By Staff Reporter
The International Monetary Fund (IMF) team led by Mr Geremia Palomba, IMF Mission Chief for Namibia, ended a visit to Windhoek this week, conducting the 2019 Article IV Consultation with Namibia.
Mr Palomba made a statement at the conclusion of the visit:
“The economy is undergoing a rebalancing process and has been contracting. In 2018, real GDP declined for a second consecutive year, as past economic stimuli dissipated, and the government continued consolidating to stabilize public debt dynamics.
IMF staff expect that the economy will recover only gradually. Growth is projected to remain mildly negative in 2019, as a poor rain season and reduced diamond production continue to weigh on a tentative recovery. Growth is expected to turn positive in 2020 and gradually converge to a long-term rate of about 3 percent, held back by low productivity and declining competitiveness. Downside risks to this outlook include lower than expected Southern African Customs Union (SACU) revenue and fiscal slippages that would undermine the government’s efforts to stabilize public debt dynamics.
Namibia’s key challenges are to identify specific policies to fully deliver the authorities’ fiscal consolidation plans to stabilize public debt dynamics and roll out structural reforms to boost long-term growth.
The authorities’ consolidation plans strike a right balance between stabilizing public debt and supporting the economy, but several actions are needed to deliver this outcome. Immediate measures should be taken to contain the FY19/20 fiscal deficit within the budget limits as spending pressures are rising. Policies to deliver the fiscal adjustment planned for the next two years also need to be fully identified. Policies should focus on rationalizing large spending items, particularly wage costs and transfers to public entities.
Moreover, they should combine expenditure and revenue measures that support long-term growth, while protecting and improving social assistance programs.
Rationalising public entities, strengthening revenue administration, and improving budget and expenditures controls is critical to delivering adjustment plans. Avoiding excessive risk-taking from off-budget operations will strengthen the credibility of the adjustment and reduce fiscal risk. The mission welcomes the authorities’ intention to develop restructuring plans for key loss-making public enterprises.
Undertaking reforms to strengthen productivity and competitiveness is a must to lift business confidence and the long-term growth potential of the economy. In parallel with fiscal adjustment policies, special emphasis should be placed on reducing policy uncertainty, streamlining business regulations, removing obstacles that contribute to high electricity and transportation costs (including reforming public enterprises operating in these sectors), and establishing a well-structured wage policy for the public sector to better align wage dynamics and productivity. Over time, it is important to remove obstacles to exports, address the shortage of well-educated and skilled workers, and foster the adoption of new technologies.
Despite the economic slowdown, the financial sector remains sound. The authorities are taking steps to curb possible risks arising from structural vulnerabilities in the sector and advance key reforms, such as strengthening banks’ asset classification, tightening concentration risk regulations, and improving the macroprudential policy framework. Further action is planned to upgrade the non-bank regulatory and supervisory frameworks and introducing a resolution regime. These steps will help manage macro-financial risks and address structural vulnerabilities in the sector.
The mission thanks the authorities for their hospitality and productive discussions.”