By Megameno Shikwambi
Chairperson of the high panel of economic advisors, tasked with the holding of the upcoming economic summit, Johannes Gawaxab has urged the monetary policy committee of the Bank of Namibia to consider cutting the interest rate.
This comes as the bank has kept the repo rate flat at 6.75% despite numerous calls to reduce it in order to create a growth-momentum in the beleaguered economy.
Gawaxab’s call for a rate cut also came in the heels of the South African Reserve Bank (SARB) having cut its benchmark repo rate by 25 basis points as well, from 6.75% to 6.5%.
This is a first for South Africa in more than a year.
“We think about the present interest rate environment. I think we are of the view that there is room to cut short term interest rates given the inflation outlook, given the output of the economy and the reasonable acceptable position of foreign reserves we have got,” he said.
The chairperson said a rate cut will give consumers a breather, boost growth and will be good for investments.
“So we really would like the monetary policy colleagues, to start thinking seriously about the interest rate environment in which we are currently,” he said.
Elsewhere among developed economies the talk of lowering down on interest rates has been rife among experts as the global economy is projected to decelerate on account of the US-China trade wars.
During the course of the week, investors were betting on the possibilities of an interest rate cut by the United Sates Federal Reserve.
As a result the rand firmed by Monday.
“Talk of monetary policy easing in the US has overshadowed local political developments, with the rand remaining fairly resistant below R14/$,” reported BusinessDay. The International Monetary Fund (IMF) has also this week cut the global growth forecast, predicting a growth of 3.2% in 2019, which is down from its April forecast of 3.3%.
However, global economic activity is thought to pick up in 2020 to 3.5% next year, albeit below IMF’s earlier forecast of 3.6%.
“The principal risk factor to the global economy is that adverse developments – including further US-China tariffs, US auto tariffs, or a no-deal Brexit – sap confidence, weaken investment, dislocate global supply chains, and severely slow global growth below the baseline,” the Fund said.
This spells badly for Namibia which survives on positive commodity prices and trades with China. It is apparent that a rate cut may augment efforts by the high panel to attract some billion-dollar worth of investments in sectors like water, energy and agriculture.
But some sources at the Bank of Namibia are not entirely convinced a repo rate cut would make the needed cut in creating a conducive growth environment.
In Turkey, for instance, President Tayyip Erdogan’s made an abrupt decision to fire his central bank governor Murat Cetinkaya after he resisted calls in June to cut the repo rate by 300 basis points.
Back home, Gawaxab has cautioned that “unless we take painful medicine” the negative economic trend will prevail. Said Gawaxab, “The recommendations that we have given (to the President) are also going to assist the country to positively impact on Namibia’s Peer Review Self –Assessment”
“Reforms are urgently needed as a cumulative impact of negative economic growth for the past two years and real GDP per capita means everyone in Namibia is generally poorer as the economy is unable to get out of the blocks for us to turn the corner.”
The urgency of reform in the depressed economy was highlighted by finance minister Calle Schlettwein during the tabling of the appropriation bill at the beginning of the year.
The minister issued a stern warning that a lack of reform will see the economy spiraling with subnormal growth of below zero.
However, Schlettwein indicated that such reforms if executed this year will see the domestic economy picking up albeit around the margin of 1%.
Namibia is not alone.
This past week, the International Monetary Fund also slashed the economic growth forecast for Africa’s most industrialized economy, South Africa to 0.7% for 2019 saying the economy will rebound to 1.1% in 2020.
This is on account of strikes, energy supply issues and weak agricultural production in that country.
This spells bad news for the Hage Geingob presidency which is investor-thirsty and in dire need for growth to open up the economy for more jobs.