A recovery in imports following the easing of local and global COVID-19 restrictions, as well as a bounce-back in oil prices together with a broadly weak export performance, erased part of the significant current account surplus print in the second quarter, according to the latest data from the Bank of Namibia.
Nevertheless, the external deficit in the third quarter was narrower compared with the same quarter in 2019, according to an analysis from PSG Namibia.
Looking at merchandise trade, the goods balance recorded a deficit of N$380 million in the third quarter of 2020 somewhat narrower than the deficit of N$430 million noted during the third quarter of 2019. This was mainly due to the import bill declining more than the decrease in export receipts during this period.
The value of merchandise imports declined by 24% year-on-year to N$1 billion, reflecting lower demand for all import categories. The sharpest declines were recorded for fuels, vehicles, aircraft vessels, and consumer goods.
On the other side of the goods trade ledger, exports fell by 30% to N$646 million in the third quarter. Diamonds, manufactured goods, and food live animals fell the most. On the bright side, the value of gold export earnings rose on an annual basis on the back of a higher gold price.
Looking at non goods trade, Namibia's services account recorded a net outflow of N$28 million during the third quarter, compared with a net inflow of N$33 million recorded a year earlier. The subcategories that declined the most were personal travel services (a proxy for foreign tourism earnings) and transport services, reflecting the decline in international travel and logistical constraints due to the COVID-19 pandemic.
Meanwhile, a net primary income inflow of N$23.9 million was recorded in the third quarter, compared with a smaller inflow of N$11.8 million in the same quarter of 2019. The larger primary
income inflow is largely thanks to a decline in investment income paid to foreigners.
Lastly, the secondary income (current transfers) account recorded a surplus of N$355 million, up from N$309 million in the 2019 third quarter, mainly due to an increase of 6% in Sacu receipts.
Eloise Du Plessis, Head of Research at PSG Namibia said despite some reversal of the sudden drop in imports witnessed in the second quarter and continued export weakness, it seems probable that a small current account surplus will be recorded in 2020.
"This is only temporary, as the current account balance is set to deteriorate significantly over the medium term due to a sharp reduction in Sacu receipts, increased capital goods imports for mining projects, and a modest recovery in oil prices," du Plessis said.
She further explains that the possibility of recurring or prolonged travel restrictions amid new waves of COVID-19 infections (despite the roll out of vaccines), which would weigh on travel and transport services, as well as the possibility of continued weak demand for luxury goods, which would curtail diamond production, are major downside risks to the current account balance in the near term.
"Furthermore, the expected loss in revenues from SACU transfers, diamond exports, and services would also give rise to further debt financing by the government, which could reduce the country's creditworthiness," du Plessis added.