Namibian economy to grow 2.5 percent - IMF

The local economy is projected to only grow by 2.5 percent this year compared to 5.3 percent last year, the International Monetary Fund (IMF) has said.
“After years of strong performance, growth is expected to temporarily slowdown in 2016. The IMF projects 2016 growth at 2.5 percent, compared to 5.3 in 2015, as the government starts consolidating and construction activity slows down. The performance is expected to accelerate to above 5 percent in 2017 and 2018 as production from new mines rumps up,” IMF Mission Chief for Namibia, Geremia Palomba said on Wednesday in his Article IV Mission to Namibia preliminary report.
This comes as the Bank of Namibia has projected the country`s economy to slow down to 4.3 percent in 2016, before rising to 5.9 percent in 2017.
IJG Securities has, however, projected the country`s growth at 1.6 percent this year.
“If this is the usually overly optimistic IMFs forecast, then the real situation must be extra dire!,” IJG’s Romé Mostert said in a tweet.
The Bretton Woods Institutions said declining South African Customs Union (SACU) receipts, which are estimated to decrease by about N$16 billion in the next two years, could dent Namibia’s economic growth, as the country relies on SACU revenues to fund its budget, with the union contributing about 35 percent to the government purse.
“Risks to this outlook are tilted to the downside and include volatile Southern African Customs Union (SACU) revenue, further commodity price declines, and possible sovereign debt credit downgrades,” Palomba said.
Namibia`s unemployment figures, which according to latest figures are at 28.1 percent, remain of concern to the IMF, especially their failure to move in tandem with the country`s economic growth.
“Namibia’s key challenges going forward are to preserve macroeconomic stability, and make inroads in reducing high unemployment and income inequality. The government and the Bank of Namibia have already taken steps to counter declining SACU revenue and rising inflation. However, fiscal and external vulnerabilities are rising and additional actions are required,” the IMF Mission Chief for Namibia said.
“The government is taking actions on various fronts to tackle high unemployment, particularly among the youth, and reduce income inequality. A well-focused package of structural reforms to address the lack of skilled workers, improve the employment of the less skilled labour force and to simplify business regulations has the potential to significantly boost employment. Focusing reform efforts in this direction appears the most promising way to deliver more inclusive growth.”
Palomba said government should implement measures to address its debt, which has seen debt servicing cost for the FY2015/16 at 1.9 percent of GDP and 5.5 percent of revenue and projected to increase to 2.6 percent and 8.4 percent, respectively, during FY2016/17.
“In light of the macroeconomic outlook, fiscal adjustment anchored in a credible medium-term plan is essential to preserve macroeconomic stability and debt sustainability. Policies need to be carefully designed to avoid pressuring the economy, while safeguarding critical social and development spending,” he said in his preliminary report.
“Strengthening revenue administration, improving spending efficiency and the management of State-owned Enterprises (SOEs) would help to reduce the impact of the adjustment. To this end, the mission welcomes the authorities’ commitment to undertake additional actions to preserve debt sustainability while containing the impact on growth in the context of the upcoming Mid-Year Budget Review Policy Statement.”
Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. During those consultations, the IMF mission reviews the overall economic developments in the country, as well as its policy measures aimed at maintaining economic stability, ensuring a sustainable external balance and further liberalizing foreign trade.
Upon the completion of the IMF mission consultations, the IMF Executive Board discusses the staff report and issues an assessment of the country’s economic situation and the adequacy of its economic policy measures, based on a comprehensive analysis of the overall economic situation and a wider economic policy strategy of such member country.