All eyes are on fiscal and monetary policy regulators, particularly the Bank of Namibia, as to how, and when, will they earnestly address escalating house prices along with the concentration of banks’ mortgage lending, the key concerns that the International Monetary Fund (IMF) repeated this week after first expressing such in its annual review four years ago.
The Bank of Namibia (BoN), to its credit, did initiate a review of the lending policy, including tightening mortgage lending in 2013 – which the IMF this week “acknowledges [BoN] is considering taking some policy steps”.
“Fast growth in real estate prices –combined with the high concentration of banks’ mortgage lending – pose risks to the financial sector and the economy,” said Jiro Honda who led the IMF team that conducted the 2015 annual bilateral consultation with Namibia.
The IMF team met with Prime Minister Saara Kuugongelwa-Amadhila, Minister of Finance Calle Schlettwein and Bank of Namibia Governor, Ipumbu Shiimi.
Yesterday BoN’s division for strategic communication and financial sector development did not respond to the emailed questions on policy steps being taken or under consideration to address the IMF concerns.
Nevertheless, the IMF statement of concern on the risks to the financial sector and the economy has not particularly changed from the concerns first expressed in the 2012 Namibia economic outlook and the subsequent assessments.
That first ominous concern asked for fiscal and monetary regulators to monitor the amount of money commercial banks are loaning to home buyers at a time house prices appear to be highly inflated, and that government “take pre-emptive measures to contain risks from a reversal of the surge in house prices”.
“To address risks associated with the housing market, the mission encourages the authorities to consider various targeted macro-prudential policies, as needed. The mission acknowledges that the Bank of Namibia is considering taking some policy steps,” Honda said.
Ironically when IMF first issued that concern, Greece’s debt crisis too was dominating news from Europe, with Greek banks writing off 75 per cent of the values of their loans.
Today Greece is deadlocked in debt crisis negotiations with lenders, including the IMF, having defaulted on its billion worth of loan re-payments. Honda says the Greece debt crisis would have minimal effect on Namibia’s economy, unlike the potential effects on South Africa’s economy that has a more direct and frequent engagement with the European Union economy.
The IMF also identified declining Southern African Customs Union (SACU) revenue and persistent high unemployment as emerging risks to Namibia’s economy and the projected five per cent growth rate in 2015.
“Namibia’s growth prospects are increasingly clouded with downside risks. The main near-term risks are associated with the highly volatile SACU revenues. In the coming years the SACU revenues are expected to decline, reflecting the slowdown in the South African economy,” said Honda. He added that declining SACU revenue would result in an increase in the current account deficit, which would erode already low international reserves.
The country’s international reserves were reported to be at 9.25 per cent of gross domestic product (GDP) or 1.75 months of imports at the end of April 2015.
“In light of this risk, the mission encourages the authorities to shift toward a tight fiscal policy stance. While safeguarding critical social and developmental needs, a tight fiscal policy is recommended to build an adequate international reserve buffer (16 to 20 per cent of GDP or three to five months of imports) over the medium-term, which would enhance Namibia’s resilience to future shocks. To this end, the mission welcomes the authorities’ intention for fiscal consolidation,” said Honda.
While stating that government will respond to the IMF’s concerns within about a week, Minister of Finance Calle Schlettwein agreed that foreign reserves need to be improved but cautioned that this improvement should not compromise on the country’s economic growth, employment or interventions to improve income distribution.