Article

Namibia Enjoys Macroeconomic Stability, Needs to Tackle Poverty and AIDS

Author(s):
International Monetary Fund. External Relations Dept.
Published Date:
June 2006
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According to the IMF’s annual economic review, Namibia has recorded robust growth, falling inflation, a substantial current account surplus, and low external indebtedness over the past two years. But GDP growth slowed in 2005, as diamond production fell, currency appreciation hurt fishing and commercial agriculture, and higher oil prices affected the transportation sector. Inflation moderated in 2004–05, and growth is projected to strengthen in 2006 as diamond production picks up.

Namibia’s current account surplus peaked in 2004 as surging diamond exports and buoyant receipts from the Southern African Customs Union (SACU) offset a large increase in imports, including oil. As for the capital and financial accounts, outflows remained high as financial institutions invested heavily in South African financial markets.

Namibia
200220032004Est.

2005
Proj.

2006
(percent change)
Real GDP6.73.55.93.54.5
Consumer prices (end of period)12.52.64.34.05.0
(percent of GDP)
Overall fiscal deficit1-3.3-7.5-4.1-3.7-3.4
Public debt123.929.533.635.135.5
Current account balance5.45.110.25.76.6

Figures are for the fiscal year, which begins April 1.

Data: Namibian authorities and IMF staff estimates.

Figures are for the fiscal year, which begins April 1.

Data: Namibian authorities and IMF staff estimates.

The fiscal deficit for FY2004/05 (April-March) was larger than expected but smaller than a year earlier, partly because of windfall SACU receipts and higher tax revenues. But value-added tax collections were lower than budgeted, owing to administrative problems.

The IMF Executive Board commended the authorities’ prudent macroeconomic policies. Medium-term prospects are promising, the Directors said, if the authorities maintain a stable macroeconomic environment and implement structural reforms to address poverty, unemployment, and HIV/AIDS.

They welcomed Namibia’s reduced fiscal deficit and the commitment to further fiscal consolidation. They reiterated the importance of realistic budgets, efforts to shore up revenues and reprioritize spending, and measures to contain the civil service wage bill, strengthen tax administration, and restructure and/or divest public enterprises. Directors encouraged the authorities to consider new approaches to alleviate poverty, including well-targeted cash grants, if deemed appropriate.

The Directors noted that the Namibia dollar’s peg to the South African rand had anchored macroeconomic policymaking and helped reduce inflation, but reiterated the importance of ensuring adequate levels of international reserves.

The Directors welcomed Namibia’s conclusion of a review under the Financial Sector Assessment Program. They also stressed the need to raise the quality of education, enhance the flexibility of labor markets, further liberalize trade, and improve Namibia’s business climate.

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