Imports and other payments widen external deficit
Higher merchandise imports, as well as increased income and service payments to foreigners, drove the external deficit wider in the third quarter of 2021, according to the Bank of Namibia’s Quarterly Report.
The current account deficit widened to N$441 million in the third quarter, compared with a narrower deficit of N$219 million in the previous quarter.
The goods trade deficit widened to N$558 million in the quarter under review, from a deficit of N$442 million in the second quarter of 2021.
Export earnings improved by 5% on the back of stronger diamond and other mineral export revenues, while uranium and fish exports declined. On the other side of the goods trade ledger, the import bill increased by 13% mainly due to higher imports of mineral fuels, vehicles vessels, and ‘other imports’.
Namibia continues to source most of its goods imports from South Africa (56.8%), China (6.1%) and India (5.7%). The country mainly imports fuel and consumer goods from South Africa and machinery while primarily importing machinery and chemicals from China.
The country’s leading export partners were South Africa (27.9%), China (19.4%) and the eurozone (18.4%). The largest shares of exports to South Africa were gold and beverages, while exports to China were mainly uranium.
Shelly Louw, Research analyst at PSG Namibia said they expect that the external deficit will remain
wide in the short term, before narrowing more meaningfully over the medium term as mineral export volumes improve and the global oil price subsidies.
“Nevertheless, the import bill will face upward pressure in the short term due to a higher average oil price in 2022 compared with last year. However, we forecast the oil market will enter a modest oversupply during 2022 resulting in declining oil prices over the medium term On a positive note, this 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 added.
Furthermore, SACU receipts declined sharply on an annual basis (23%) in the quarter under review, due to the recent underperformance of South African non-fuel goods imports, which affects Sacu pool payments the most.
Louw forecast that SACU revenues 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.