19 June 2017

Namibia: Boost in International Reserves Attributed to New Amendment

Following the recent amendments by the central bank, international reserves have shot up.

The new amendment to Regulation 15 requires Namibian long-term insurance companies and pension funds to lower their exposure in dual-listed shares.

Following that, some local companies liquidated a portion of their dual-listed investments during the months of April and May, resulting in international reserves shooting up.

During a media conference last Wednesday, Bank of Namibia governor Ipumbu Shiimi stated that this increase in international reserves, which as at 1 June stood at N$24,2 billion, was largely as a result of local institutional investors who decided to liquidate some of their foreign investments to invest in the domestic economy.

"These transactions, valued at more than R3 billion (N$3 billion), resulted in an inflow of funds into the economy, and thus contributed to the increase observed in the stock of international reserves," the central bank's deputy director of corporate communications, Israel Zemburuka, told The Namibian upon enquiry on Friday.

Dual-listed shares refer to stocks of South African companies that are listed on both the Namibia Stock Exchange (NSX) and the Johannesburg Stock Exchange (JSE).

He reiterated that the recent amendments stipulate that the percentage of dual-listed assets which qualify as domestic assets must be gradually reduced from 30% to 10%.

In this regard, long-term insurance companies and pension funds are required to reduce the balance gradually, lowering by 5% annually until it reaches the required 10% by January 2018.

Zemburuka added that the investors are various institutional investors such as insurance companies and pension funds, without providing names.

During last Wednesday's media conference, Shiimi said that at this level, the stock of international reserves is estimated to cover 3,7 months of imports of goods and services, and thereby remains sufficient to sustain the currency peg between the Namibia dollar and the rand.

International reserves are any kind of reserve funds that can be passed between the central banks of different countries and are an acceptable form of payment between these banks.

According to investopedia.com, international reserves are also used by countries to back liabilities such as any local currency that has been issued, as well as bank deposits.

Although there are many benefits to having a large foreign reserve balance, one of the most important reasons to hold them is to make sure a country has enough foreign cash and liquid assets on hand to cover near and medium-term foreign expenses and other obligations to avoid what's called a "liquidity crunch".

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