The Bank of Namibia (BoN) says the growth in the country’s money supply (M2) contracted both year-on-year and quarter-and-quarter at the end of the third quarter of 2016, which stemmed from a decline in corporate sector deposits, coupled with moderated growth in the credit extended to the private sector and households.
“The moderated growth was reflected in the decreased borrowing by both the household and corporate sectors during the review period,” BoN Director of Strategic Communications and Financial Sector Development, Emma Haiyambo, said in the apex bank’s quarterly report released this week.
According to IJG Securities the total credit extended to the private sector in October increased by N$206,7 million or 0,24 percent, bringing the cumulative credit outstanding figure to N$84,60 billion, while annual growth in private sector credit extension (PSCE) came down slightly to 10,2 percent, compared to the September figure of 11,1 percent.
The BoN maintained the Repo rate at 7 percent in August, to continue supporting the country's economic growth, particularly in light of the slow and fragile recoveries in the economies of Namibia's trading partners.
On the fiscal front, Government's total debt increased year-on-year, as reflected in both the domestic and foreign borrowings, mainly the Eurobond, with total debt as a percentage of Gross Domestic Product (GDP) closing the period under review at 39,6 percent, representing an annual increase of 11,4 percentage points, compared to the second quarter of the previous fiscal year .
“At this level, the ratio of total debt to GDP exceeded the Government debt ceiling by 4,6 percentage points. Similarly, on a quarterly basis, total debt as a ratio of GDP increased slightly by 1,1 percentage points, compared to the previous quarter,” Haiyambo said.
In contrast, Government loan guarantees, as a ratio to GDP, decreased to 4 percent from 4,4 percent over the same period and remained well below the threshold of 10 percent.
“The overall balance of payments recorded a surplus of N$5,3 billion during the third quarter of 2016, a turnaround from a deficit of N$2 billion during the corresponding quarter of 2015, mainly supported by increased net capital inflows in the capital and financial account,” Haiyambo said.
The current account registered a deficit of N$4 billion during the quarter under review, lower than during the corresponding quarter of 2015.
“The improvement in the current account deficit was underpinned by increased export receipts, while imports declined. The International Investment Position recorded a reduced net surplus on a yearly basis during the third quarter of 2016, due to a rapid growth in foreign liabilities relative to assets abroad,” she said.
Haiyambo added that with regard to the exchange rate, the Namibia dollar had depreciated against most of the major trading currencies on a yearly basis, but appreciated on a quarterly basis, during the third quarter of 2016.
“The strength of the Namibia dollar is linked to the weakness of the US dollar, which is being driven lower by high oil prices, geopolitical tension and the US current account deficit, which accounts for about 5 percent of the Gross Domestic Product.
“The yearly weakening of the domestic currency in relation to the US dollar and euro could also be attributed to South Africa's weak economic outlook, persistent fears of a sovereign credit downgrade and low commodity prices, coupled with the ongoing severe drought.”
Namibia’s persistent drought is expected to have an impact on the agricultural sector, while also attributing to the continued water shortages in the country’s central regions.
The domestic economy continued to display weak performance, year-on-year, during the third quarter of 2016, reflecting slowed activities in the mining, agriculture, manufacturing and construction sectors, while inflation also rose over the same period.
“The activities in the mining sector slowed down, mainly due to operational factors, while drought and health requirements for live animals exported to South Africa constrained the agricultural sector,” Haiyambo said.
In July, the South African government imposed strict livestock export requirements, which resulted in cattle exports from Namibia grinding to a halt. Among the requirements were that Namibian cattle had to undergo two sets of tuberculosis (TB) tests, before they could be exported to South Africa.
This resulted in cattle spending up to 90 days in quarantine, before they could leave the country. In September, the South African government relaxed its requirements by announcing a new export permit, which reduced the need for compulsory pre-export Brucella testing and double TB testing.
“Similarly, activities in the construction sector continued to slow down, primarily due to the fiscal consolidation efforts of Government, and the completion of major construction projects in the private sector,” Haiyambo said.
South Africa's recent peaceful local government elections and the trade surplus that was recorded in July 2016, which eased pressure on that country's current account deficit, contributed to the strengthening of the rand against other trading currencies, on a quarter-on-quarter basis, during the period under review.
Globally, growth prospects remained weak during the third quarter of 2016, compared to the same period in 2015, amid slight improvements in the United Kingdom, Eurozone and Japan. The slowdown was mainly due to the weaker growth in the US economy.
“On the contrary, growth in emerging market economies improved marginally over the same period, though this improvement was not sufficient to offset the impact of slower growth in advanced economies. Going forward, accommodative monetary stimuli and renewed fiscal support in some countries, is expected to support global economic growth,” Haiyambo said.
The BoN report noted that the monetary policy stances by the central bank were accommodative in both advanced and emerging market economies, while inflation increased in advanced economies, but declined in emerging market economies during the third quarter of 2016, except for Brazil and India.
“On the price development front, inflation increased in most of the monitored advanced economies, except for Japan where it remained in deflationary levels. On the contrary, inflation rates in the monitored emerging market economies declined during the quarter under review, except in Angola, where it continued rising, due to domestic economic and financial developments,” Haiyambo said.
Locally, the performance of the wholesale and retail trade and transport sectors remained positive, according to the BoN.
This reflected the sustained demand and increased cargo volumes, with the inflation rate rising on average by 0,2 percentage points and 3,6 percentage points to 6,9 percent on a quarterly and annual basis, respectively, during the third quarter of 2016.
The increases were largely due to the rise in the inflation rates for housing, water, electricity, gas and other fuels, transport and food.