Despite a volatile global economy the Bank of Namibia (BoN) says it has managed to contain its expenses and has significantly increased the country’s foreign reserves by 74.3 percent to N$23.6 billion at the end of 2015.
This amount is 5.2 times the amount of currency in circulation in the economy and indicates higher import cover of 2.8 months from the 1.8 months in the preceding year. The central bank made the announcement yesterday during the launch of its 2015 Annual Report, when it also announced a dividend payment to government of N$76.5 million compared to N$158 million in the 2014 financial year.
“As a result of very volatile financial markets globally, the bank recorded a weaker financial performance in 2015, compared to the previous financial year. This is mainly due to uncertain and volatile capital and money markets where the bank derives its investment returns,” said BoN Deputy Governor Ebson Uanguta.
EUROBOND BOOSTS IMPORT COVER
Uanguta explained that two of the main factors that led to the strengthening of the country’s import cover include capital generated from the issuance of a second Eurobond last year, as well as valuation adjustments stemming from the devaluation of the Namibia Dollar against other major currencies.
During October last year Namibia issued a US$750 million ten-year sovereign bond in international capital markets, after entering this arena with a debut Eurobond in 2011. This latest bond, which is listed on the Irish Stock Exchange, will mature in October 2025.
The central bank has since explained that the primary objective of the second bond issuance was to raise funding to finance the national budget and to increase foreign reserves.
The latest annual report from the central bank also shows the country recorded a positive external balance during 2015, due to significant inflows in the capital and financial account, despite the widened current account deficit.
“The capital and financial account surplus was mainly due to the Eurobond issuance during the reporting period. The current account deficit, on the other hand, was attributed to the persistent string increase in the value of imports relative to export receipts,” said Uanguta.
Meanwhile, the annual report also indicates a slightly higher than anticipated domestic growth rate of 5.7 percent in 2015, which was higher than the expected 4.5 percent but still lower than 6.4 percent experienced in 2014.
“The prevailing drought and Foot and Mouth disease exerted pressure on growth in the agricultural sector. Growth in the construction sector also slowed during 2015 as a result of the completion of some major projects, especially in the mining sector. Similarly, growth in the wholesale and retail trade and transport sectors was weaker compared to that of the previous year,” Uanguta noted.
Also, during the 2015/16 fiscal year, government’s overall deficit is estimated to have increased, both in nominal terms and as a ratio to Gross Domestic Product (GDP). Total government debt and loan guarantees as a percentage of GDP increased to 34 percent and 4.4 percent respectively, at the end of 2015 but remained within the set ceilings of 35 percent and 10 percent respectively.
“The rise was as a result of increased spending and marginal growth in revenue during 2015/16, compared to the previous fiscal year,” said Uanguta. He added that Namibia still has a relatively low debt-to-GDP ratio compared to Japan (229 percent), Singapore (100 percent), the Euro area (93 percent) and other countries in the southern African region (40 percent).