Press Release: IMF Concludes the 2012 Article IV Consultation Mission to Namibia
November 12, 2012Press Release No. 12/429
November 12, 2012
An International Monetary Fund (IMF) mission visited Windhoek during October 29-November 9, 2012 to conduct discussions for the 2012 Article IV Consultation. The mission’s work focused on reviewing recent economic developments and prospects and policies to ensure continued macroeconomic stability and growth. The mission met with Minister of Finance Honorable Saara Kuugongelwa-Amadhila; Deputy Minister of Finance Honorable Calle Schlettwein; Bank of Namibia Governor Ipumbu Shiimi, Permanent Secretary of Ministry of Finance Ms. Ericah B. Shafudah; senior government officials, development partners, and representatives from the private sector and civil society.
At the end of the mission, Mr. Lamin Leigh, the IMF Mission Chief for Namibia, issued the following statement, outlining the mission's preliminary conclusions:
During the first half of 2012 economic recovery in Namibia was supported by a strong rebound of the primary sector, most notably minerals. Yet, given the downside risks to the near-term global economic outlook, the mission forecast that real GDP growth will moderate from about 5 percent in 2011 to 4 percent in 2012. Driven by food and fuel prices, inflation rose significantly to 7 percent (year-on-year) at end-December 2011, but is expected to decline to about 6 percent by end-2012.
After an increase in development spending in the last year driven largely by the government’s temporary Targeted Intervention Program for Employment and Economic Growth (TIPEEG), keeping public debt sustainable would require strict adherence to the government’s medium-term fiscal plan aimed at delivering fiscal surpluses by 2014/15. Fiscal consolidation will help to rebuild the policy buffers. Consistent with the government’s medium-term fiscal strategy, spending under the TIPEEG initiative is planned to run out at the end of FY2013/14. The government’s expenditure envelope (above 40 percent of GDP), including the wage bill, is high by international standards, thus warranting a thorough assessment of possible savings and ways to increase labor productivity with the public service in the near and medium-term. Civil service reform is also needed over the medium-term to enhance the efficiency of the public sector, support fiscal sustainability and reduce any associated distortions/spillover effects from wage settlement practices in the government into the overall labor market. The mission welcomes the government’s efforts to improve the efficiency and financial viability of the state owned enterprises which would enable them to contribute to the broader national development objectives of the country. The finalization of selected public investment projects under TIPEEG during the next two years should further support the rebuild of the policy buffers.
With respect to monetary and exchange rate policy, the peg to the Rand has served Namibia well and merits continuation. Going forward, a further buildup of reserve buffers would enhance Namibia’s ability and resilience to shocks.
While the financial sector is broadly sound based on traditional indicators of banking system soundness, the mission agrees with the authorities on the need to closely monitor potential risks related to large concentration of commercial banks assets in mortgage loans, the elevated level of household indebtedness, concentration of large institutional investors in bank funding along with the rapidly growing nonbank financial institutions. Regarding the latter point, the mission welcomes ongoing efforts by NAMFISA (Namibia Financial Institutions Supervisory Authority) in preparing regulations, guidelines and standards to strengthen the regulatory framework for non-bank financial institutions and support the capacity building effort in the regulatory agency.
The mission supports the tightly focused development objectives enshrined in the recent National Development Plan (NDP4) and the FY2012/13 budget given the socio-economic challenges of high inequality and unemployment that Namibia faces. In the mission’s view, TIPEEG’s goal of easing infrastructure bottlenecks in selected labor intensive sectors is appropriate and has the potential to enhance job creation in the country. This said, TIPEEG should also have a skill development component to help make workers more competitive for long-term private sector jobs after the program comes to an end. NDP4, on the other hand, has identified education as a distinct basic enabler to improve quality and address the mismatch between the demand for and supply of skills. Given the negative impact of income inequalities on growth, the mission recommends policies to target inequality at the source including fostering targeted investment in health and education as well as supporting greater financial inclusion. The latter could draw upon measures outlined in the Government’s
2011–2021 Financial Sector Strategy plan on encouraging financial access to a broader part of the population while limiting associated regulatory risks, including on money laundering.
Finally, the mission would like to express its sincere gratitude to the Namibian authorities for the consistently high quality policy discussions and for their unstinting hospitality.