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Namibia forex reserves edge higher thanks to SACU inflows

Namibia forex reserves edge higher thanks to SACU inflows

By: Gerrit van Rooyen

Analyst at Oxford Economics.

The stock of foreign exchange (forex) reserves increased in October 2019, according to the Bank of Namibia’s (BoN, the central bank) latest Money and Banking Statistics report. The level of international reserves rose to N$32.5 billion at the end of October from N$32.3 billion recorded in the previous month, mainly due to an inflow of Southern African Customs Union (SACU) receipts as well as lower government payments during the month under review.

Broad money supply (M2) growth, meanwhile, slowed to 6.7% y-o-y in October 2019 from 8.3% y-o-y in the previous month. According to the central bank, the lower M” growth rate was reflected in the weaker claims on the private sector and the short-term deposit holdings of the household sector and local government.

Looking more closely at the determinants of money supply, growth in claims on the private sector was marginally lower at 6.6% y-o-y in October compared 6.7 y-o-y in the previous month. Growth in claims on businesses ticked lower to 6.4% y-o-y in October from 6.7% y-o-y recorded in September. Meanwhile, the growth in claims on households rose to 6.8%y-o-y in October from 6.6% y-o-y in September.

The growth rates of monetary and credit aggregates remain lacklustre compared to the economy’s boom period during 2010-2015, suggesting that the economy remains firmly in recession. We forecast that the economy will contract by 1.8% in 2019, down from -0.6% in 2018. Looking at forex reserves, we expect that reserves in US dollar terms will increase marginally on an annual basis to N$2.153 million at the end of 2019.

The level of forex reserves declined in Q3 following robust growth in H2. This followed a slump in the prices of Namibia’s key export commodities, and the increased need for food and electricity imports due to severe drought. Although SACU revenue has increased slightly in local currency terms in 2019, it has actually declined in US dollar terms due to weakness in the Namibian dollar.


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