage investment in labor-intensive production, including reducing costs and procedures for opening a business.
  - Facilitate financial intermediation with proper supervisory oversight while safeguarding financial stability.
  - Reduce skill mismatches by improving education and job-related skills:
    - (i) ameliorate the curriculum and quality of basic education;
    - (ii) upgrade the quality of teachers;
    - (iii) revamp mapping between the national development strategy and industry needs through improved skill training at vocational schools.
  - Swiftly implement policy actions under the Fourth National Development Plan (NDP4) for the period 2012/13-2016/17.

### Fiscal, external balances, and public debt
- Fiscal and external developments:
  - Current and capital expenditures continued to expand.
  - SACU revenues are expected to fall, reflecting the slowdown in the South African economy (staff projections based on South African Treasury revenue pool forecast for 2016/17 and 2017/18).
  - As a result, fiscal deficits are expected to widen in coming years.
  - Public debt recently increased but remains within the government’s target of 35 percent of GDP.
  - International reserves continued to decline amid widened trade deficits due to strong import demand and low international commodity prices for main export items.
- Staff recommendations:
  - Shift toward a tighter fiscal policy stance while safeguarding critical social and development needs.
  - Implement growth-friendly fiscal consolidation with additional external financing to build adequate international reserves over the medium term; consolidation should contain significant structural elements.
  - Enhance public financial management reforms and further strengthen tax administration.
  - For external financing, carefully assess associated interest rate, rollover, and exchange rate risks; monitor liabilities of regional and local authorities and fiscal risk from increasing explicit/implicit sovereign guarantees for public enterprises.

### Staff appraisal, risks, and process
- Staff appraisal highlights:
  - Since the global financial crisis, Namibia experienced robust growth driven by construction in mining and housing and expansionary fiscal policy; rapid credit growth accompanied these developments.
  - Despite income and some job gains, unemployment remains high and external balance pressures increased; real estate prices have risen.
- Principal policy challenges and risks:
  - Near-term risks include highly volatile SACU revenues in the absence of sufficient international reserves and potential systemic risk from rapid real estate price increases; these risks could weaken growth and fiscal sustainability if unaddressed.
  - Key short-term policy priorities: build an adequate international reserve buffer and manage potential systemic risks in the financial sector.
- Specific staff recommendations reiterated:
  - Implement targeted macroprudential policies promptly (e.g., LTV and DSTI limits), while carefully assessing effects and consequences.
  - Progress economic diversification toward labor-intensive industries and enhance skills development and vocational training to address high youth unemployment.
  - Next Article IV consultation with Namibia recommended on the standard 12-month cycle.

*Source: IMF staff report excerpt in _cr15276 - 2018. The FSSA identifies slow growth and rising interest rates as major risks to the banking sector.*

### 1. Countrie s of  which G INI inde x  is  available   since  2008.

### _cr15276 - 1. Countrie s of  which G INI inde x  is  available   since  2008.

### Selected Labor Indicators
- Unemployment has declined since the peak of the crisis but remains above the pre-crisis level.
- Namibia: Unemployment Rate (percent of labor force) — chart shows series from 1994 to 2014 with Total and Youth (ages 15-24).
- Youth unemployment (including those not actively seeking jobs) has reached an alarming level.
- Unemployment Rate by Age (percent of labor force) — age bands shown with changes 2012–2014.
- Unemployment is especially high for those with lower educational attainment.
- Unemployment Rate by Educational Attainment (In percent, 2014) — charted by attainment groups.
- Investment activities concentrated in mining (least labor-intensive); investment in manufacturing has been modest.
- Fixed Capital Stock by Industry (Percent of GDP) — series (2009–2013) shows Mining, Finance/real estate/business services, Manufacturing, Agriculture and fishing, Wholesale and retail trade/hotels/restaurants.

Sources: Namibian authorities, World Bank, and IMF staff estimate.

### Economic Structure (Economic Diversification)
- The share of manufacturing recently declined, while service sectors have further expanded.
- Share of Real GDP by Industry (In percent) — series 2000–2013: Primary industries, Manufacturing, Construction, Tertiary industries (RHS).
- Specific sectors with steady growth: transport and communications, construction, and some other service sectors.
- Real GDP by Industry (2000=100) — indexed series 2000–2013: Agriculture; Mining and quarrying; Manufacturing; Construction; Transport and communications; Finance, real estate, business services; Total GDP.

Sources: Namibian authorities and IMF staff estimates.

### Namibia: Selected Economic Indicators, 2011–20 (Baseline Scenario) — Key series and projections
- GDP at constant prices 1/ (annual percent change): 2011:5.1 2012:5.1 2013:5.1 2014:4.5 2015:4.8 2016:5.0 2017:6.2 2018:5.8 2019:4.5 2020:4.4
- GDP deflator (percent): 2011:3.8 2012:12.6 2013:11.3 2014:11.7 2015:6.1 2016:6.0 2017:6.0 2018:6.0 2019:5.8 2020:5.8
- GDP at market prices (N$ billions): 2011:90.1 2012:106.7 2013:124.9 2014:145.7 2015:162.0 2016:180.4 2017:203.1 2018:227.7 2019:251.5 2020:277.6
- GDP at market prices (usd$ billions): 2011:12.4 2012:13.0 2013:12.9 2014:13.6 2015:12.9 2016:13.7 2017:14.9 2018:16.2 2019:17.4 2020:18.7
- GDP per capita (US$, constant 2000 exchange rate): 2011:6,150 2012:7,184 2013:8,287 2014:9,539 2015:10,519 2016:11,615 2017:12,966 2018:14,416 2019:15,796 2020:17,289
- Consumer prices (end of period, percent): 2011:7.4 2012:6.4 2013:4.9 2014:4.6 2015:5.2 2016:5.5 2017:5.8 2018:5.8 2019:5.7 2020:5.7

External sector (selected)
- Exports (US$ percent change): 2011:9.8 2012:-0.4 2013:6.0 2014:-0.4 2015:-6.7 2016:6.8 2017:15.4 2018:9.6 2019:2.4 2020:2.3
- Imports (US$ percent change): 2011:7.9 2012:17.9 2013:1.6 2014:11.0 2015:-5.9 2016:7.3 2017:0.3 2018:3.2 2019:1.6 2020:3.6
- Terms of trade (deterioration = - , percent): 2011:6.5 2012:-9.0 2013:-4.0 2014:-2.9 2015:-1.4 2016:-5.6 2017:-2.3 2018:-2.1 2019:-2.0 2020:-1.9
- Real effective exchange rate (period average, percent): 2011:-1.6 2012:-3.9 2013:-8.7 2014:-5.9
- Exchange rate (N$/US$, end of period): 2011:8.1 2012:8.5 2013:10.5 2014:11.6

Money and credit
- Domestic credit to the private sector (annual % change): 2011:9.3 2012:16.9 2013:14.5 2014:16.5 2015:9.5 2016:9.0 2017:10.4 2018:11.4 2019:10.3 2020:10.0
- Base money (annual % change): 2011:69.9 2012:-9.5 2013:22.7 2014:16.7 2015:7.7 2016:8.2 2017:8.2 2018:9.3 2019:9.4 2020:9.4
- M2 (annual % change): 2011:19.8 2012:5.3 2013:8.6 2014:7.7 2015:7.9 2016:8.9 2017:9.7 2018:10.9 2019:11.0 2020:10.5
- Interest rate (percent, end): 2011:6.0 2012:5.5 2013:5.5 2014:6.0

Investment and savings
- Gross Investment (percent of GDP): 2011:22.7 2012:25.9 2013:26.1 2014:28.0 2015:29.6 2016:32.7 2017:22.4 2018:19.1 2019:19.0 2020:18.9
- Gross domestic savings (percent of GDP): 2011:13.0 2012:13.1 2013:9.4 2014:6.9 2015:8.4 2016:11.2 2017:7.6 2018:7.7 2019:9.3 2020:9.7
- Gross national savings (percent of GDP): 2011:17.5 2012:16.7 2013:17.8 2014:14.1 2015:15.4 2016:15.7 2017:9.6 2018:8.5 2019:9.6 2020:9.8

Central government budget (percent of GDP)
- Revenue and grants: 2011:31.7 2012:32.9 2013:32.2 2014:35.1 2015:33.0 2016:29.7 2017:30.7 2018:31.1 2019:30.7 2020:30.4
- SACU receipts (percent of GDP): 2011:7.6 2012:12.4 2013:11.3 2014:12.1 2015:10.3 2016:6.8 2017:7.6 2018:7.9 2019:7.7 2020:7.5
- Expenditure and net lending: 2011:40.3 2012:34.5 2013:36.4 2014:38.9 2015:39.7 2016:37.6 2017:35.9 2018:35.0 2019:34.7 2020:34.6
- Primary balance (deficit = - , percent of GDP): 2011:-7.3 2012:-0.1 2013:-2.9 2014:-2.4 2015:-5.2 2016:-5.9 2017:-2.8 2018:-1.4 2019:-1.4 2020:-1.4
- Overall balance (percent of GDP): 2011:-8.5 2012:-1.6 2013:-4.2 2014:-3.8 2015:-6.7 2016:-7.8 2017:-5.2 2018:-4.0 2019:-4.0 2020:-4.1
- Public debt/GDP (percent): 2011:26.2 2012:24.0 2013:22.7 2014:24.0 2015:28.3 2016:33.3 2017:34.9 2018:35.3 2019:36.1 2020:36.9
- Gross public and publicly guaranteed debt/GDP (percent): 2011:28.1 2012:25.9 2013:26.8 2014:27.2 2015:34.7 2016:41.5 2017:45.6 2018:45.3 2019:46.1 2020:46.9

External sector (selected)
- Current account balance (percent of GDP, including official grants): 2011:-2.9 2012:-5.6 2013:-3.9 2014:-9.9 2015:-12.1 2016:-16.3 2017:-10.7 2018:-7.8 2019:-6.9 2020:-7.1
- External public debt (including IMF, percent of GDP): 2011:6.4 2012:7.8 2013:6.9 2014:7.2 2015:8.9 2016:10.8 2017:11.7 2018:11.8 2019:11.6 2020:10.9
- Gross official reserves (US$ millions): 2011:1,800 2012:1,774 2013:1,526 2014:1,220 2015:1,079 2016:1,045 2017:1,106 2018:1,233 2019:1,355 2020:1,397
- Reserves percent of GDP: 2011:14.5 2012:13.6 2013:11.8 2014:8.9 2015:8.4 2016:7.6 2017:7.4 2018:7.6 2019:7.8 2020:7.5
- Months of imports of goods and services: 2011:3.0 2012:2.8 2013:2.2 2014:1.8 2015:1.5 2016:1.5 2017:1.5 2018:1.6 2019:1.7 2020:1.7

Memorandum
- Population (in million): 2011:2.1 2012:2.1 2013:2.2 2014:2.2 2015:2.2 2016:2.2 2017:2.3 2018:2.3 2019:2.3 2020:2.3

Sources: Namibian authorities and Fund staff estimates and projections.

### Namibia: Balance of Payments, 2011–20 (Baseline Scenario) — Selected tables (US$ millions)
- Current account (US$ millions): 2011:-356 2012:-733 2013:-507 2014:-1,355 2015:-1,557 2016:-2,229 2017:-1,593 2018:-1,262 2019:-1,201 2020:-1,331
- Exports, f.o.b. (US$ millions): 2011:4,404 2012:4,385 2013:4,649 2014:4,630 2015:4,318 2016:4,612 2017:5,323 2018:5,835 2019:5,977 2020:6,117
  - Diamonds (US$ millions): 2011:882 2012:1,005 2013:1,212 2014:1,291 2015:1,193 2016:1,230 2017:1,241 2018:1,209 2019:1,201 2020:1,195
  - Other minerals (US$ millions): 2011:927 2012:850 2013:769 2014:672 2015:680 2016:929 2017:1,535 2018:1,957 2019:1,951 2020:1,952
  - Fish (US$ millions): 2011:626 2012:526 2013:414 2014:377 2015:380 2016:314 2017:326 2018:335 2019:345 2020:359
- Imports, f.o.b. (US$ millions): 2011:-5,535 2012:-6,527 2013:-6,632 2014:-7,365 2015:-6,930 2016:-7,436 2017:-7,456 2018:-7,696 2019:-7,815 2020:-8,097
- Services (net, US$ millions): 2011:-383 2012:51 2013:-14 2014:-103 2015:-115 2016:-121 2017:-61 2018:-253 2019:772
- Income (net, US$ millions): 2011:-336 2012:-521 2013:-86 2014:-191 2015:-252 2016:-345 2017:-521 2018:-672 2019:-769 2020:-855
- Current transfers (US$ millions): 2011:1,149 2012:1,580 2013:1,576 2014:1,675 2015:1,423 2016:1,061 2017:1,121 2018:1,295 2019:1,369 2020:1,433
  - Of which: SACU receipts (US$ millions): 2011:915 2012:1,478 2013:1,502 2014:1,592 2015:1,378 2016:1,049 2017:1,104 2018:1,271 2019:1,351 2020:1,413
- Capital and financial account (US$ millions): 2011:1,107 2012:1,267 2013:749 2014:1,275 2015:1,502 2016:2,218 2017:1,672 2018:1,405 2019:1,343 2020:1,391
- Gross International Reserves (end of period, US$ millions): 2011:1,800 2012:1,774 2013:1,526 2014:1,220 2015:1,079 2016:1,045 2017:1,106 2018:1,233 2019:1,355 2020:1,397
- Months of imports of goods and services: 2011:3.0 2012:2.8 2013:2.2 2014:1.8 2015:1.5 2016:1.5 2017:1.5 2018:1.6 2019:1.7 2020:1.7
- Short-term debt (US$ millions): 2011:1,230 2012:756 2013:1,033 2014:1,000 2015:1,005 2016:948 2017:997 2018:988 2019:984 2020:979
- External debt/GDP (percent): 2011:41 2012:36 2013:38 2014:40 2015:47 2016:48 2017:49 2018:50 2019:51

Sources: Namibian authorities and Fund staff estimates and projections.

### Fiscal Operations of the Central Government (selected N$ millions; baseline scenario)
- Total revenue and grants (N$ millions): 2010/11:23,378 2011/12:29,917 2012/13:36,590 2013/14:41,890 2014/15:52,597 2015/16:55,062 2016/17:55,323 2017/18:64,271 2018/19:72,628 2019/20:79,240 2020/21:86,791
- Tax revenue (N$ millions): 2010/11:21,393 2011/12:27,053 2012/13:34,234 2013/14:39,486 2014/15:50,075 2015/16:52,666 2016/17:52,396 2017/18:60,621 2018/19:68,517 2019/20:74,836 2020/21:82,069
  - Personal income tax (N$ millions): 2010/11:5,945 2011/12:7,326 2012/13:8,189 2013/14:9,537 2014/15:12,522 2015/16:13,973 2016/17:15,603 2017/18:17,544 2018/19:19,590 2019/20:21,637 2020/21:23,901
  - Corporate income tax (N$ millions): 2010/11:3,585 2011/12:3,916 2012/13:4,510 2013/14:3,434 2014/15:7,149 2015/16:7,673 2016/17:8,550 2017/18:9,569 2018/19:10,551 2019/20:11,511 2020/21:12,715
    - o/w Diamond mining (N$ millions): 2010/11:354 2011/12:841 2012/13:994 2013/14:655 2014/15:1,980 2015/16:1,747 2016/17:1,883 2017/18:1,961 2018/19:1,998 2019/20:2,063 2020/21:2,279
  - VAT and sales taxes (N$ millions): 2010/11:5,057 2011/12:7,782 2012/13:6,971 2013/14:8,199 2014/15:11,127 2015/16:12,502 2016/17:13,985 2017/18:15,957 2018/19:17,899 2019/20:19,623 2020/21:21,676
  - Taxes on international trade (includes SACU receipts) (N$ millions): 2010/11:5,976 2011/12:7,137 2012/13:13,796 2013/14:14,727 2014/15:18,117 2015/16:17,123 2016/17:12,700 2017/18:15,800 2018/19:18,521 2019/20:19,905 2020/21:21,391
- Nontax revenue (N$ millions): 2010/11:1,961 2011/12:2,685 2012/13:2,171 2013/14:2,126 2014/15:2,413 2015/16:2,351 2016/17:2,764 2017/18:3,487 2018/19:3,929 2019/20:4,203 2020/21:4,500
- Expenditures and net lending (N$ millions): 2010/11:28,142 2011/12:37,961 2012/13:38,395 2013/14:47,408 2014/15:58,224 2015/16:66,226 2016/17:69,920 2017/18:75,147 2018/19:81,859 2019/20:89,651 2020/21:98,574
  - Current expenditures (N$ millions): 2010/11:22,153 2011/12:27,922 2012/13:30,803 2013/14:38,595 2014/15:46,337 2015/16:52,630 2016/17:54,264 2017/18:59,088 2018/19:65,155 2019/20:71,201 2020/21:78,223
  - Personnel (N$ millions): 2010/11:10,797 2011/12:12,690 2012/13:13,925 2013/14:17,932 2014/15:21,594 2015/16:23,270 2016/17:24,073 2017/18:25,505 2018/19:28,480 2019/20:31,456 2020/21:34,747
  - Interest payments (N$ millions): 2010/11:966 2011/12:1,131 2012/13:1,719 2013/14:1,796 2014/15:1,991 2015/16:2,455 2016/17:3,599 2017/18:5,036 2018/19:5,979 2019/20:6,849 2020/21:7,795
  - Subsidies and transfers (N$ millions): 2010/11:6,285 2011/12:8,375 2012/13:9,869 2013/14:12,316 2014/15:14,569 2015/16:17,642 2016/17:17,774 2017/18:19,229 2018/19:20,395 2019/20:22,088 2020/21:24,398
  - Capital expenditure (N$ millions): 2010/11:5,989 2011/12:8,795 2012/13:6,887 2013/14:8,819 2014/15:11,883 2015/16:13,587 2016/17:15,666 2017/18:16,071 2018/19:16,717 2019/20:18,463 2020/21:20,367
- Overall balance 1/ (N$ millions): 2010/11:-4,764 2011/12:-8,044 2012/13:-1,805 2013/14:-5,519 2014/15:-5,627 2015/16:-11,164 2016/17:-14,597 2017/18:-10,876 2018/19:-9,231 2019/20:-10,411 2020/21:-11,784

Memorandum (selected)
- Public and publicly guaranteed debt (N$ millions): 2010/11:15,500 2011/12:26,526 2012/13:28,854 2013/14:34,856 2014/15:40,715 2015/16:57,807 2016/17:77,153 2017/18:95,399 2018/19:105,903 2019/20:118,975 2020/21:133,656
- Public debt (N$ millions): 2010/11:13,487 2011/12:24,734 2012/13:26,740 2013/14:29,516 2014/15:35,950 2015/16:47,119 2016/17:61,996 2017/18:73,093 2018/19:82,541 2019/20:93,172 2020/21:105,153

Sources: Namibian authorities; and Fund staff estimates and projections.
1/ "Overall balance" includes externally financed project spending that is not channeled through the state account such as the Kudu Gas project.

### Fiscal Operations (percent of GDP) — selected ratios
- Total revenue and grants (percent of GDP): 2010/11:27.7 2011/12:31.7 2012/13:32.9 2013/14:32.2 2014/15:35.1 2015/16:33.0 2016/17:29.7 2017/18:30.7 2018/19:31.1 2019/20:30.7 2020/21:30.5
- Expenditures and net lending (percent of GDP): 2010/11:33.3 2011/12:40.3 2012/13:34.5 2013/14:36.4 2014/15:38.9 2015/16:39.7 2016/17:37.6 2017/18:35.9 2018/19:35.0 2019/20:34.7 2020/21:34.6
- Overall balance 1/ (percent of GDP): 2010/11:-5.6 2011/12:-8.5 2012/13:-1.6 2013/14:-4.2 2014/15:-3.8 2015/16:-6.7 2016/17:-7.8 2017/18:-5.2 2018/19:-4.0 2019/20:-4.0 2020/21:-4.1
- Public and publicly guaranteed debt (percent of GDP): 2010/11:18.3 2011/12:28.1 2012/13:25.9 2013/14:26.8 2014/15:27.2 2015/16:34.7 2016/17:41.5 2017/18:45.6 2018/19:45.3 2019/20:46.1 2020/21:46.9

Sources: Namibian authorities and Fund staff estimates and projections.

### Monetary Accounts (N$ millions; selected, baseline scenario)
Bank of Namibia (end of period)
- Reserve money: 2011:5,508 2012:4,984 2013:6,115 2014:7,138 2015:7,687 2016:8,314 2017:9,090 2018:9,941 2019:10,888 2020:11,913
- Currency (end of period): 2011:2,397 2012:2,773 2013:3,600 2014:4,280 2015:4,525 2016:4,894 2017:5,383 2018:5,922 2019:6,514 2020:7,165
- Reserves: 2011:3,110 2012:2,211 2013:2,515 2014:2,858 2015:3,162 2016:3,420 2017:3,707 2018:4,019 2019:4,374 2020:4,747

Monetary survey
- Broad money (M2, N$ millions): 2011:60,529 2012:63,712 2013:69,184 2014:74,528 2015:81,839 2016:89,756 2017:99,547 2018:110,511 2019:122,098 2020:134,742
- Deposits (N$ millions): 2011:58,832 2012:62,026 2013:66,821 2014:71,822 2015:79,032 2016:86,741 2017:96,241 2018:106,877 2019:118,065 2020:130,266
- Net foreign assets (N$ millions): 2011:23,172 2012:20,902 2013:23,148 2014:19,516 2015:19,976 2016:19,998 2017:21,383 2018:24,049 2019:26,148 2020:26,477
- Domestic credit (N$ millions): 2011:34,338 2012:40,399 2013:47,246 2014:60,611 2015:70,539 2016:77,851 2017:86,910 2018:96,187 2019:106,821 2020:120,373
- Claims on private sector (N$ millions): 2011:44,443 2012:51,971 2013:59,486 2014:69,282 2015:75,863 2016:82,659 2017:91,290 2018:101,662 2019:112,115 2020:123,339

Memorandum (selected)
- Base money (annual % change): 2011:69.9 2012:-9.5 2013:22.7 2014:16.7 2015:7.7 2016:8.2 2017:8.2 2018:9.3 2019:9.4 2020:9.4
- Credit to the private sector (annual % change): 2011:9.3 2012:16.9 2013:14.5 2014:16.5 2015:9.5 2016:9.0 2017:10.4 2018:11.4 2019:10.3 2020:10.0
- M2-to-GDP ratio (percent): 2011:67.2 2012:59.7 2013:55.4 2014:51.1 2015:50.5 2016:49.8 2017:49.0 2018:48.5 2019:48.5 2020:48.5
- Base money multiplier (M2/base money): 2011:11.0 2012:12.8 2013:11.3 2014:10.4 2015:10.6 2016:10.8 2017:11.0 2018:11.1 2019:11.2 2020:11.3

Domestic interest rates (end of period)
- Deposit rate (percent): 2011:4.2 2012:4.0 2013:3.9 2014:4.5
- Lending rate (percent): 2011:8.8 2012:8.6 2013:8.2 2014:8.9
- BoN repo rate (percent): 2011:6.0 2012:5.5 2013:5.5 2014:6.0
- Three-month T-bill rate (percent): 2011:5.9 2012:5.5 2013:5.6 2014:6.2

Sources: Namibian authorities and IMF staff estimates and projections.

### Millennium Development Goals (selected indicators, 1995–2013)
- Employment to population ratio, 15+, total (%): 1995:45.1 2000:45.0 2005:48.9 2008:39.7 2009:43.9 2010:47.7 2011:48.0 2012:48.8 2013:49.0
- Employment to population ratio, ages 15-24, total (%): 1995:23.1 2000:17.3 2005:22.1 2008:15.8 2009:18.1 2010:19.7 2011:19.9 2012:20.5 2013:21.0
- Income share held by lowest 20%: 3.4 (year indicated with dots in series)
- Prevalence of undernourishment (% of population): 1995:39.0 2000:27.7 2005:25.2 2008:31.1 2009:33.3 2010:34.6 2011:32.9 2012:29.3
- Primary completion rate, total (% of relevant age group): 1995:69.4 2000:91.2 2005:85.3 2008:78.7 2013:85.4
- Immunization, measles (% of children ages 12-23 months): 1995:68.0 2000:69.0 2005:73.0 2008:73.0 2009:76.0 2010:75.0 2011:74.0 2012:76.0 2013:82.0
- Mortality rate, infant (per 1,000 live births): 1995:47.2 2000:49.3 2005:45.7 2008:40.9 2009:39.1 2010:37.5 2011:36.1 2012:35.6 2013:35.2
- Mortality rate, under-5 (per 1,000): 1995:69.6 2000:75.5 2005:72.8 2008:61.9 2009:58.8 2010:55.7 2011:52.6 2012:50.6 2013:49.8
- Maternal mortality ratio (modeled estimate, per 100,000 live births): 1995:280.0 2000:270.0 2005:250.0 2011:160.0 2013:130.0
- Prevalence of HIV, total (% of population ages 15-49): 1995:7.5 2000:15.9 2005:16.4 2008:15.3 2009:15.0 2010:14.8 2011:14.6 2012:14.5 2013:4.8
- Incidence of tuberculosis (per 100,000 people): 1995:557.0 2000:1,510.0 2005:1,520.0 2008:1,080.0 2009:939.0 2010:820.0 2011:736.0 2012:683.0 2013:651.0
- CO2 emissions (metric tons per capita): 1995:1.0 2000:0.9 2005:1.1 2008:1.7 2009:1.5 2010:1.5
- Improved water source (% of population with access): 1995:73.3 2000:79.1 2005:84.6 2008:87.7 2009:88.8 2010:89.7 2011:90.7 2012:91.7
- Mobile cellular subscriptions (per 100 people): 1995:0.2 2000:4.3 2005:18.1 2008:46.2 2009:56.1 2010:89.5 2011:99.0 2012:95.0 2013:118.0
- Unemployment, total (% of total labor force): 1995:19.5 2000:20.3 2005:20.2 2008:37.6 2009:29.7 2010:22.1 2011:19.8 2012:16.7 2013:16.9
- Population, total (million): 1995:1.7 2000:1.9 2005:2.0 2008:2.1 2009:2.1 2010:2.2 2011:2.2 2012:2.3 2013:2.3

Source: World Bank.

### Financial Sector Indicators (2010–December 2014; percent unless otherwise indicated)
Banking indicators (selected)
- Capital to assets: 2010:8.4 2011:7.8 2012:8.0 2013:8.6 Jan-14:10.1 Mar-14:10.3 Sep-14:10.0 Dec-14:10.3
- Regulatory capital to risk-weighted assets: 2010:15.3 2011:14.0 2012:14.2 2013:14.4 Jan-14:14.5 Mar-14:15.2 Sep-14:15.0 Dec-14:14.7
- Nonperforming loans to total gross loans: 2010:2.0 2011:1.5 2012:1.3 2013:1.3 Jan-14:1.4 Mar-14:1.5 Sep-14:1.3 Dec-14:1.5
- Return on assets: 2010:3.5 2011:3.7 2012:3.3 2013:3.1 Jan-14:3.1 Mar-14:3.3 Sep-14:3.5 Dec-14:3.6
- Return on equity: 2010:41.9 2011:47.1 2012:40.5 2013:31.4 Jan-14:30.5 Mar-14:31.8 Sep-14:35.6 Dec-14:34.9
- Liquid assets to total assets: 2010:10.7 2011:12.4 2012:10.9 2013:10.7 Jan-14:10.1 Mar-14:10.5 Sep-14:12.2 Dec-14:11.6
- Customer deposits to total (non-interbank) loans: 2010:106.3 2011:114.7 2012:106.4 2013:102.5 Jan-14:101.3 Mar-14:100.1 Sep-14:106.4 Dec-14:98.6
- Net open position in foreign exchange to capital: 2010:1.3 2011:2.7 2012:2.8 2013:1.7 Jan-14:4.8 Mar-14:7.3 Sep-14:1.0 Dec-14:2.4
- Foreign currency-denominated loans to total loans: 2010:0.1 2011:0.3 2012:1.3 2013:2.0 Jan-14:1.7 Mar-14:1.7 Sep-14:1.8 Dec-14:1.4
- Foreign currency-denominated liabilities to total liabilities: 2010:3.7 2011:1.9 2012:2.5 2013:3.7 Jan-14:3.0 Mar-14:3.3 Sep-14:2.7 Dec-14:3.3

Sources: Bank of Namibia and IMF staff estimates.

*Source: _cr15276 - 1. Countrie s of  which G INI inde x  is  available   since  2008. (Namibia chapter), IMF staff report PDF.*

### Annex I. Assessing International Reserve Adequacy

### Annex I. Assessing International Reserve Adequacy

### Background
- Namibia’s international reserves have continuously declined since their peak in 2009.
- In May 2015, reserves were US$1.1 billion (8.2 percent of GDP or 1.5 months of imports), a decline of about 9 percent of GDP since 2009.
- The decline in import coverage is larger than as a share of GDP, as imports have soared due to the needs of large mining construction projects currently underway.
- Reserves are temporarily higher at the beginning of each quarter when SACU payments are received.
- Given the bleak prospects for SACU transfers, and the fixed exchange rate, securing sufficient international reserve buffers is important.

### Reserve Adequacy: methodology and inputs
- Traditional simple rules of thumb:
  - three months of imports;
  - full cover of short-term debt plus debt service;
  - twenty percent of broad money.
- Limitations: simple rules focus on one aspect of vulnerability and can provide conflicting signals.
- IMF metric for market access countries: a risk-weighted measure based on observed outflows in past exchange market pressure events; encompasses different sources of risk including external liabilities, trade, and measures of potential capital flight.
- The IMF’s metric accounts for four specific sources of risk:
  - exports (to capture potential terms of trade shock),
  - short-term debt at remaining maturity (short-term debt plus debt service) (liquidity/rollover risk),
  - portfolio investments plus medium and long-term debt (drains from non-residents’ reserves),
  - broad money (proxy for resident capital flight).
- Weights for countries with a fixed exchange rate (as presented):
  - Short-term Debt 30%
  - Other Liabilities 20%
  - Broad Money 10%
  - Exports 10%
- Weights are based on drains observed at the tenth percentile of annual distributions of percentage changes during periods of exchange market pressures. Separate distributions are estimated for countries with fixed exchange rate regimes.
- Other potential risks (derivative exposures, exchange rate misalignments) are not incorporated due to data limitations.

### Results and key statistics
- Reserves on the range of 100-150 percent of the composite metric are considered to be adequate.
- The current level of reserves is only about 60 percent of the minimum adequate level.
- In the past fifteen years the level of reserves has been sub-optimal about seventy percent of the time.
- Reserve coverage was only adequate between 2007 and 2010 due to a combination of higher SACU transfers and mining revenues, and some expenditure restraint.
- August 2009 additional SDR allocation: Namibia received US$200 million (noted as relevant to past adequacy).

### Policy implications and recommendations
- It is important to implement policies that would help to secure sufficient international reserve buffer for future shocks.
- Given bleak prospects for SACU transfers and the fixed exchange rate, increasing reserve holdings is highly desirable.
- The government should implement a mix of fiscal restraint and additional foreign financing to secure sufficient buffers for future shocks.

*Source: Annex I. Assessing International Reserve Adequacy, IMF staff report.*

### 11. Overall, high gross financing needs and the fast pace of debt accumulation raise

### Overall, high gross financing needs and the fast pace of debt accumulation raise concerns, and a tighter fiscal policy stance (as envisaged under the reform scenario) would ensure debt sustainability over the medium term.

### Key findings
- About 90 percent of the loans are at fixed interest rate, so the external debt does not appear to be particularly sensitive to the real interest rate shock.
- Expected decline in SACU revenues and widening fiscal deficits would raise gross financing needs further under the baseline scenario.
- Under the baseline scenario, both public debt and external debt would stay within the range of moderate debt distress, but stress tests show debt dynamics could raise concerns if planned fiscal consolidation is not implemented and/or SACU revenue is lower than projected.
- The external debt is not resilient to an unexpected rise in the current account deficit and exchange rate depreciation.
- Shifting toward a tighter fiscal policy stance, as in the reform scenario, is critical to ensure debt sustainability over the medium term.

### Public debt projections and indicators (baseline unless noted)
- Nominal gross public debt (2012–2019): 26.4, 25.9, 26.8, 27.2, 34.7, 41.5, 45.6, 45.3, 46.1 (in percent of GDP for years shown).
- Public gross financing needs (2012–2019): 3.8, 3.4, 5.8, 10.5, 14.9, 15.1, 14.1, 13.1, 11.5 (in percent of GDP for years shown).
- Real GDP growth (2012–2019): 4.1, 5.1, 5.1, 4.5, 4.8, 5.0, 6.2, 5.8, 4.5 (in percent).
- Inflation (GDP deflator, 2012–2019): 6.7, 12.6, 11.3, 11.7, 6.1, 6.0, 6.0, 5.9, 5.8 (in percent).
- Effective interest rate (2012–2019): 9.3, 6.9, 6.7, 6.7, 9.6, 7.9, 8.2, 8.2, 8.2 (in percent).
- Change in gross public sector debt (cumulative projection): -0.3, -2.2, 0.9, 0.4, 4.0, 4.8, 1.2, 0.2, 0.6 (percent of GDP by year); cumulative to projection end: 11.2 (percent of GDP).
- Identified debt-creating flows (cumulative projection): -0.3, -2.3, 2.7, 0.1, 4.9, 5.0, 1.4, 0.0, 0.5 (percent of GDP by year); cumulative to projection end: 11.8 (percent of GDP).
- Primary deficit (annual series in the projections table): 0.0, 0.1, 2.9, 2.4, 5.2, 5.9, 2.8, 1.3, 1.2 (percent of GDP by year); cumulative to projection end: 18.9 (percent of GDP).
- Debt-stabilizing non-interest current account: -5.7 (percent of GDP).

### External debt and external financing needs
- Baseline external debt (2009–2019): 28.2, 30.9, 41.4, 35.6, 38.4, 40.4, 47.2, 48.6, 49.0, 49.5, 50.6 (in percent of GDP by year).
- Change in external debt (2009–2019): 4.6, 2.6, 10.6, -5.8, 2.9, 2.0, 6.8, 1.4, 0.4, 0.5, 1.1 (percent of GDP by year).
- Identified external debt-creating flows (sum of components): -5.3, -9.6, -6.5, -5.0, -2.3, 3.8, 4.1, 5.6, 1.8, -0.4, 0.5 (percent of GDP by year).
- Current account deficit, excluding interest payments (2009–2019): 1.2, 3.2, 2.6, 5.3, 3.7, 9.7, 11.7, 15.3, 9.1, 5.8, 4.8 (percent of GDP by year).
- Net non-debt creating capital inflows (negative) (2009–2019): -5.8, -7.0, -6.6, -8.8, -6.4, -4.5, -6.0, -8.4, -6.1, -5.6, -4.2 (percent of GDP by year).
- Net foreign direct investment, equity (2009–2019): 5.8, 7.0, 6.5, 8.8, 6.3, 4.4, 6.0, 8.4, 6.1, 5.5, 4.2 (percent of GDP by year).
- Automatic debt dynamics contribution (2009–2019): -0.7, -5.9, -2.6, -1.5, 0.4, -1.4, -1.7, -1.3, -1.2, -0.7, -0.1 (percent of GDP by year).
- Residual, including change in gross foreign assets (2009–2019): 10.0, 12.3, 17.1, -0.8, 5.1, -1.8, 2.7, -4.2, -1.4, 0.9, 0.6 (percent of GDP by year).
- External debt-to-exports ratio (2009–2019): 66.6, 74.2, 100.0, 84.7, 89.2, 97.3, 113.9, 117.6, 113.6, 114.3, 121.3 (in percent).
- Gross external financing need (in billions of US dollars, 2009–2019): 1.4, 2.0, 2.7, 4.1, 3.0, 4.5, 4.8, 5.7, 5.2, 5.1, 3.2.
- Gross external financing need (in percent of GDP, selected years shown): 15.5, 17.4, 21.6, 31.8, 23.1 (percent of GDP for years shown).

### Alternative scenarios and debt composition
- Alternative scenario assumptions and selected underlying assumptions (examples shown):
  - Baseline primary balance (2014–2019): -2.4, -5.2, -5.9, -2.8, -1.3, -1.2 (percent of GDP).
  - Historical scenario primary balance (2014–2019): -2.4, 0.2, 0.2, 0.2, 0.2, 0.2 (percent of GDP).
  - Constant primary balance scenario primary balance: -2.4 (constant, percent of GDP).
- Composition of public debt by maturity (historical to projection): medium and long-term and short-term debt shown in charts (percent of GDP by year).
- Composition of public debt by currency (historical to projection): local currency-denominated and foreign currency-denominated shares shown in charts (percent of GDP by year).

### Stress tests and vulnerabilities
- Stress tests indicate significant sensitivity to macro-fiscal shocks:
  - Primary balance shock (projection example primary balance series): -2.4, -7.4, -8.1, -2.8, -1.3, -1.2 (percent of GDP).
  - Real GDP growth shock (projection example real GDP series): 4.5, 3.0, 3.2, 6.2, 5.8, 4.5 (percent).
  - Real interest rate shock (effective interest rate in years shown): 6.7, 10.2, 9.9, 10.8, 11.2, 9.9 (percent) — real interest rate shock shows elevated effective interest rates in stress paths.
  - Real exchange rate shock: one-time real depreciation of 30 percent occurs in 2015 in a specified scenario.
  - SACU revenue shock (projection example primary balance and effective interest rate): primary balance series -2.4, -5.2, -10.9, -7.8, -1.3, -1.2 (percent of GDP); effective interest rate series 6.7, 9.6, 8.0, 8.6, 8.7, 8.7 (percent).
- External-debt bound tests:
  - Baseline external debt around 51 (percent of GDP) in the period shown; various shocks raise external debt to higher levels in bound tests (examples: CA shock raises to 67; combined shock to 60; 30 percent real depreciation raises to 66 in the scenario illustrated).

### Policy implications and recommendations
- Implement the tighter fiscal policy stance envisaged under the reform scenario to ensure debt sustainability over the medium term.
- Prioritize fiscal consolidation to avoid outcomes under stress-test scenarios where failure to consolidate and lower-than-projected SACU revenues would raise debt-sustainability concerns.
- Manage external vulnerability by addressing gross external financing needs and building resilience against current account deterioration and exchange rate depreciations.

*Source: IMF staff—Namibia Public Debt Sustainability Analysis and supporting figures and tables as presented in the provided content.*

### Annex IV. Namibia: Risk Assessment Matrix

### Annex IV. Namibia: Risk Assessment Matrix

### Protracted period of slower growth in key advanced and emerging economies
- Nature/source:
  - Euro area and Japan: Weak demand and persistently low inflation from a failure to fully address crisis legacies and appropriately calibrate macro policies, leading to “new mediocre” rate of growth.
  - Emerging markets: Maturing of the cycle, misallocation of investment, and incomplete structural reforms leading to prolonged slower growth.
- Likelihood of realization in the next three years:
  - HIGH (Euro area and Japan)MEDIUM (Emerging markets)
- Expected impact on economy if risk is realized:
  - Protracted slower growth in Europe would adversely affect sugar exports (one of Namibia’s key export items) to Europe.
  - Protracted slower growth in South Africa could lower South Africa’s imports, weaken demand for Namibia’s exports, and further lower SACU revenues.
  - MEDIUM: External balances would deteriorate with lower SACU revenues and weaker import demands from Europe and Namibia’s neighboring countries. Economic growth would also be affected.
- Possible policy response:
  - Step up structural reforms to promote private sector development.
  - Diversify export markets.
  - Build sufficient international buffer, through fiscal consolidation and external financing.

### Tighter or more volatile global financial conditions
- Nature/source:
  - As a result of the expected FED’s liftoff, prices of risky assets could drop abruptly, as investors reassess underlying risk and move into safe assets, including the dollar.
- Likelihood of realization in the next three years:
  - HIGH
- Expected impact on economy if risk is realized:
  - The central bank might be forced to substantially increase interest rates in line with the South African policy rates.
  - Lower financial flows could significantly worsen the external balance.
  - Reduced growth and higher debt service costs could slow down the fiscal consolidation.
  - HIGH
- Possible policy response:
  - Obtain additional external financing (denominated in rand) to avoid a sharp deterioration in international reserves.
  - Implement fiscal consolidation by reducing recurrent expenditures and enhancing revenue mobilization.
  - Improve the efficiency of public spending by strengthening PFM and enhancing public sector reforms.

### Adjustment of house prices in Namibia
- Nature/source:
  - House prices in Namibia grew fast for several years, potentially deviating from economic fundamentals. Shocks, such as an interest rate hike, could lower demand and force price adjustments.
- Likelihood of realization in the next three years:
  - MEDIUM
- Expected impact on economy if risk is realized:
  - With increase in nonperforming loans, commercial banks’ capital would be eroded, raising macroprudential concerns.
  - Growth would also be adversely affected.
  - HIGH
- Possible policy response:
  - Monitor the systemic risks and implement targeted macroprudential policies.

*Based on the latest G-RAM. The Risk Assessment Matrix (RAM) shows events that could materially alter the baseline path (the scenario most likely to materialize in the view of IMF staff). The relative likelihood of risks listed is the staff’s subjective assessment of the risks surrounding the baseline (“low” is meant to indicate a probability below 10 percent, “medium” a probability between 10 and 30 percent, and “high” a probability of 30 percent or more). The RAM reflects staff views at the time of the PCM.*

### 3. The GDP revision implies only minor changes in key macroeconomic ratios.

### 3. The GDP revision implies only minor changes in key macroeconomic ratios.

### Main implications of the GDP revision
- Real growth rates were increased while the deflator was revised downwards.
- Namibia’s nominal GDP level for 2014 was lowered by 3.2 percent.
- As a result of the lower denominator:
  - 2014 debt-to-GDP ratio becomes 28.1 percent of GDP (rather than 27.2 percent).
  - 2014 fiscal deficit is 3.9 percent of GDP (compared with 3.8 percent).
  - 2014 current account deficit becomes 10.3 percent of GDP (instead of 9.9 percent).

### Key statistics (selected indicators, 2011–2014)
- National account and prices:
  - GDP at constant prices 1/: 2011 5.1, 2012 5.1, 2013 5.7, 2014 6.4
  - GDP deflator: 2011 3.8, 2012 12.9, 2013 9.0, 2014 7.7
  - GDP at market prices (N$ billions): 2011 90.1, 2012 106.9, 2013 123.1, 2014 141.0
  - GDP at market prices (usd$ billions): 2011 12.4, 2012 13.0, 2013 12.8, 2014 13.2
  - GDP per capita (US$, constant 2000 exchange rate): 2011 6,149, 2012 7,192, 2013 8,173, 2014 9,231
  - Consumer prices (end of period): 2011 7.4, 2012 6.4, 2013 4.9, 2014 4.6
- External sector:
  - Exports (US$): 2011 9.8, 2012 -0.4, 2013 6.0, 2014 -0.4
  - Imports (US$): 2011 7.9, 2012 17.9, 2013 1.6, 2014 11.0
  - Terms of trade (deterioration = - ): 2011 6.5, 2012 -9.0, 2013 -4.0, 2014 -2.9
  - Real effective exchange rate (period average): 2011 -1.6, 2012 -3.9, 2013 -8.7, 2014 -5.9
  - Exchange rate (N$/US$, end of period): 2011 8.1, 2012 8.5, 2013 10.5, 2014 11.6
- Money and credit:
  - Domestic credit to the private sector: 2011 9.3, 2012 16.9, 2013 14.5, 2014 16.5
  - Base money: 2011 69.9, 2012 -9.5, 2013 22.7, 2014 16.7
  - M2: 2011 19.8, 2012 5.3, 2013 8.6, 2014 7.7
  - Interest rate (percent): 2011 6.0, 2012 5.5, 2013 5.5, 2014 6.0
- Investment and savings:
  - Gross Investment: 2011 22.7, 2012 25.7, 2013 26.5, 2014 34.0
  - Public: 2011 8.2, 2012 7.2, 2013 6.8, 2014 4.4
  - Private: 2011 14.5, 2012 18.5, 2013 19.7, 2014 29.6
  - Gross domestic savings: 2011 13.0, 2012 13.0, 2013 9.4, 2014 12.4
  - Gross national savings: 2011 17.5, 2012 16.6, 2013 17.9, 2014 19.9
- Central government budget (fiscal year begins April 1):
  - Revenue and grants: 2011 31.7, 2012 33.0, 2013 32.8, 2014 36.3
  - Of which: SACU receipts: 2011 7.6, 2012 12.4, 2013 11.5, 2014 12.5
  - Expenditure and net lending: 2011 40.3, 2012 34.6, 2013 37.1, 2014 40.1
  - Primary balance (deficit = - ): 2011 -7.3, 2012 -0.1, 2013 -2.9, 2014 -2.5
  - Overall balance: 2011 -8.5, 2012 -1.6, 2013 -4.3, 2014 -3.9
  - Overall balance: Non-SACU: 2011 -16.1, 2012 -14.1, 2013 -15.9, 2014 -16.4
- Public debt:
  - Public debt/GDP: 2011 26.2, 2012 24.1, 2013 23.1, 2014 24.8
  - Gross public and publicly guaranteed debt/GDP: 2011 28.1, 2012 26.0, 2013 27.3, 2014 28.1
- External sector (continued):
  - Current account balance (including official grants): 2011 -2.9, 2012 -5.6, 2013 -4.0, 2014 -10.3
  - External public debt (including IMF): 2011 6.4, 2012 7.8, 2013 7.0, 2014 7.5
  - Gross official reserves US$ millions: 2011 1,800, 2012 1,774, 2013 1,526, 2014 1,220
  - Percent of GDP: 2011 14.5, 2012 13.6, 2013 12.0, 2014 9.2
  - Months of imports of goods and services: 2011 3.0, 2012 2.8, 2013 2.2, 2014 1.8
  - External debt/GDP 3/: 2011 41.4, 2012 35.5, 2013 39.0, 2014 41.8
- Memorandum item:
  - Population (in million): 2011 2.1, 2012 2.1, 2013 2.2, 2014 2.2

### Recent developments and outlook (authorities’ view)
- Revised national statistics (released September 10, 2015) indicate GDP growth by 6.4 percent in 2014, up from 5.7 percent in 2013 and higher than the April 2015 preliminary estimate of 4.5 percent.
- Growth drivers in 2014:
  - Secondary sector: buoyant construction activity and recovery in utilities.
  - Tertiary sector: wholesale and retail trade, transport and communication, and education.
  - Mining performed poorly due to decreases in uranium and other mining and quarrying activity.
- Inflation:
  - Annual inflation rate averaged 5.4 percent in 2014, down from 5.6 percent in 2013.
  - Annual inflation rose to 3.3 percent in July 2015 from 3.0 percent in June 2015.
  - Inflation expected to rise slightly but remain within manageable levels.
- External sector and reserves:
  - Current account deficit narrowed to N$580 million in Q1 2015 (from N$1.1 billion in the previous quarter and N$3.3 billion in Q1 2014); as a percent of GDP, this was 0.4 percent in Q1 2015.
  - International reserves rose by 20.2 percent to N$14.8 billion during Q2 2015 compared to the previous quarter, mainly due to issuance of a new JSE bond worth N$800 million.
- Outlook risks:
  - Downside risks include falling commodity prices, slow recovery in main trading partners, adverse weather conditions, and projected decrease in SACU receipts.

### Fiscal, monetary, financial, and structural policy responses
- Fiscal policy:
  - Remains accommodative to support growth and job creation, while pursuing consolidation announced in 2012.
  - Authorities implemented cuts on recurrent spending such as travel and related costs; will continue cuts into the medium term.
  - Further expenditure recalibration: postponement of non-priority and least productive capital spending associated with public administration infrastructure.
  - Public debt policy guided by the 2005 Sovereign Debt Management Strategy and a conservative benchmark of 35 percent of GDP.
- Monetary and exchange rate policy:
  - Bank of Namibia pursued a tighter monetary policy stance in 2014 to respond to acceleration in credit extension and rising property prices.
  - Credit extension to the private sector slowed.
  - Authorities maintain the peg to the South African rand as the monetary policy anchor; note that continued declines in gross official international reserves would compromise credibility of the peg.
  - Stock of international reserves is 3.9 times higher than currency in circulation at present; authorities plan to safeguard the peg and build buffers, and are considering options and fiscal consolidation to boost reserves in the medium term.
- Financial sector:
  - Banking sector remained sound, profitable, and adequately capitalized; asset quality improved with a decrease in NPL ratio during second half of 2014.
  - Sector remains highly leveraged in the mortgage sector; rising household indebtedness and past rapid credit growth create vulnerabilities.
  - Authorities consider options to speed up supply of serviced land and concur on need to consider macro-prudential measures to curb speculative behavior.
- Structural reforms:
  - Authorities committed to promoting employment creation through economic diversification.
  - To address youth unemployment, authorities will promote development of functional technical skills through increased access to tertiary and vocational training.

### Policy intent and conclusion
- Authorities are committed to pursuing sound macroeconomic policies and structural reforms to ensure more inclusive growth, address high unemployment, reduce vulnerabilities, and restore and preserve medium to long-term fiscal sustainability.
- Authorities have commenced half-yearly reviews of the budget and the medium-term expenditure outlook.

*Statement by Ms. Kapwepwe, Executive Director for Namibia, and Ms. Dlamini-Kunene, Advisor to the Executive Director for Namibia; September 18, 2015.*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2015/_cr15276.pdf_