IMF Executive Board Concludes 2016 Article IV Consultation with Namibia

December 8, 2016

On December 2, 2016, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation [1] with Namibia.

Since the financial crisis, Namibia has experienced remarkable growth and economic progress. Strong policy frameworks and expansionary domestic policies have contributed to macroeconomic stability, robust growth, and rising living standards. Yet, deep-rooted structural impediments have kept unemployment high and unresponsive to growth, contributing to persistently high inequality.

In 2015, growth remained strong, but vulnerabilities increased. Despite a severe drought, real GDP grew by 5.3 percent buoyed by construction in the mining and housing sectors, and expansionary fiscal policy. However, with strong domestic demand and declining Southern African Customs Union (SACU) revenue, the current account registered a double-digit deficit. In combination, the large fiscal deficit, the depreciation of the Namibian dollar along with the South African rand, to which it is pegged, and the issuance of a Eurobond in November 2015 increased public debt to about 40 percent of GDP, close to the median of similarly-rated emerging economies. At the same time, continued rapid credit growth contributed to fast growing residential real estate prices and elevated household indebtedness. Headline inflation rose to 6.9 percent in September, from the 3.4 average in 2015, mostly due to rising food prices caused by the drought.

Fiscal and monetary policies are on a tightening course. The government has revised the FY16/17 budget and announced the intention to reduce the fiscal deficit in the coming years. In the context of the peg with the South African rand, the Bank of Namibia raised its policy rate in 2015 and in 2016 to 7 percent, at par with the South African Reserve Bank’s rate.

The outlook remains positive with considerable vulnerabilities and risks. Growth is projected to temporarily weaken in 2016 to 1.6 percent as the construction of large mines ends and the government starts consolidating; it would then accelerate to about 5 percent in 2017–18 as production from new mines ramps up. However, without further deficit reduction, public debt is projected to increase above 60 percent by 2021. On the positive side, the current account deficit is expected to narrow to around 5 percent of GDP on the back of larger mining exports. Inflation is anticipated to decline to 6 percent by 2017 as food prices normalize.

Downside risks dominate the outlook and stem mainly from possible further declines in SACU revenues and commodity prices, lower growth in mining and construction, and sudden corrections in housing prices and domestic credit. With limited buffers, shocks could be amplified by abrupt policy responses, especially if combined with sovereign credit rating downgrades. Linkages between banks and non-bank financial institutions could further amplify shocks.

Executive Board Assessment [2]

Executive Directors welcomed Namibia’s robust economic performance and rising living standards in the past several years. Directors noted, however, that while medium‑term growth prospects remain positive, rising public debt, a widening current account deficit, low international reserves, and further declines in commodity prices pose risks. They underscored that continued strong commitment to sound policies and structural reforms will be key to preserving macroeconomic stability, managing financial sector risks, and promoting job creation and inclusive growth.

Directors welcomed the authorities’ debt and fiscal strategy, and agreed that additional consolidation over the medium term will be necessary to put public debt on a declining path. Noting the authorities’ preference for some front‑loading, they emphasized that adjustment efforts should be carefully calibrated and focus on both revenue and expenditure measures while safeguarding priority capital and social spending, thus minimizing the impact on growth. Directors noted that measures to contain the public wage bill, curtail transfers to state‑owned enterprises (SOEs) and other entities, as well as the strengthening of public financial management and revenue administration would help facilitate the adjustment and ensure equitable burden sharing. They also encouraged steps to reform SOEs to strengthen their governance, oversight, and performance.

Directors noted that fiscal consolidation would lift pressure on monetary policy and that, in the context of the peg with the South African rand, the authorities should consider maintaining the policy rate at par, or with limited positive spread, with the South African Reserve Bank’s rate.

Directors recognized that Namibia’s financial sector is generally stable, and called for continued efforts to monitor and manage risks from rising housing prices, household indebtedness, and linkages between banks and non‑bank financial institutions. They commended the central bank for introducing loan‑to‑value‑limits for non‑primary residence purchases, and recommended that further targeted macro‑prudential measures to tame housing price dynamics be explored. Directors recognized that the tight linkages between banks and non‑bank financial institutions are macro critical and stressed the importance of monitoring and assessing possible financial stability risks from such linkages. In this context, Directors encouraged steps to improve the financial regulatory architecture and to enhance the central bank’s capacity to assess macrofinancial risks and exercise macroprudential controls.

Directors emphasized that implementation of well‑focused structural reforms is necessary to address high unemployment and income inequality. They highlighted that priority should be given to reducing skill mismatches through targeted education and training programs, simplifying business regulations, including improving the functioning of the labor market. Directors welcomed the authorities’ intention to improve the targeting of key social assistance programs, including cash transfers and housing subsidies to make further inroads in reducing inequality and poverty.

Namibia: Selected Economic Indicators, 2013–21

2013

2014

2015

2016

2017

2018

2019

2020

2021

Est

Proj

Proj

Proj

Proj

Proj

Proj

National account and prices

GDP at constant prices

5.7

6.5

5.3

1.6

5.1

5.4

4.3

4.1

3.9

GDP deflator

8.7

6.8

-0.2

6.6

6.0

5.7

5.7

5.7

5.8

GDP at market prices (N$ billions)

123

140

147

159

177

197

217

239

263

GDP at market prices (Fiscal Year) (N$ billions)

127

141

150

163

182

202

223

245

269

GDP per capita (US$, constant 2000 exchange rate)

8,060

8,988

9,270

9,957

11,001

12,158

13,301

14,522

15,822

Consumer prices (end of period)

4.9

4.6

3.7

7.3

6.0

5.7

5.8

5.7

5.7

External sector

Exports (US$)

6.0

-0.9

-11.6

-0.4

16.1

9.7

6.1

4.0

3.1

Imports (US$)

1.6

8.3

-2.7

-16.8

8.0

7.6

4.6

4.5

3.4

Terms of trade (deterioration = - )

4.7

3.5

-9.1

-2.8

-0.7

-0.3

-0.8

-1.1

-0.8

Real effective exchange rate (period average)

-8.7

-5.9

-1.7

...

...

...

...

...

...

Exchange rate (N$/US$, end of period)

10.5

11.6

15.6

...

...

...

...

...

...

Money and credit

Domestic credit to the private sector

14.5

16.5

13.8

8.4

10.1

10.1

10.0

9.8

9.6

Base money

-0.8

35.7

-5.0

10.0

10.0

10.0

10.0

10.0

10.0

M2

12.4

7.8

10.2

8.3

11.4

11.4

10.3

10.1

9.9

Interest rate (percent)

5.5

6.0

6.5

Investment and Savings

Investment

25.2

33.0

34.2

27.4

26.4

25.2

24.9

24.7

24.7

Public

6.4

7.3

8.0

5.4

6.4

7.2

6.9

6.7

6.7

Private

20.2

25.5

25.5

22.0

20.0

18.0

18.0

18.0

18.0

Change Inventories

-1.5

0.2

0.6

0.0

0.0

0.0

0.0

0.0

0.0

Savings

21.2

25.4

20.5

17.7

21.4

20.2

20.2

19.9

19.8

Public

3.0

0.4

-1.6

-3.1

-2.5

-2.3

-2.1

-2.2

-2.5

Private

18.2

25.0

22.1

20.8

23.9

22.6

22.3

22.1

22.3

Central government budget 1/

Revenue and grants

33.4

35.4

34.9

31.3

32.3

32.0

31.7

31.5

31.3

Of which: SACU receipts

11.6

12.8

11.6

8.6

9.3

8.9

8.7

8.4

8.2

Expenditure and net lending

37.3

42.0

43.6

38.4

40.3

40.3

39.3

39.3

39.5

Primary balance (deficit = - )

-2.6

-5.2

-7.0

-4.0

-4.7

-4.7

-3.8

-3.6

-3.6

Overall balance

-4.0

-6.6

-8.7

-7.1

-8.0

-8.4

-7.6

-7.8

-8.2

Overall balance: Non-SACU

-15.6

-19.5

-20.3

-15.8

-17.3

-17.3

-16.3

-16.3

-16.4

Public debt/GDP

24.2

25.5

39.8

43.1

47.4

51.6

54.9

58.2

61.6

Gross public and publicly guaranteed debt/GDP

27.9

28.8

44.7

50.5

54.6

59.1

62.1

65.1

68.2

External sector

Current account balance

(including official grants)

-4.0

-7.6

-13.7

-9.7

-5.0

-4.9

-4.7

-4.8

-4.9

External public debt (including IMF)

7.9

7.6

13.1

17.4

17.1

17.1

17.2

17.1

16.6

Gross official reserves

US$ millions

1,505

1,198

1,580

1,604

1,679

1,714

1,782

1,849

1,912

Percent of GDP

12.9

9.9

16.8

16.2

15.8

15.0

14.6

14.3

13.9

Months of imports of goods and services

2.2

1.8

2.8

2.7

2.6

2.5

2.5

2.5

2.5

External debt/GDP 2/

39.1

42.8

50.8

60.4

60.8

60.9

61.4

62.0

59.5

Memorandum item:

Population (in million)

2.2

2.2

2.3

2.3

2.3

2.3

2.4

2.4

2.4

Sources: Namibian authorities and IMF staff estimates and projections.

1/ Figures are for fiscal year, which begins April 1.

2/ Public and private external debt.



[1] Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.

[2] At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here: http://www.imf.org/external/np/sec/misc/qualifiers.htm.

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