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IMF predicts inadequate growth for Namibia

2019-06-06  Edgar Brandt

IMF predicts inadequate growth for Namibia

WINDHOEK – The International Monetary Fund (IMF) expects the Namibian economy to remain in doldrums for the remainder of 2019 before limping into positive territory in 2020. 

IMF staff  - in the country for their routine Article IV Consultation to examine macro-economic conditions on the ground - expect that the domestic economy will recover only gradually, by three percent.
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 three 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 stabilise public debt dynamics,” said IMF chief of mission to Namibia Geremia Palomba, who, together with his team, visited the country between May 22 and June 4.

However, he cautioned that Namibia, with its high inequality, requires a growth rate of more than three percent to absorb the unemployed youth and the constant stream of university graduates. 
Palomba added that Namibia’s key challenges are to identify specific policies to fully deliver the authorities’ fiscal consolidation plans to stabilise public debt dynamics and roll out structural reforms to boost long-term growth.  

“The authorities’ consolidation plans strike a right balance between stabilising 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,” Palomba added.  The IMF chief of mission continued that policies to deliver the fiscal adjustment planned for the next two years also need to be fully identified. 

These policies, he said, should focus on rationalising large spending items, and 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 expenditure 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,” he stated. 
Palomba continued: “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.”
The IMF official added: “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.”

Palomba concluded that despite the economic slowdown, the financial sector remains sound and noted that 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 macro prudential policy framework. 

Further action, such as the Financial Management Bill and the Namibia Financial Institutions Supervisory Authority (Namfisa) Bill, is planned to upgrade the non-bank regulatory and supervisory frameworks and introducing a resolution regime. 

These steps, said Palomba, will help manage macro-financial risks and address structural vulnerabilities in the sector. 

Palomba said the main drivers for the anticipated contraction in 2019 is the prevailing drought as well as reduced mining output, specifically from the diamond mining sector.  “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 stabilise public debt dynamics,” said Palomba.  

2019-06-06  Edgar Brandt

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