Current account deficit narrows slightly
Stronger exports outweighed the adverse impact of weak investment incomes and lower Southern Africa Customs Union receipts, resulting in a slight narrowing of the external deficit.
The current account deficit narrowed to N$3.1 billion in the second quarter of 2021 compared with a larger deficit of N$3.8 billion in the first quarter of 2021, according to the Bank of Namibia’s latest Quarterly Bulletin.
Namibia’s goods trade deficit narrowed to N$6.3 billion in the quarter under review, compared with a deficit of N$8.8 billion in the first quarter.
Export earnings improved on the back of much stronger uranium exports, while diamond and processed fish exports also made significant contributions. While uranium exports rose sharply on a quarterly basis, they were much lower compared to the second quarter of 2020. On the other side of the goods trade ledger, the import bill increased slightly due to higher imports of consumer goods, vehicles vessels, and ‘other imports’.
PSG Namibia’s research analyst, Shelly Louw expects the external deficit to remain wide during the rest of this year before narrowing more meaningfully over the medium term.
She noted that the import bill will face upward pressure in the short term due to the rapid rise in the benchmark oil price in the second half of 2021.
“However, we forecast the oil market to move to a modest oversupply in 2022 resulting in a lower global oil price that will ease import pressures. Next year will see the arrival of Debmarine Namibia’s new mega diamond mining vessel, which along with other expansion and revival projects for gold, zinc, and copper mining, bodes well for mining exports in the medium term,” Louw said.
Meanwhile, travel service earnings are recovering at a tepid pace a trend set to continue in the medium term in line with the slow recovery in global tourism due to pandemic related restrictions.
Furthermore, SACU receipts declined sharply (by 33% quarter on quarter) in the second quarter as expected, due to the recent underperformance of South African non-fuel goods imports, which affects Sacu pool payments the most.
“We forecast that SACU revenues, which helped to buoy the current account balance in 2020 will continue to weigh on the performance of the external balance until the first quarter of 2023. The recovery in South African non-fuel goods imports in 2021 implies that Sacu receipts will improve in 2023 according to the Sacu revenue sharing formula,” Louw said.