On August 30, 2019, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation1 with Namibia and considered and endorsed the staff appraisal without a meeting.
During 2010–15, Namibia experienced a period of exceptional growth but macroeconomic imbalances rose, resulting in public debt sharply increasing and international reserves falling below adequate levels. Rapid credit growth fueled fast-rising house prices and elevated private sector indebtedness. Robust growth masked slowing productivity growth and declining external competitiveness, hindering the long-term growth prospects of the economy. Income inequality and unemployment remained very high.
With the temporary stimuli now ended, the economy is rebalancing while the government is implementing a significant fiscal consolidation. Real GDP declined in 2017 and, at a slower pace, in 2018. The current account deficit has narrowed significantly, despite a decline in Southern Africa Customs Union (SACU)’s receipts. Credit to the private sector slowed and the house price real growth rate turned negative. The authorities have implemented significant fiscal adjustment. However, public debt remains on a rising path, and government’s growth financing needs are elevated. International reserves improved, although remain below adequate levels. The financial sector has so far been resilient, although with the economic slowdown, banks’ assets quality has deteriorated.
A likely slow recovery, the need for further fiscal adjustment to bring public debt to a sustainable path, persistent inequalities and structural impediments to growth, point to a challenging outlook. Real GDP is projected to mildly contract in 2019, before gradually recovering. Absent structural reforms, growth is expected to converge to a long-term level of about 3 percent, which is too low to deliver meaningful improvements in per capita income and reduce unemployment. Pending further actions, public debt would continue rising, although at a more moderate pace than in the past. While the current account deficit is expected to stabilize at around 4 percent of GDP, international reserves coverage would gradually decline.
Downside risks weigh on the outlook. Risks emanate from possible fiscal slippages that could trigger further debt increases; declines in SACU revenue; and, low demand for key exports due to rising trade tensions and weaker global growth. With a highly interconnected financial sector, macro-financial feedback loops could amplify the adverse effects of shocks.
Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country’s economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.