Namibia is now more vulnerable to external shocks than before, due to limited monetary and fiscal policy space, an analysis of the economy by IJG Securities has revealed.
This comes as the country was recently downgraded by Moody’s to junk status, a position which impacts on its external borrowings. Namibia’s debt levels currently stand at 41.9 percent, above the Government’s voluntary ceiling of 35 percent. “Effective fiscal reforms and consolidation, investor friendly policy, and public-private cooperation are the tools that remain available to us, and if implemented effectively, are likely to lead to a return to long term sustainable growth,” IJG said.
The firm expects the current economic slowdown to pass within a year, allowing the economy to recover.
“Pro-cyclical fiscal policy, which contributed to the overheating of the economy, may now result in it languishing in a low growth environment for an extended period.
“Balancing structural reforms, while undertaking fiscal consolidation will be challenging, but necessary,” IJG said.
The Securities company said fiscal policy space needs to be created through structural reforms in line with Government’s expenditure profile in order to return expenditure to sustainable levels.
“The current process of fiscal consolidation is the first step in the right direction. The rate at which recurrent, consumptive expenditure has increased over the last few years needs to be reduced drastically in order to grow productive expenditure.”
IJG said the outlook for the rest of the year and the year after, remains downcast.
“The fiscus is likely to remain under pressure and low liquidity, such as that seen in 2016/17, could reappear going forward.”
Last week, the Namibia Statistics Agency released the final National Accounts for 2016, which showed that the economy registered a growth rate of 1.1 percent. This was against the backdrop of a severe drought impacting on the agricultural sector and a subdued commodity prices in the mining sector.
Finance Minister, Calle Schlettwein, told a Namibia Chamber of Commerce and Industry event recently that improved Government spending of the current budget of N$62.4 billion is expected to support growth in the tertiary services.
Schlettwein said the decision by the Bank of Namibia to cut the repo rate by 25 basis points to 6.75 percent was in support of domestic demand conditions.
“We encourage the private sector and households to use this interest rate respite to invest in productive, instead of consumptive activities,” the finance minister said.