Abstract
The recent uptrend in Namibia’s current account surplus reflects an increase in public and private savings. Tighter domestic investment rules will not reduce capital outflows. The phasing and macroeconomic impact of regulatory changes requires careful scrutiny. Market-based incentives for investment repatriation are attractive. Namibia’s non-renewable natural resource sector is a significant contributor to Namibia’s economy and it is important to continue management of its mineral resources wisely. Faster growth in low-skill job opportunities and more flexible labor market institutions will help tackle unemployment in the short-term.
I. Introduction
1. Namibia’s economic position has been reinforced over the past year by a substantial terms of trade improvement and large receipts from the Southern African customs union (SACU). This has contributed to significant external current account and fiscal surpluses. The macroeconomic challenge is to promote stronger and more broad-based growth, while preserving macroeconomic stability in the context of possible declines in the terms of trade and SACU receipts in the period ahead. To complement the staff report for the 2007 Article IV consultation, these selected issues papers provide additional analytical coverage in the following areas.
2. Namibia’s current account surpluses have risen to a high level and raise questions about currency valuation. Chapter II explores the factors behind recent external performance, and finds that a large part of the recent current account surpluses is temporary, reflecting a tight fiscal stance that is projected to ease in the period ahead. A parallel rise in private sector savings and an associated accumulation of net foreign assets is less well understood, and represents a topic for further analysis.
3. The government is considering regulatory steps to slow capital outflows through the pension and life insurance industry, and encourage more domestic investment. Chapter III explores international experience with such regulations, and highlights a number of risks. A case is made for expanding the range of investable assets, to encourage a market-based move toward greater domestic investments.
4. Namibia’s important mineral sector is benefiting from a substantial rise in global commodity prices. Chapter IV explores how Namibia has successfully managed its natural resource sector in the past, avoiding the “resource curse” that has struck a number of its peers. It concludes that current institutions are well-placed to manage new mineral investments and exports, though a number of public financial management reforms would be beneficial.
5. Outside the mineral sector, weak job growth and stubbornly high unemployment are among Namibia’s main economic challenges. Chapter V explores the nature of the unemployment problem, and notes the importance of strengthened education and training, and more flexible labor markets.