WINDHOEK – Despite a 14 percent decline in Namibia’s foreign exchange reserves in 2014 compared to 2013 due to increased pressure, the Bank of Namibia’s Governor, Ipumbu Shiimi, says the level of foreign reserves is still considered more than sufficient to support the fixed exchange rate peg to the rand and to meet international obligations.
The Bank of Namibia’s 2014 annual report indicates that as at December 31, 2014, the level of reserves was recorded at N$13.5 billion compared to the N$15.7 billion recorded on December 31, 2013.
“The decline in foreign reserves was mainly driven by the rising import bill mainly relating to construction activities in the mining sector. The import of luxury goods, government payments as well as commercial bank transfers also contributed to the decline in foreign exchange reserves during 2014. Rand notes repatriated to South Africa, compensation for the circulation of the South African rand in Namibia, SACU receipts and the depreciation of the Namibia dollar helped to ease the pressure on foreign reserves during 2014,” explained Shiimi in BoN’s latest annual report.
He explained that at the level of N$13.5 billion, the foreign reserves are above the level required to cover short-term external debt obligations due within a year or currency in circulation plus a buffer equal to three times the monthly average of commercial bank outflows.
“In terms of import coverage, however, foreign reserves adequacy has deteriorated materially below the international benchmark of 12 weeks, driven by rising imports,” noted Shiimi.
The report shows that the import coverage ratio has declined from 9.2 weeks as at December 31, 2013 to 7.6 weeks a year later. However, Shiimi considers the deterioration in the import coverage ratio as transitory and he expects it to improve once most infrastructural projects are completed. Furthermore, he expects this phenomenon to pay off as current investments taking place in the country are projected to increase productive capacity, which will boost exports in the long-term.
Overall, Shiimi reported that the Namibian economy continued to be relatively strong during 2014, despite a fragile global economic environment.
He estimates that annual economic growth expanded to 5.3 percent in 2014, compared to 5.1 percent in 2013, with this growth mainly driven by robust construction activities, sustained growth in diamond mining, wholesale and retail trade, transport activities and public investment in infrastructure.
BoN also reports that on the downside, uranium mining posted a weaker performance during 2014, on account of low international prices. Furthermore, the after-effects of the drought and the response to the South African veterinary restrictions imposed during the first part of the year adversely affected livestock farming.
In addition, Namibia’s consumer price index (CPI) slowed in 2014, reflecting a moderation in the inflation rate for the category housing (in particular rental payments for dwelling), water, electricity, gas and other fuels, which constitutes the largest share (28.4 percent) in the CPI basket.
In his Governor’s Message, Shiimi noted that on the fiscal front, the central government’s outstanding debt as a percentage of gross domestic product (GDP), moderated, thus debt continued to be sustainable. Namibia’s total debt as a percentage of GDP moderated to 22.9 percent at the end of 2014, as the economy is estimated to have grown faster than it accumulated debt. “I am therefore pleased to report that the country’s debt to GDP ratio remained well within the set debt ceiling of 35 percent,” commented Shiimi.
Shiimi continued that international credit rating agencies continued to have confidence in the management of the economy and its governance. This follows the affirmation of the Namibian investment credit rating grade by both Moody’s Investors Service and Fitch Rating.
Shiimi said the good name of Namibia internationally is also reflected in the good credit quality of sovereign issues, as indicated by the narrowing cost of borrowing in the international capital markets.
“Also in the reporting year, the Namibian Government continued its commitment to develop the Namibian financial markets in line with the financial sector strategy and setting benchmarks for other issuers.
As a result, new long dated bonds were introduced, extending the yield curve to over 25 years, making it one of the longest on the continent,” said Shiimi.