Vulnerability of Namibia’s economy discussed
The Bank of Namibia earlier this week released a publication which shows that the country’s economy is vulnerable to external shocks and not much can be done to reduce the impacts of these shocks and significant attention should be placed on inflation arising from imported goods.
The publication examines how changes in the exchange rate affects inflation in Namibia. The paper is jointly authored by Dr. Postrick Mushendami, Deputy Director at the Research Department and Mr. Heinrich Namakalu, economist at the same department at the Bank of Namibia.
The paper was presented at the seminar held at the Bank of Namibia which was attended by senior government officials, members of the business fraternity, economists, members of the academic community and the media. In his presentation of the extensive research paper, Mushendami defined it as the effect of a 1 percent change in the exchange rate on domestic inflation.
Mushendami detailed that currency depreciation can have both direct and indirect effects on the economy. The direct effects include prices of finished imported goods becoming expensive due to the reduced purchasing power of the currency.With regard to the indirect effects of currency depreciation, the prices of imported raw materials used in the production process may also become expensive. This therefore, stresses the importance of Exchange Rate Pass-through (ERPT) in monetary policy formulation. The paper concluded that the exchange rate pass-through inflation in Namibia is very low and incomplete. These results can be ascribed to the pricing to market strategy of Namibian importers. It was shared that the “pass through” or pricing fluctuation in South Africa take a while to affect the Namibian market and the effects are not always immediately felt.
In his remarks, the Director of Strategic Communications and Financial Sector Development, Ndangi Katoma pointed out that that, the event was intended to encourage debate and inform policy makers regarding the factors that impact inflation in Namibia. He also noted that exchange rate pass through is an important consideration with respect to monetary policy formulation in any given economy and most especially for Namibia, given our specific situation.
With regard to the indirect effects of currency depreciation, the prices of imported raw materials used in the production process may also become expensive. This therefore, stresses the importance of Exchange Rate Pass-through (ERPT) in monetary policy formulation. The paper concluded that the exchange rate pass-through inflation in Ntamibia is very low and incomplete. These results can be ascribed to the pricing to market strategy of Namibian importers. It was shared that the “pass through” or pricing fluctuation in South Africa take a while to affect the Namibian market and the effects are not always immediately felt.
The paper found that imported inflation, South African food inflation and oil prices tend to have significant effects on the inflation in Namibia than the exchange rate. The Exchange rate pass-through research publication conducted by the Bank of Namibia will be published in the Journal of merging issues with economics, finance and banking.
