A just ended mission to Namibia by the International Monetary Fund (IMF) has concluded that due to exceptional growth in the domestic economy, Namibia’s economy is still in an adjustment phase and as a result growth was expected to turn slightly negative in 2017, following positive growth rate of 1.1 percent in 2016.
The negative growth rate expected for 2017 comes as large construction projects, particularly in the mining sector, have been completed and as government continues on its path of fiscal consolidation.
“Namibia has a lot of room for improvement. While Namibia ranks high on the African continent in general, the country can do better and should aim higher, specifically in terms of the ease of doing business,” said Geremia Palomba, the head of the IMF team that just concluded its Article IV Mission, which is a regular assessment of IMF member countries.
“Growth is projected to resume in 2018 and accelerate thereafter to about four percent as production from new mines ramps up and manufacturing and retail activities recover. Downside risks to this outlook include volatile Southern African Customs Union (SACU) revenue, subdued commodity prices and fiscal slippages that could undermine policy credibility,” said Palomba on Wednesday afternoon during a joint media briefing with top officials including Minister of Finance Calle Schlettwein and Bank of Namibia Governor Iipumbu Shiimi.
Palomba said the country’s key challenges going forward include managing the ongoing adjustment process and preserving macro-economic stability, while reducing unemployment and income inequality.
“The government and the Bank of Namibia have already taken steps to reduce the fiscal deficit and preserve financial stability. However, fiscal and external vulnerabilities are rising and call for additional action,”
Palomba said, adding that government’s wage bill, which is growing at about 20 percent per year, is a dynamic issue that requires policy intervention. The visiting IMF team also reviewed the country’s financial sector, which after balance sheet stress tests indicated a sound financial sector.
“The authorities are taking steps to manage possible risks and advance key reforms, such as strengthening bank’s liquidity monitoring and asset classification, introducing a bank resolution regime, expanding the macro-prudential toolkit and upgrading the non-bank regulatory and supervisory framework.
“These actions should help address macro-financial and structural vulnerabilities, including some banking and non-banking sector weaknesses, rising real estate prices, relatively high household indebtedness and complex linkages across financial institutions,” Palomba remarked.
The head of the IMF mission added that another challenge for the financial sector is to ensure better access to finance, particularly for rural populations and small enterprises. In addition, Palomba noted that government had taken action to support growth, tackle high unemployment, particularly among the youth, and reduce income inequality.
He emphasised that addressing the shortage of skilled workers, better aligning wage dynamics to productivity trends, and simplifying business regulations have the potential to significantly boost employment and deliver more inclusive growth. During their visit, the IMF team met with Prime Minister Saara Kuugongelwa-Amadhila, Minister of Finance Calle Schlettwein, Bank of Namibia Governor Iipumbu Shiimi and other senior government officials, as well as financial market, business and union representatives. The findings of the IMF mission will be reflected in the 2017 Article IV staff report, which, together with the joint IMF and World Bank Financial Sector Assessment Programme report, is due to be discussed by the IMF Executive Board in early 2018.