Fiscal consolidation to prop up reserves

18 August 2017
The country’s foreign reserves will in the long term be sustained by Government’s current fiscal consolidation efforts, central bank Deputy Governor, Ebson Uanguta, said this week.
Figures released by the Bank of Namibia this week showed that international reserves stood at N$32,7 billion at the end of July, which represents 5.5 months of import cover.
The increase in the reserves was attributed to the repatriation of funds by financial institutions from South Africa to the tune of N$2 billion aided by inflows from the N$3 billion African Development Bank (AfDB) loan as well as repayments by the National Bank of Angola. 
“The fiscal consolidation path, which is being followed by Government, clearly has some positive effect on the reserves,” Uanguta said when asked what will happen to the level of reserves once the current inflows are spent.
“There are still four repayments left, which are in equal proportion of US$51 million. The next payments will be on 26 of September, 26 of December, 26 of March 2018, 25 of June 2018.”
Rating agency Moody’s said last week that although domestic liquidity concerns have been alleviated by the loan advanced by AfDB, future liquidity pressures cannot be ruled out, if fiscal consolidation does not move ahead as planned.
But Uanguta said he is confident that spending cuts will boost the level of reserves into the future.
“Namibia is a small open economy. When you spend, whatever you spend somehow has an impact on reserves because most of the goods are imported,” he said.
Meanwhile, the Bank of Namibia this week cut the repo rate by 25 basis points to 6.75 percent, citing the need to support domestic economic growth, while maintaining the one to one link between the Namibia dollar and the South African rand.
Uanguta said the cut will support the economy, as the cost of borrowing will become affordable, especially for investment purposes.
“At this point in time we do not want people to borrow for consumption. Household debt is on the high side. We are among the highest in the world, with around 85 percent as a percentage of total income,” he said.


The Windhoek Observer is an English-language weekly newspaper, published in Namibia by Paragon Investment Holding. It is the country's oldest and largest circulating weekly.

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