Namibia: PDM Labels IMF Loan As 'Rent-Seeking'... Says Money Will Disappear in Bottomless Pit

4 August 2020

The main opposition party, the Popular Democratic Movement (PDM), has labelled government's N$4.5 billion loan application from the International Monetary Fund (IMF) as nothing but a veiled attempt of rent-seeking, which is defined as the practice of manipulating public policy or economic conditions as a strategy for increasing profits.

Government last week applied for assistance from the IMF's Rapid Financing Instrument (RFI), which provides rapid financial assistance and is available to all member countries facing an urgent balance of payments need.

However, PDM's treasurer general Nico Smit in a statement said that following South Africa's successful application for R70 billion from the IMF, the Namibian government felt compelled to also try and tap this source, despite its massive and growing debt load.

"What does the Namibian government need the money for? Its only direct Covid expense, so far, was the N$750 cash payout to everybody who registered. All other expenses have been covered by donations, grants and private sector contributions. In total, this funding is now approaching N$800 million and has covered all the expenses in facilities, medicine, personal protection gear and food security," Smit stated.

He charged that if the IMF approves the application, "the money will just disappear in the state's bottomless pit created by years of financial mismanagement. It will not help protect any Namibian against Covid infection and it is very doubtful whether those infected will ever see a cent of the money". Last week, a local economist warned that the IMF loan could risk locking Namibia into a perpetual debt trap for many years. Mally Likukela, an economics lecturer and managing director of Twilight Capital, further cautioned that the country's financial ability to service this loan will be challenged by exchange rate risks that come with the loan and which Namibia has no control over.

"Without a proper economic rescue package to help channel these funds, Namibia's already fragile economic recovery would be dangerously hampered by demands by the IMF. It is a loan, not a grant so it is bound to come with some sort of conditions, and, of course, repayment is key amongst them, so these conditions, minor as they may appear to be, will hamper Namibia's economic recovery," Likukela stated.

He cited examples of countries such as Ghana, Jamaica and Turkey who have all signed IMF loans. While these countries did not apply to loans from the IMF's RFI, he noted that generally, the IMF imposes contractionary policies that prioritise the servicing of debt overgrowth and development and therefore his caution that Namibia cannot take this risk. In addition, Likukela pointed out that the IMF loan is denominated in foreign exchange and Namibia has to bear the risk that if the rand, to which the Namibia Dollar is linked, depreciates then the loan and the interest on it will become more expensive.

"Given the state of the South African economy, which influences the rand, this is a big risk and must not be taken lightly," Likukela warned.

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