Namibia: International Reserves Decline Due to Covid-19 Expenditure

21 October 2020

Namibia's stock of international reserves held by the Bank of Namibia (BoN) decreased both on an annual and quarterly basis at the end of the second quarter of 2020. The stock of international reserves declined by 3.7% quarter-on-quarter and 5% year-on-year to N$31.8 billion, which the central bank said is still adequate to sustain the currency peg between the Namibia dollar and the South African rand.

The central bank in its quarterly bulletin stated that at the end of June 2020, the stock of foreign reserves was estimated to be 6.9 times the amount of currency in circulation "well above the required 1.0 times stipulated in the Common Monetary Area (CMA) Agreement."

According to BoN, the annual and quarterly declines were mainly due to government's response towards the Covid-19 pandemic resulting in accelerating expenditure, coupled with the redemption of a Johannesburg Stock Exchange bond worth N$840 million on the 29 June 2020.

Foreign exchange reserves are a nation's backup funds in case of an emergency, such as a rapid devaluation of its currency. Countries use foreign currency reserves to keep a fixed rate value, maintain competitively priced exports, remain liquid in case of a crisis, and provide confidence for investors.

"The estimated import cover of goods and services increased to 6.5 months, compared to 4.9 months a year ago, due to a substantial decline in imports. Both cover ratios were well above the international benchmark of 3.0 months," reads the report.

The stock of foreign reserves stood at N$35.4 billion as of 31 July 2020, representing an increase of 11.5% when compared to the end of June 2020.

The increase was mainly due to inflows from the third tranche of the African Development Bank loan disbursed to Government, which amounted to N$2 billion, and Southern African Customs Union (Sacu) receipts worth N$5.6 billion received on 1 July 2020.

Furthermore, Namibia's external balance sheet recorded a net asset position during the second quarter of 2020, when compared to a year ago. At the end of June 2020, Namibia recorded a net asset position of N$6.9 billion increasing significantly from a net liability position of N$11 billion a year earlier, as foreign assets mainly in the form of direct and portfolio investment rose faster than foreign liabilities.

"Quarter-on-quarter, the net asset position was mainly driven by an increase observed in the portfolio and other investment assets coupled with a decline in all functional categories of foreign liabilities," stated the report.

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