Responding to the recent International Monetary Fund (IMF) concerns on Namibia’s declining foreign reserves, the Minister of Finance Calle Schlettwein said government has already undertaken measures to boost the level of reserves in the medium to long term.
The IMF team that was in the country on a two-week mission noted that Namibia’s growth prospects are increasingly clouded with downside risks, of which the main near-term risks are associated with the highly volatile SACU revenues.
In the coming years SACU revenues are expected to decline even further, reflecting the slowdown in the South African economy. The declining SACU revenue is expected to result in an increase in the current account deficit, which would erode already low international reserves.
Namibia’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 Jiro Honda, the head of the IMF’s mission to Namibia.
Schlettwein responded to the concerns raised: “Some of the measures taken by government include the ‘Growth at Home’ strategy, which among others, focuses on building the productive capacity of the economy through value addition on raw materials. This strategy will culminate in some level of import substitution, which will reduce pressures on the country’s reserves. Also, both my ministry and the Bank of Namibia are currently working on a research paper that looks into ways of building reserves.”
With regard to SACU, Schlettwein said it is important to highlight that SACU’s receipts remain a significant contributor to both the government’s revenue as well as to the country’s foreign reserves.
“This reduction of course will have some implication to the budget and reserves going forward and thus appropriate measures are required. But I am glad to share with you that during my budget statement at the beginning of this year some fiscal consolidation, which includes expenditure reduction and revenue enhancing measures, were announced and this will help to mitigate risks emanating from such a decline,” said Schlettwein.
Furthermore, government, through the Bank of Namibia, has invited the IMF to provide technical assistance to support efforts to establish an effective macro-prudential policy framework for Namibia.
The objectives of the IMF’s mission were to provide an assessment of potential risks that may face the Namibian financial system and to give advice to the Bank of Namibia on key issues related to implementation of an effective macro-prudential framework.
The mission was successfully completed by the end of June and a medium-term action plan for consideration by the Bank of Namibia, which covers key elements of the macro-prudential policy framework, was prepared.