IMF Executive Board Concludes 2017 Article IV Consultation with Namibia
IMF News, February 28, 2018
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- Published: February 28, 2018
Economic developments and macroeconomic vulnerabilities
- Since 2010, Namibia experienced a period of exceptional growth driven partly by temporary factors: an expansionary fiscal policy, the construction of large mines, buoyant credit, and improved living standards.
- Temporary expansionary factors ended, leading to a turning point:
- GDP sharply decelerated in 2016 and contracted in 2017 as construction in the mining sector came to an end and the government began consolidating.
- Current account balance improved significantly in 2017 due to the economy contracting and Southern Africa Customs Union (SACU)’s receipts temporarily increasing.
- Public debt ratio continued to increase despite significant fiscal adjustment and almost doubled over the last four years, exceeding in 2017 the median of the countries at the lowest tier of investment grade.
- Credit growth to the private sector slowed, reflecting banks’ tight funding constraints and low demand from highly leveraged households.
- Headline inflation declined to 5.2 percent in 2017, from 7.3 at end 2016.
- In the context of the currency peg, the Bank of Namibia has followed the South African Reserve Bank (SARB) and reduced its policy rate.
Outlook and risks
- Baseline outlook:
- Growth is projected to resume in 2018 as mining production ramps up, construction activity stabilizes and manufacturing recovers.
- Growth is projected to converge to a long-term rate of about 3½ percent, below the average of recent years.
- Inflation is anticipated to remain below 6 percent.
- Current account deficit is expected to narrow on average to around 6 percent of GDP on the back of larger mining exports.
- International reserve coverage is projected to gradually decline.
- Fiscal trajectory without policy action:
- As SACU revenues are expected to decline, in the absence of policy action, the fiscal deficit would remain large and public debt would continue rising and approach 70 percent of GDP by 2022.
- Downside risks:
- Possible fiscal slippages that could undermine policy credibility.
- Lower demand for key exports and further declines in SACU revenue.
- Slower recovery in mining and construction activities.
- Extensive macro-financial linkages that could amplify negative shocks.
Executive Board assessment and policy recommendations
- Directors’ overarching view:
- Commended authorities for rapid growth, rising living standards, and macroeconomic stability achieved in past years.
- Noted significant economic challenges: end of temporary growth drivers, rising public debt, low reserve coverage, financial sector vulnerabilities, elevated unemployment and inequality.
- Emphasized need for sound policies and structural reforms to ensure fiscal sustainability, strengthen the financial sector, and generate sufficient jobs.
- Fiscal policy recommendations:
- Additional consolidation needed to ensure debt sustainability; efforts should be spread over the next years and include expenditure and revenue measures that support long‑term growth while addressing distributional concerns.
- Specific measures with merit: containing public wage growth, rationalizing transfers to extra‑budgetary entities, and reducing tax exemptions.
- Welcomed recent increase in social assistance programs and called for better targeting to protect the poor and strengthen distributional impact.
- Improve budget formulation, tighten expenditure controls, strengthen revenue administration and the management of extra-budgetary entities.
- Monitor and manage fiscal risks, particularly from off‑budget financing of large investment projects.
- Monetary and macroprudential recommendations:
- In the context of the peg with the South African rand, the Bank of Namibia (BoN) should maintain the policy rate in line with the South African Reserve Bank.
- Use macroprudential tools to manage risks from the leveraged private sector.
- Financial sector recommendations:
- Commended early steps implementing the FSSA recommendations and underscored importance of monitoring/managing risks from concentrated bank balance sheets, interconnections, and public and private indebtedness.
- Encourage addressing supervisory and regulatory gaps in the non‑bank financial sector.
- Saw merit in developing an explicit macroprudential mandate for the BoN, and in establishing a crisis management and resolution framework.
- Structural reforms to boost inclusive growth and jobs:
- Reduce skill mismatches by improving access and quality of secondary and higher education and training.
- Better align wage and productivity dynamics.
- Enhance the business environment to support job creation ahead of demographic changes.
Key statistics and projections (selected, as reported)
- GDP at constant prices (percentage change):
- 2014: 6.4
- 2015: 6.0
- 2016: 1.1
- 2017: -1.2
- 2018: 1.2
- 2019: 3.3
- 2020: 3.8
- 2021: 3.5
- 2022: (not shown)
- GDP deflator:
- 2014: 6.3
- 2015: 0.4
- 2016: 7.9
- 2017: 6.1
- 2018: 5.8
- 2019: 5.7
- GDP at market prices (N$ billions):
- 2014: 139
- 2015: 148
- 2016: 161
- 2017: 169
- 2018: 181
- 2019: 197
- 2020: 217
- 2021: 237
- 2022: 259
- GDP per capita (US$, constant 2000 exchange rate):
- 2014: 8,941
- 2015: 9,334
- 2016: 9,989
- 2017: 10,395
- 2018: 11,035
- 2019: 11,951
- 2020: 13,008
- 2021: 14,115
- 2022: 15,316
- Consumer prices (end of period):
- 2014: 4.6
- 2015: 3.7
- 2016: 7.3
- 2017: 5.2
- External sector (selected):
- Exports (US$) growth rates: 2014: -0.1; 2015: -13.2; 2016: 4.3; 2017: 13.5; 2018: 9.2; 2019: 7.6
- Imports (US$) growth rates include: 9.9, -5.5, -12.7, -5.4, 9.0, 6.8, 8.5, 4.2, 3.9 (series as reported)
- Terms of trade (deterioration = - ): 2014: -5.2; 2015: -7.1; 2016: 0.5; 2017: -1.0; 2018: -1.4; 2019: -1.6
- Real effective exchange rate (period average): 2014: -5.8; 2015: -2.4; 2016: -3.1; 2017: 10.6
- Exchange rate (N$/US$, end of period):
- 2014: 11.6
- 2015: 15.6
- 2016: 13.7
- Domestic credit to the private sector (percentage change):
- 2014: 17.9
- 2015: 13.8
- 2016: 8.6
- 2017: 4.5
- 2018: 4.9
- 2019: 5.4
- Base money and M2 (selected):
- Base money: 2014: 35.7; 2015: -5.0; 2016: 24.7; 2017: 10.0
- M2: 2014: 6.9; 2015: 10.2; 2016: 7.0; 2017: 9.7; 2018: 9.4
- Investment (percent of GDP):
- Total: 2014: 33.6; 2015: 34.6; 2016: 25.7; 2017: 22.8; 2018: 23.5; 2019: 23.8; 2020: 24.0; 2021: 23.6; 2022: 23.9
- Public: 2014: 7.4; 2015: 9.1; 2016: 7.5; 2017: 5.9
- Private: 2014: 26.0; 2015: 24.9; 2016: 15.1; 2017: 15.5; 2018: 16.0; 2019: 16.5; 2020: 17.0; 2021: 17.5; 2022: 18.0
- Savings (percent of GDP):
- 2014: 24.1; 2015: 20.3; 2016: 11.5; 2017: 21.2; 2018: 19.9; 2019: 18.6; 2020: 18.2; 2021: 17.8; 2022: 18.1
- Central government budget (Fiscal Year figures):
- Revenue and grants: 2014: 35.4; 2015: 31.2; 2016: 34.2; 2017: 31.6; 2018: 30.0; 2019: 30.9; 2020: 30.6
- Of which: SACU receipts (selected): 12.9; 11.4; 7.8; 8.4 (years as reported)
- Expenditure and net lending: 2014: 42.1; 2015: 43.2; 2016: 40.5; 2017: 39.4; 2018: 40.1; 2019: 39.9
- Primary balance (deficit = - ): 2014: -6.9; 2015: -6.7; 2016: -2.2; 2017: -5.1; 2018: -5.9; 2019: -4.5; 2020: -3.9
- Overall balance: 2014: -8.7; 2015: -9.3; 2016: -8.5; 2017: -9.9; 2018: -9.0; 2019: -8.8
- Overall balance: Non-SACU: 2014: -19.5; 2015: -20.1; 2016: -18.0; 2017: -16.6; 2018: -17.9; 2019: -17.6; 2020: -17.2; 2021: -17.7
- Public debt/GDP:
- 2014: 24.8
- 2015: 44.3
- 2016: 46.5
- 2017: 51.4
- 2018: 57.3
- 2019: 61.9
- 2020: 65.7
- 2021: 69.7
- Gross public and publicly guaranteed debt/GDP:
- 2014: 28.4
- 2015: 44.2
- 2016: 49.6
- 2017: 54.0
- 2018: 59.5
- 2019: 66.0
- 2020: 71.2
- 2021: 75.7
- 2022: 80.3
- External public debt (including IMF): 2014: 8.0; 2015: 13.1; 2016: 17.1; 2017: 15.9; 2018: 16.3; 2019: 15.4
- Gross official reserves (US$ millions):
- 2014: 1,198
- 2015: 1,580
- 2016: 1,791
- 2017: 2,193
- 2018: 2,158
- 2019: 2,155
- 2020: 1,799
- 2021: 1,588
- 2022: 1,579
- Gross official reserves (percent of GDP):
- 2014: 16.7
- 2015: 15.2
- 2016: 12.3
- 2017: 10.3
- Months of imports of goods and services:
- 2014: 2.0
- 2015: 3.0
- 2016: 4.1
- 2017: 2.8
- 2018: 2.4
- 2019: 2.3
- 2020: (not shown)
- External debt/GDP (public and private external debt):
- 2014: 43.0
- 2015: 48.2
- 2016: 60.2
- 2017: 60.6
- 2018: 64.4
- 2019: 66.3
- 2020: 67.3
- 2021: 68.5
- 2022: 68.7
- Memorandum item:
- Population (in million): 2.2
Source: IMF press release, February 28, 2018.
