IMF sees government debt grow to 70% of GDP by 2022
Confirming that Namibia’s economic outlook remains positive, the Executive Board of the International Monetary Fund cautioned earlier this week that there are still considerable vulnerabilities and risks.
Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country’s economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.
“Growth is projected to resume in 2018, as mining production ramps up, construction activity stabilizes and manufacturing recovers, before converging to a long-term rate of about 3½ percent, below the average of recent years,” the IMF stated upon conclusion of the Article IV consultation between the Ministry of Finance and the fund’s Executive Board.
“An expansionary fiscal policy, the construction of large mines and buoyant credit supported growth and better living standards. However, robust growth masked rising macroeconomic vulnerabilities and deteriorating productivity performance. Moreover, structural impediments have contributed to keep unemployment and income inequality unacceptably high,” the IMF pointed out when releasing the Namibia Country Report and the Executive Board’s statement.
“GDP sharply decelerated in 2016 and contracted in 2017 as construction in the mining sector came to an end and the government began consolidating. With the economy contracting and Southern Africa Customs Union’s receipts temporarily increasing, the current account balance improved significantly. However, despite significant fiscal adjustment, the public debt ratio continued to increase and almost doubled over the last four years, exceeding in 2017 the median of the countries at the lowest tier of investment grade,” the IMF stated.
“As SACU revenues are expected to decline, in the absence of policy action, the fiscal deficit would remain large and public debt would continue rising and approach 70% of GDP by 2022. On the positive side, the current account deficit is expected to narrow on average to around 6% of GDP on the back of larger mining exports, but international reserve coverage is projected to gradually decline.”
Commenting on Namibia’s overall assessment, the board said “Directors welcomed the authorities’ fiscal adjustment efforts and emphasized that additional consolidation is needed to ensure debt sustainability. They broadly agreed that efforts should be spread over the next years and include expenditure and revenue measures that support long-term growth, while addressing distributional concerns. In this regard, Directors saw merit in containing public wage growth, rationalizing transfers to extra-budgetary entities, and reducing tax exemptions.”
The board noted that the additional fiscal adjustment will support the ongoing macroeconomic adjustment process and contribute to bring the external position broadly in line with fundamentals.