Sunday 16 May 2021
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Monetary policy brings economic hope

….as Shiimi talks of NEEEF, SA bank downgrades and Regulation 28

  • Repo rate unchanged at 7%
  • Global economy projected to improve
  • Credit extension slowdown
  • International reserves increase

As expected, the central bank has left the repo rate unchanged at 7% and at the same time announced some positive developments in the local economy.

The central bank’s governor Ipumbu Shiimi said the rate is appropriate to maintain the one-to-one link between the Namibian dollar and South African dollar, without compromising growth.

Monetary policy is the measure taken by the monetary authorities to influence the quantity of money or the rate of interest with a view to achieving stable prices, full employment and economic growth. Monetary policy in Namibia is conducted by the Bank of Namibia.

The country’s international reserves increased by N$1.3 billion from 31 March 2017 to 1 June 2017. The reserves at present are estimated to cover 3.7 months of imports of goods and services.

Although the growth in the credit extended to the private sector slowed down during the first four months of 2017, it is the household debt levels which gives Shiimi sleepless nights.

Shiimi urged individuals to desist from creating too much debts.

“The household debt remains elevated. We might think that personal debt only affects the individual, but in actual fact it could become a national problem like the USA experienced in 2009,“ he warned.

The credit extension growth in the private sector slowed to 8.1% at the end of April 2017, from 9.1% at the end of February 2017.

“The slow growth was visible in credit advanced to both the corporate and household sectors, especially in the subcategories of mortgage and instalment credit,” he said.

He also announced the country’s inflation rate slowed from 8.2% in January 2017 to 6.7% in April 2017.

“The decline in the inflation rate was mainly due to lower food inflation. Going forward, inflation is forecasted to average at 6.9% at the end of 2017,” said the governor.

He also indicated that the domestic economy remained weak during the first four months of 2017 compared to the same period in 2016.

“The feeble performance was largely reflected in sectors such as manufacturing, construction as well as wholesale and retail trade. Activity in the transport and communication sector also slowed, as mirrored in the lower cargo volumes for rail and sea transport,” he said.

According to Shiimi, the bright spots in the economy in the economy is reflected in the value addition for the communication subsector, which increased during the period under review.

“Similarly, activity in the mining sector increased, particularly in the production of diamonds, zinc and gold over the same period. Going forward, the production of uranium and blister copper is expected to improve during the remainder of the year,” said an optimistic Shiimi.

While the global economy is projected to grow by 3.5% this year from 3.1% in 2016, Ipumbu said downside risks to the 2017 global growth outlook include a shift to inward-oriented policies which may reduce trade and cross-border investment flows.

“Other risks are a faster-than-expected pace of interest rate increases in the US, and sharp appreciation of the US-dollar, undue financial tightening as well as continued weaknesses in the banking systems of some countries,” said Shiimi.

Local economists and financial experts have in past warned government that the planned introduction of the inward looking New Equitable Economic Empowerment Framework(NEEEF) could scare off investors. Government is however adamant that NEEEF is one of the measures identified to empowers locals.

Asked about the impact of NEEEF on Namibia’s trade and cross-border investment flows, Shiimi preferred to shelve the discussion to when the actual contents of NEEEF have been made public.

Currently 35% of the total long-term money must be invested locally but government announced earlier in the year that it wants to increase the threshold and therefore several amendments to Regulations 28 of the Pension Fund Act can be expected.

There are however fears that an increase in the threshold could spark an increase in fund managers looking to cash-in on management fees.

“We must assure that money goes towards productive investments, not money-making schemes. Therefore we must improve the country’s financial infrastructure and tighten the screws,” he said.

Regarding the recent downgrades of South African banks by Moody’s ratings agency, Shiimi does not expect such a move to have major impacts on the local banks.

The long-term local and foreign currency deposit ratings of Standard Bank, FirstRand, Absa Bank, Nedbank and Investec Bank were downgraded to Baa3 on Monday, one notch above non-investment grade.

Nedbank and Standard Bank operate in Namibia as well.

The ratings agency also downgraded Standard Bank’s long-term local and foreign currency issuer ratings to Ba1 from Baa3.

Moody’s said the primary reason for the downgrade was weakening credit and macro profile of the South African government exerting pressure on banks in what it said was a challenging operating environment characterized by a pronounced economic slowdown.

“I do not see it having significant impacts on our banks. The downgrades are just reactions to what has happened already(SA downgrade),” he said.

He however pointed out that the South African recession is a concern to the central bank.

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