23 August 2012

Namibia: Citizens Heavily Indebted - Bon

Namibians are borrowing too much money and the Bank of Namibia is concerned about this trend that has greatly eroded disposable household income.

However, the central bank has reduced the repo rate by 50 basis points, bringing it down to 5.50 percent from 6 percent.

The repo rate is the rate at which our banks borrow money from the central bank.

The drop in the interest rate is expected to boost the economy, especially given that the inflation rate is sharply increasing, export earnings have gone down and the level of government debt has increased.

The Bank of Namibia (BoN) cautions that the borrowing of Namibians is getting out of hand and the central bank will not hesitate to adjust monetary policy as a counter measure.

"[We] remain concerned about rapid growth in consumer credit extension and thereby underscore [our] readiness to implement targeted policy actions, in the event of renewed pressure on the country's external position," BoN Governor Ipumbu Shiimi said.

"The rapid and sustained expansion of consumer loans, including instalment credit and overdraft facilities, remains a concern for the [Bank of Namibia] as it may crowd out funding for more productive activities and put unwarranted pressure on the country's international reserves," the central bank said.

The BoN's concern over consumer spending is not isolated. South Africa and Zimbabwe - two of Namibia's trading partners and neighbours - have both issued warnings on consumer spending with Zimbabwe experiencing an increase in repossessions of privately owned assets for non-payment of debts.

Likewise, South Africa has recorded an unhealthy consumer credit report for the third quarter.

According to South Africa's TransUnion, a global leader in credit and information management, South African consumer credit health deteriorated for the third quarter of 2012.

South Africa recorded a decline in consumer credit, which reflects worsening loan repayment behaviour and a greater use of revolving credit by South African households to supplement monthly budgets.

BoN says it decided to cut the repo rate because it "finds the measure of monetary policy easing is necessary to support the ailing sector of the economy and further shore up the subdued growth outlook".

Export earnings from diamonds, uranium, zinc and blister copper declined in the second half of this year.

Diamond earnings dropped significantly in June because of the decline in international demand for gems. "Looking at this development in light of weakening external demand, there are indications of a deceleration in mineral export revenues going forward. The stock of foreign reserves stood at N$14.4 billion at end of June," said the central bank.

Government debt increased to 25.9 percent from 25 percent. It is however the debt of loans to consumers that is a concern for the central bank. Credit to the private sector is at 12.2 percent with instalment credit at 18 percent.

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