WINDHOEK – Namibian households owe local financial institutions more than N$4.9 billion through bank overdrafts and instalment credit, the reserve bank announced yesterday.
This is blamed on Namibians’ appetite for expensive imported luxurious goods, especially passenger vehicles, which they cannot afford to finance with own cash but with borrowed money only.
This continues to present monetary headaches to the Bank of Namibia, especially because of the impact of such imports on the country’s import bill.
Yesterday the Bank of Namibia cited shocking increases in household credit levels, which as of now stands at more than N$4.9 billion, when announcing its decision to increase the repo rate by 0.25 percentage points to 6.25 percent.
The money was spent on importing luxury goods, which brought about a higher import bill and a decline in the stock of foreign reserves, which went down 13.7 percent to N$16 billion as of January this year compared to the previous year.
Equally shocking, and concerning to the Bank of Namibia, is the rate at which Namibians went on the shopping spree over the last six months during which they bought things on credit and took out overdrafts. In the last six months overdraft extensions went up by 23.8 percent while credit instalments increased by 18.9 percent.
“[We have] observed that a significant portion of new household credit is being used to finance unproductive imported luxury goods which continue to put additional pressure on the international reserves of the country,” said Bank of Namibia’s Governor Iipumbu Shiimi when announcing the new repo rate decided by the bank’s Monetary Policy Committee.
The total amount for credit extension to the private sector increased by N$9.7 billion, but more than half of those debts belong to Namibian households. It is a huge increase from the previous debt level of N$7.4 billion.
The Bank of Namibia now has a widening trade deficit as a result of a higher import bill.
Even though Shiimi says the Monetary Policy Committee does “note that a significant portion of imports is for productive use, which will have economic benefits to the country in the future, the [committee] remains concerned about the increase in importation of unproductive goods, especially passenger vehicles and other luxurious goods”.
The stock of foreign reserves are under pressure but Shiimi says “despite the pressure, the international reserves remain adequate to maintain the one-to-one link of the Namibian dollar to the South African Rand.”
Annual inflation slowed from the peak of 6.1 percent in June 2014 to 4.5 percent in January this year, driven mostly by lower inflation for food, transport and housing categories. The overall annual inflation is expected to remain low during the rest of the year.
The bank also foresees the domestic economy growing by 5.6 percent this year. The growth is expected from construction activities, mainly in the mining sector.
However, Shiimi says “risks to growth remain largely the looming drought, the weak growth in the economies of some of Namibia’s major trading partners and depressed commodity prices”, which “could negatively affect export earnings, mining sector profits and employment.”