IMF Staff Completes 2023 Article IV Mission to Namibia

IMF News, October 2, 2023

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Real GDP grew 4.6 percent in 2022, driven by mining.
Growth of 3.2 percent in 2023 is expected to bring output back above the pre-pandemic level.
For 2024 and the medium-term, the growth path is expected to stabilize at just below 3 percent.
Unemployment remains elevated at 21 percent, and is particularly acute among the youth.

Inflation rose sharply in 2022 due to high international oil and food prices; it has eased in recent months reflecting the global trend.
Food price inflation has remained elevated and is susceptible to:
- resurging fuel and transport costs;
- the impact of the drought; and
- climate change more broadly.
The current account deficit widened in 2022 as the spike in fuel prices inflated the import bill.
In 2023, the current account is expected to narrow reflecting:
- the easing of fuel prices relative to 2022; and
- the recovery in the SACU revenues.
International reserves are expected to increase moderately with external financing needs largely covered by foreign direct investment in mining and the ongoing oil and gas exploration.

The fiscal deficit narrowed from 8.6 percent in 2021/22 to 5.3 percent in 2022/23.
Public debt continued to rise and reached 68.7 percent of GDP.
Associated interest costs attained 4.5 percent of GDP.
Social assistance was expanded to address food insecurity.

Maintaining the fiscal reform momentum is key to:
- preserve debt sustainability;
- cushion against the volatility of SACU revenues; and
- foster private sector-led growth.
Implementing the authorities’ fiscal consolidation strategy is pivotal to preserve debt sustainability and protect against SACU revenue volatility.
Priority reform actions recommended:
- Accelerate public wage reform—including introducing early retirement.
- Reform state-owned enterprises.
- Improve licensing and taxation of natural resource extraction, including fishing, to enhance revenue mobilization.
- Strengthen public financial management, including improving large public project selection.
- Publish a fiscal risk statement along with the budget document to enhance fiscal transparency and public debt management.
- Ensure fiscal space for social measures to help mitigate the impact of high food prices on the vulnerable.
Proper assessment of fiscal risks is needed before any budgetary commitments to new projects (green hydrogen, oil and gas exploration, processing of critical minerals).

To respond to inflationary pressures, the Bank of Namibia has tightened its policy stance following the South African Reserve Bank (SARB).
Recommendations:
- Keep the policy rate aligned with the SARB and maintain an adequate level of reserves to support the currency peg and anchor inflation.
- Enhance macroprudential oversight to strengthen the resilience of the financial sector and support financial stability.

New projects in green hydrogen, oil and gas exploration, and processing of critical minerals can help diversify the economy if accompanied by reforms to:
- address skill mismatches;
- reduce the cost of doing business;
- strengthen the public-private partnership framework; and
- address constraints hampering entrepreneurship, including the regulatory burden, input costs (especially energy and water), and governance challenges.
Strengthening the public-private partnership framework and addressing these constraints would help Namibia benefit from investments in emerging sectors.

Assisting the vulnerable takes on new importance in the context of the ongoing drought and the risk of resurgent fuel and food prices.
Expanding and protecting social assistance is highlighted as important to address food insecurity and shield vulnerable groups.

Improving specialized statistical capacity is needed to ensure consistent and proper recording of oil and gas exploration and tracking its impact on the economy.

An IMF staff team, led by Mr. Jaroslaw Wieczorek, IMF mission chief for Namibia, visited Windhoek during September 18 ‒ October 2, 2023, to conduct discussions for the 2023 Article IV Consultation with Namibia.
End-of-Mission press releases convey preliminary findings after a visit; the views expressed are those of IMF staff and do not necessarily represent the views of the IMF’s Executive Board. Based on the preliminary findings, staff will prepare a report that, subject to management approval, will be presented to the IMF's Executive Board for discussion and decision.

Press Release No. 23/328 — IMF Communications Department — October 2, 2023.