Namibia is the only country in the world to have suffered a downgrade by the World Bank Group’s latest classification.
The global financial institution has now officially labelled Namibia a lower-middle-income country from the previous classification as an upper-middle-income country. The World Bank bases this classification on Gross National Income (GNI) per capita expressed in US dollars according to the Atlas method. GNI represents the total income earned by a nation’s residents, including both income earned domestically and income received from abroad.
It is calculated by adding to the Gross Domestic Product (GDP) any income earned by residents from overseas and subtracting any income earned by foreigners within the nation.
While the downgrade effectively means the average income in Namibia has notably declined, a positive but also contentious aspect is that the country is now eligible for a wider pool of Official Development Assistance (ODA).
This is to help with the implementation of its poverty and development agendas. However, economist Mally Likukela pointed out this will boil down to how these ODAs are used.
“The downgrade confirms that Namibia is now formally caught in the middle-income country trap. This is a worrying phenomenon because it suggests the country suffers from a policy misdiagnosis syndrome. The misdiagnosis is what explains the reason why the country failed to lift itself out of the upper-middle-income category despite the implementation of the famous NDP5, HPPs, etc.,” Likukela responded.
He continued that another important aspect is that the new classification shows how the World Bank views Namibia, as this is how they will position their strategies towards the country.
Likukela added: “The question is, does Namibia accept this view as the true reflection of the situation on the ground? This classification also has serious implications for the country’s development roadmap. The soon-to-be-launched NDP6 is based on the old category, and all strategies were informed by that category, and now with this new classification, NDP6 needs to be recalibrated to reflect the new worldview of the country.”
Another economic analyst, Klaus Schade, said the reclassification means every Namibian has, on average, become poorer.
“This is not surprising since we experienced lower economic growth rates and a higher-than-expected population growth rate. Hence, the GNI is divided among a larger population, resulting in lower per capita income. However, we can safely assume the drop in income has not affected everyone equally but affected low-income earners in particular,” Schade stated. He added this development from the World Bank drives Namibia further away from Vision 2030, which envisages the country to be an industrialised country, which Schade noted would be synonymous with a high-income country.
“It signals to potential investors that the purchasing power has declined, which might impact the investment decisions of those who aim at the local market. We might have access to concessional loans with more preferential conditions or grants, but that is certainly not the objective of our economic policies and development plans,” Schade added.
Meanwhile, another analyst, Eben De Klerk, commented: “Politicians will no doubt celebrate this failure, for we can potentially now borrow more at cheaper rates. The bottom line is that this downgrade simply reflects the government’s failure to stimulate economic growth and job creation. In fact, government keeps moving in the opposite direction, with laws and policies hampering investment and private sector growth. Instead of celebrating, our leaders should bow their heads in shame.”
Classification
The World Bank Group classifies global economies into four income categories, namely high, upper-middle, lower-middle and low. At the start of each financial year, the World Bank updates its classifications to reflect overall changes to national income levels. In each country, factors such as economic growth, inflation, exchange rates, and population growth affect the per capita income levels. Revisions to national accounts methods and data can also sometimes have an impact.
The income classification also impacts the World Bank’s operational guidelines, which determine how much a country is eligible to borrow.
The World Bank pointed out that in 2024, Namibia’s GDP grew 3.7%, a 0.7-point deceleration from 2023.
“Inflation (based on the GDP deflator) slowed from 6.6% in 2023 to 3.3% in 2024. One of the main factors behind the slower GDP growth was a sharp deceleration in mining and quarrying, for which growth went from +19.3% in 2023 to -1.2% in 2024 due to weak demand for diamonds”, the World Bank stated. The global institution also adjusted Namibia’s population data upwards, leading to a 12.9% decrease in the Atlas GNI per capita.
During his tenure, late President Hage Geingob often reiterated a call for Namibia’s income level to be reclassified, arguing the classification as an upper middle-income country was insensitive to distortions created by the unequal distribution of resources. Geingob constantly highlighted the current classification has serious implications for Namibia’s access to affordable debt financing and grants. This classification also impacted a large number of non-governmental organisations (NGOs) who withdrew from Namibia because of inadequate funding from international sources. From a development aid perspective Namibia will qualify for more assistance.