IMF mission takes Namibian economy’s temperature
An International Monetary Fund (IMF) staff team, led by Giorgia Albertin, IMF mission chief for Namibia, held a virtual mission from 20 September to 05 October 2022, to conduct the 2022 Article IV consultations with Namibia.
At the conclusion of the mission, Albertin made the following statement:
“After a sharp contraction due to the COVID-19 pandemic, the Namibian economy has started to recover. Real GDP growth reached 2.7% in 2021 as mining activity rebounded, and tertiary sector activities began to recover. The recovery strengthened in the first half of 2022, on the back of sustained mining growth and stronger manufacturing activity. No new COVID-19 cases were recently reported.
Inflationary pressures have risen as higher international oil and food prices, due to the war in Ukraine, were passed through to the domestic economy. Average headline inflation rose to 5.6 percent in August, reflecting rising food and transport prices.
Real GDP growth is expected at 3 percent in 2022 and 3.2 percent in 2023, supported by robust diamond, gold, and uranium production, and rebounding tourism. Average inflation would rise to 6.4 percent in 2022 and start to moderate in 2023. The current account deficit would remain large, financed by FDI inflows in oil and gas and one-off transactions. The fiscal deficit is expected to narrow, supported by strengthened tax revenues and fiscal consolidation measures.”
Spillovers from the war in Ukraine, a slowdown of the global economy, and weaker non-oil commodity prices could further exacerbate inflation, worsen imbalances, and undermine the recovery.
Preserving macroeconomic stability, advancing structural reforms, and protecting the most vulnerable is key to fostering private sector-led and inclusive growth and reducing unemployment and inequality.
Implementing the authorities’ fiscal consolidation strategy is crucial to preserve debt sustainability. Containing the wage bill, advancing the reform of state-owned enterprises, and strengthening tax administration is key. In parallel, it is important to preserve social spending and growth-supporting public investment and mitigate the impact of higher food and fuel prices on the poorest. Strengthening the public financial framework will support fiscal consolidation.
The Central Bank of Namibia has gradually raised its policy rate, following the South African Reserve Bank’s (SARB) monetary policy tightening. As inflationary pressures rise, maintaining the policy rate broadly aligned with the SARB’s rate and an adequate level of reserves will support the currency peg and anchor inflation. Strengthening the resilience of the financial sector and managing macro-financial risks will support financial stability.
Structural reforms to support economic diversification and enhance productivity are progressing. Improving the business climate, fostering access to finance, strengthening governance, and reducing skills mismatches are key to fostering growth.”