An International Monetary Fund (IMF) team was in Namibia recently to conduct the 2016 Article IV Consultation discussions and warned that Namibia’s key challenges going forward are to preserve macroeconomic stability and make inroads in reducing high unemployment and income inequality. The mission met Prime Minister Saara Kuugongelwa-Amadhila, Finance Minister Calle Schlettwein, Bank of Namibia Governor Iipumbu Shiimi and other officials in the finance and business fraternity.
In light of the macroeconomic outlook, the IMF team recommended fiscal adjustments anchored in a credible medium-term plan to preserve macroeconomic stability and debt sustainability. “Policies need to be carefully designed to avoid pressuring the economy, while safeguarding critical social and development spending.
“The government and the Bank of Namibia have already taken steps to counter declines in SACU revenue and rising inflation. However, fiscal and external vulnerabilities are rising and additional actions are required,” said the mission chief, Geremia Polamba. Polamba added that strengthening revenue administration, improving spending efficiency and management of State Owned Enterprises would help to reduce the impact of the adjustment. “To this end, the mission welcomes the authorities’ commitment to undertake additional actions to preserve debt sustainability while containing the impact on growth in the context of upcoming Mid-Year Budget
Review Policy Statement.
According to their preliminary findings, the country is exposed to fluctuations and as such, growth is expected to temporarily slow down after a strong performance in 2016. The IMF projects 2016 growth at 2.5 percent, compared to 5.3 percent in 2015, as the government starts consolidating and construction activity slows down. This can be referenced to the recent call by the finance ministry to freeze all tenders until further notice. The performance is expected to accelerate to above 5 percent in 2017 and 2018, as production from new mines rumps up. Risks to this outlook are tilted towards the downside and include volatile SACU revenue, further commodity price declines, and possible sovereign debt credit downgrades. The financial sector remains sound and the authorities are taking steps to curb possible risks and advance key financial sector reforms, IMF acknowledged. However, further macro-prudential measures and heightened monitoring and supervision of financial sector risks are warranted given the fast-growing real estate prices, relatively high private debt, and complex and extensive linkages across financial institutions. IMF noted the efforts the government is making to tackle unemployment, especially among the youth, and reduce income inequality. It believes that focusing reforms in this direction appears to be the most promising way to deliver more inclusive growth.