The latest prediction by Bank of Namibia that the domestic economy is expected to contract by a massive 7.8%, followed by a moderate recovery in 2021, clearly shows that the shrinkage is being felt in all sectors of the economy.
According to local economist Mally Likukela, this also means that even the most important engines of economic growth, such as tourism, manufacturing and transport, will also run out of steam.
“This revelation calls for policy introspection on the side of government because, clearly, the seriousness of the pandemic was not known or simply undermined. Now, with a lot more information about the pandemic and the clear picture of the damage to the economy, government should review its fighting strategies and align it to the reality on the ground,” said Likukela during an exclusive interview with New Era.
He went on to caution that if strategies are not realigned, more jobs, incomes and wealth will continue to be lost.
This, in turn, he noted, will erode business confidence and he warned that more business shutdowns will follow and those remaining will not record any profits, which will deprive government of much-needed tax revenues, particularly from corporates.
Said Likukela: “With the current budget deficit, government will be left with no choice but to seek more bailout loans and further send the finance position of the country on a downward path. The recovery time will depend on how soon government addresses the policy deficiencies and how it will approach a number of downside risks such as unpredictability of the lifespan of the pandemic, depressed commodity prices, and the effect of global trade wars and the impact on global demand.”
According to the central bank’s latest economic outlook, the Namibian economy is expected to fall into a deeper contraction during 2020, followed by a moderate recovery in 2021.
“The domestic economy is estimated to contract by 7.8% in 2020 compared to a lesser contraction of 1.1% in 2019.
The estimated deeper contraction during 2020 is mainly attributed to the outbreak of the Covid-19 pandemic, which has led to travel restrictions across the world and lockdowns in many countries, including Namibia,” reads the outlook.
The Bank of Namibia projected that the domestic economy will recover to growth rates of 2.1% and 2.7% in 2021 and 2022, respectively.
“The latest projection for 2020 represents a downward revision when compared to the April 2020 update, largely reflected in weaker performances estimated in hotels and restaurants, agriculture, mining and manufacturing due to the impact of the Covid-19 pandemic. The latest overall growth projection of -7.8% for 2020 represents a downward revision from -6.9% published in the April 2020 Economic Outlook Update. Year-to-date information about economic activity for 2020 suggests that estimated contractions in hotels and restaurants, mining, agriculture and manufacturing on account of Covid-19 pandemic are likely to be weaker than earlier predicted,” the Bank of Namibia’s report stated.
The central bank further noted that risks to domestic growth are currently dominated by the pandemic, especially through uncertainty regarding its expected duration.
“Risks to domestic growth are dominated by ongoing travel restrictions that are in place for many countries, including Namibia. Such measures are restricting business activities and causing disruptions to supply. Other risks to domestic growth outlook include the persistently low international prices of Namibia’s export commodities, and adverse climatic conditions,” the central bank cautioned.
The predicted 7.8% contraction depicts a further worsening of the economic crisis of Namibia when compared to the 1.1% contraction reported for 2019.
This brings to the fore the reality of the magnitude of the pandemic induced crisis.
Meanwhile, Likukela stated that while the Namibian economy had underlying weaknesses prior to Covid-19, it was still able to soften the landing or slow down the fall.
“However, Covid-19 made it impossible for the economy to heal itself and set itself on a recovery path. This also means that the anticipated recovery is postponed indefinitely given the scale of economic damage and business disruptions at the hands of Covid-19,” Likukela said.