Belinda Mthombeni

In recent years, Namibia has grappled with the challenge of inflation, with rising prices of food, housing, and transport impacting lower-income households disproportionately. Inflation can be defined as a sustained increase in the general price level of goods and services in an economy over a period of time.

This means the purchasing power of a unit of currency declines over time as prices increase. In January 2023, inflation rose to 3.6%, up from 3.3% in December 2022, according to the Namibian Statistics Agency.

Inflation can have severe consequences for the economy, including reduced purchasing power, decreased competitiveness of exports and increased uncertainty for businesses and investors.

Policymakers are taking steps to address this issue, including considering inflation targeting and increasing transparency around monetary policy decisions. However, structural factors such as limited domestic production and high import costs for food, shortage of affordable housing and rising fuel
prices pose additional challenges.

Namibia’s battle with inflation has been a rollercoaster ride over the past two decades. In the early 2000s, the country experienced rampant inflation rates, peaking at over 18% in 2005. The situation was dire and urgent action was needed to rein in inflation and prevent it from spiralling out of control. In response, the government implemented a series of reforms that aimed to tackle the root causes of inflation.

The reforms included fiscal consolidation and structural adjustments, which aimed to improve the efficiency of the economy and reduce the reliance on government spending. These efforts were largely successful, and inflation rates fell to single digits in the following years.

The Bank of Namibia has implemented a range of monetary policy measures aimed at curbing inflation, such as adjusting interest rates and tightening liquidity. However, these efforts must be balanced against the need to support economic growth and development. As Namibia navigates these complex challenges, it is clear that inflation will continue to be a significant factor shaping the country’s economic trajectory in the years to come.

In Namibia, the Bank of Namibia has been using inflation targeting as a key tool to manage inflation. Inflation targeting is a monetary policy framework in which a central bank sets a specific target for inflation and adjusts its policies to achieve and maintain that target. 

The Bank of Namibia aims to keep inflation within its target range of 3-6% and adjust its monetary policy decisions accordingly. Inflation targeting can be a useful strategy for managing inflation in Namibia, but it is not a silver bullet.

Other factors, such as structural reforms to boost domestic production capacity and reduce reliance on imports will also be important in addressing inflationary pressures in the long run. Additionally, inflation targeting may not be effective if the economy is facing external shocks, such as global supply chain disruptions or fluctuations in commodity prices.

Therefore, a holistic approach that includes a range of policy tools and measures will be necessary to address inflation in Namibia. It is worth noting that inflation targeting is not a one-size-fits-all solution and may not be suitable for all countries. Each country’s economic circumstances and institutional capacities are unique, and the effectiveness of inflation targeting will depend on a variety of factors.

However, given Namibia’s persistent inflation challenges, it may be worth considering the adoption of an inflation-targeting regime as a tool to manage inflation and promote economic stability.

Implementing an inflation targeting regime requires strong institutional capacity and political commitment. Moreover, transparency and communication around monetary policy decisions can help build credibility with investors and the public and reduce uncertainty about future economic conditions.

The Namibian government could also take steps to address structural factors that contribute to inflation. For instance, high food prices in Namibia are driven in part by limited domestic production and high import costs. The government could encourage investment in agriculture and support local farmers to increase domestic food production, which could help to reduce reliance on expensive imports and lower food prices.

Similarly, the housing market is another area where structural factors contribute to inflation. The government could consider implementing policies to increase the supply of affordable housing, such as providing incentives for developers to build low-cost housing units or working with the private sector to finance affordable housing projects. 

Another important factor that contributes to inflation in Namibia is the cost of transport. To address this issue, the government could consider implementing policies to reduce reliance on imported fuel and promote the use of alternative energy sources, such as renewable energy and investing in public transportation.

Managing inflation is a multifaceted challenge that demands a comprehensive approach. Despite Namibia’s recent strides in lowering inflation, there is still a need to maintain control and promote sustainable economic growth. By adopting effective strategies from other countries and implementing bold measures to tackle structural issues, Namibia can build a stable and prosperous future for its citizens, consistent with President Hage Geingob’s declared 2023 theme of revival for the country.

*Belinda Mthombeni is an economics and finance enthusiast, an accounting student and youth leader.