Washington, DC: The Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation [1] with Namibia and endorsed the staff appraisal without a meeting on a lapse-of-time basis. [2]
Namibia's real GDP growth reached 4.6 percent in 2022 on the back of sustained mining growth and recovery in tourism. With growth estimated at 3.2 percent in 2023, economic activity is assessed to have now surpassed the pre-pandemic level. Inflation, which rose sharply in 2022 due to high international oil and food prices, has eased below 6 percent, but is susceptible to resurgent fuel prices in recent months. The current account deficit widened in 2022 to 12.8 percent as the spike in fuel prices inflated the import bill. With the SACU receipts resurging in 2023 and a pick-up in FDI inflows, including related to oil exploration, official reserves remain adequate. The fiscal deficit has narrowed and is projected to drop below 4 percent of GDP this fiscal year as pandemic-related spending pressures eased, the public wage bill growth has been contained, and performance of state-owned enterprises improved. Meanwhile, social assistance was expanded to address food insecurity exacerbated by the drought.
Growth is expected to stabilize at about 3 percent over the medium term. Public debt-to-GDP ratio is projected to ease below 66 percent of GDP as the authorities implement their fiscal consolidation strategy, mindful of the need to contain debt servicing costs and manage the volatility of SACU revenues. The current account deficit is subject to large revisions and will remain elevated due to the intensifying oil exploration. But it will gradually narrow on the assumption that international energy prices normalize and global demand for key commodities in Namibia, namely uranium, diamonds, and fish, remains robust in the medium-term.
Oil exploration and developments related to prospective green hydrogen production have gathered momentum and represent an upside potential, although final investment decisions are yet to be announced. Meanwhile, a global slowdown in trade due to geopolitical tensions could affect growth and put pressure on buffers.
Executive Board Assessment
In concluding the Article IV consultation with Namibia, Executive Directors endorsed the staff appraisal as follow:
Namibia has shown resilience to global shocks, but growth continues to rely on the mineral sector, with a high public wage premium undermining private sector job creation and economic diversification. Output is estimated to have surpassed the pre-pandemic level in 2023 while inflation has come down substantially from its highs in 2022. The fiscal stance in FY23/24 has been appropriately tightened, with part of the SACU revenue windfall used to expand social programs and part saved as a precautionary buffer. Although this tightening helped contain the rise in public debt, the public sector wage bill and debt service still consume the bulk of the budgetary resources, despite the measures taken since FY21/22 to contain public wage bill expansion. To achieve its growth potential and tackle unemployment, which is especially high for the young, Namibia needs to streamline its public sector and address the public wage premium to foster a more diverse and dynamic economy that both creates jobs and reduces poverty and inequality.
Namibia's external position is assessed to have been weaker than the level implied by fundamentals and desirable policies (Annex II). The current account deficit has widened substantially in 2022 partly due to the intensity of oil exploration and will likely remain elevated in the near term. Nevertheless, the overall external balance has remained positive, partly due to FDI generated by oil exploration, yielding higher reserves, which has also received a boost from the post-pandemic recovery in SACU receipts, expected to normalize next year. Large transactions associated with oil and gas exploration have increased the urgency to upgrade the statistical capacity to process these unprecedented data and strengthen the monitoring of the external sector. While a final investment decision has not been taken, the potential for significant revenue from oil and gas in the future has raised the need to develop specialized tax capacity, review existing legislation, and finalize a natural resource management framework.
The current fiscal stance is more expansionary than warranted given the need to put the public debt-to-GDP ratio on a firmly declining path. The overall risk of debt distress is moderate. Nonetheless, fiscal consolidation is pivotal to increase fiscal space to confront future shocks, expand the social safety net, finance the needed infrastructure upgrades, and improve external competitiveness. Going forward, a systematic approach to public employment and its remuneration is critical: keeping and attracting needed talent for an efficient public sector while strategically downsizing in non-critical areas. To this effect, the authorities are encouraged to complete the ongoing functional review of the civil service and finalize the modalities of the early retirement scheme. These foundational elements of the much-needed civil service reform would help anchor the authorities' ambitious medium-term fiscal consolidation plans, which go appropriately beyond just containing the public debt-to-GDP ratio. SOE reform saw some results from the public delisting and sale of companies. The issuance of the PAOP paper for consultation with stakeholders is marking a step toward establishing a reform roadmap for the remaining SOEs. Staff also encourages a swift adoption of the amended State Finance Act to underpin further improvements in public financial management.
Maintaining the policy rate broadly aligned with the SARB and managing an adequate level of reserves will help anchor inflation and preserve the currency peg. If reserves come under pressure due to sustained portfolio outflows and negative shocks to SACU receipts, raising the policy rate above the SARB and accelerating fiscal consolidation efforts could be necessary.
Continued monitoring of macro-financial risks and assessing the efficiency of mitigation measures will support financial stability. The financial sector remains stable, but risks have increased with households facing higher variable mortgage rates and NBFIs vulnerable to financial market volatility. Staff welcomes progress made in developing the macroprudential policy framework. Strengthening systematic data-sharing between BoN and NAMFISA and developing the framework for early warning indicators will support the management of macro-financial risks. Functional DGS and ELA frameworks will help mitigate risks.
Staff welcomes the authorities' progress in strengthening the AML/CFT framework and address the areas of improvement identified in the SA. Effective implementation of the newly passed laws remains the current hurdle before the FATF decision on grey listing. On remaining SA measures, staff stands ready to support the authorities in legal reforms to further strengthen the autonomy of the central bank.
New mineral discoveries and the investment in green energy provide an opportunity to boost growth, employment, and foster diversification. Strengthening the PPP framework and addressing constraints hampering entrepreneurship, including the regulatory burden, skill mismatches, and input costs (energy, water, and data) would help the Namibian economy benefit from the new investments. Updating the statistical information on labor force and its skills profile will help tailor training efforts to emerging private sector opportunities. Accordingly, completing the 2023 census with a skills audit and a new labor force survey have gained added urgency. In this context, revising immigration laws to modernize and streamline the processes for attracting and bringing needed international expertise, and use it for local training is also critical.
Table 1. Namibia: Selected Economic Indicators, 2019-2028
(Percentage change, unless otherwise indicated)
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
Prel.
Proj.
Proj.
Proj.
Proj.
Proj.
Proj.
National Account and Prices
GDP at constant prices
-0.8
-8.1
3.5
4.6
3.2
2.7
2.7
2.6
2.6
2.6
GDP deflator
0.9
4.6
2.0
7.2
7.8
4.6
5.2
4.7
4.8
4.4
GDP at market prices (N$ billions)
181
174
184
206
229
246
266
286
307
329
GDP at market prices (Fiscal Year) (N$ billions)
179
177
190
212
233
251
271
291
313
335
GDP per capita (US$, current exchange rate)
5,099
4,226
4,879
4,854
4,727
4,931
5,130
5,284
5,402
5,507
Consumer prices (average)
3.7
2.2
3.6
6.1
6.0
4.8
4.8
4.8
4.8
4.8
External Sector
Exports (US$)
-7.6
-19.0
14.1
17.3
1.4
7.0
4.9
3.2
3.8
3.1
Imports (US$)
-9.8
-21.0
35.2
16.6
-2.3
4.1
2.9
3.3
3.4
1.8
Terms of trade (deterioration = -)
2.1
6.3
-14.0
14.4
4.2
1.8
-1.3
-0.3
-0.1
0.6
Real effective exchange rate (period average)
98.5
91.4
96.4
92.9
...
...
...
...
...
...
Exchange rate (N$/US$, end of period)
14.0
14.7
15.9
17.0
...
...
...
...
...
...
Money and Credit
Domestic credit to the private sector
7.1
2.4
1.0
4.2
3.4
3.8
4.5
5.0
5.0
5.1
Base money
5.0
16.1
0.2
16.6
11.7
7.9
8.2
8.0
8.0
8.0
M2
10.5
8.1
4.2
0.0
11.7
7.9
8.2
8.0
8.0
8.0
BoN repo rate (percent) 1/
6.50
3.75
3.75
6.75
7.75
...
...
...
...
...
(Percent of GDP)
Investment and Savings
Investment
15.3
13.9
17.4
17.3
16.0
16.1
16.2
16.2
16.2
16.2
Public
3.7
2.9
2.7
2.7
3.0
3.2
3.2
3.2
3.2
3.2
Others (incl. SOEs)
12.1
10.8
13.3
11.3
13.0
13.0
13.0
13.0
13.0
13.0
Change Inventories
-0.5
0.2
1.4
3.3
0.0
0.0
0.0
0.0
0.0
0.0
Savings
13.5
16.7
7.5
4.6
5.3
6.5
7.6
9.0
9.2
10.0
Public
-2.2
-4.1
-5.4
-3.2
-1.1
-1.5
-1.3
-1.0
-0.8
-0.7
Others (incl. SOEs)
15.8
20.8
12.9
7.8
6.4
8.0
8.9
10.0
10.0
10.7
Central Government Budget 2/
Revenue and grants
32.6
32.9
29.2
30.4
33.8
31.3
31.0
31.2
31.2
31.2
Of which: SACU receipts
10.5
12.6
7.8
6.7
10.4
8.4
8.1
8.3
8.2
8.2
Expenditure and net lending
38.2
41.6
37.8
35.6
37.7
36.3
35.4
35.4
35.3
35.2
Of which: Personal expenditure
16.5
16.7
15.9
14.8
14.3
14.2
13.4
13.4
13.3
13.2
Capital expenditure and net lending
3.3
4.1
3.1
2.7
3.3
3.2
3.3
3.3
3.3
3.3
Primary balance (deficit = - )
-1.8
-4.6
-4.3
-0.8
1.2
0.1
0.7
1.0
1.1
1.0
Overall balance
-5.6
-8.7
-8.6
-5.3
-3.9
-5.0
-4.4
-4.2
-4.0
-4.0
Primary balance: Non-SACU
-12.3
-17.2
-12.1
-7.5
-9.3
-8.2
-7.4
-7.3
-7.1
-7.1
Public debt
58.1
63.4
68.3
68.7
66.1
66.7
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66.5
66.4
66.0
65.8
Of which: domestic
39.5
44.5
51.2
50.6
48.3
50.2
52.0
53.0
53.4
53.9
Gross public and publicly guaranteed debt/GDP
64.9
69.8
73.7
74.7
72.1
72.7
72.5
72.4
72.0
71.8
External Sector
Current account balance
(incl. official grants)
-1.7
2.8
-9.9
-12.8
-10.7
-9.6
-8.5
-7.1
-7.0
-6.2
External public debt (including IMF)
18.6
18.9
17.2
18.1
17.8
16.5
14.5
13.4
12.6
11.9
Gross official reserves
US$ millions
2,064
2,163
2,760
2,799
2,953
3,078
3,294
3,446
3,543
3,730
Percent of GDP
16.0
18.2
23.8
22.2
23.6
23.2
23.4
23.4
23.1
23.4
Months of imports of goods and services
5.1
4.1
4.5
4.5
4.6
4.7
4.9
4.9
5.0
5.0
External debt/GDP 3/
66.4
77.5
67.6
70.6
73.6
71.0
69.7
68.3
67.4
64.8
Memorandum Item
Population (in million)
2.5
2.5
2.6
2.6
...
...
...
...
...
...
Sources: Namibian authorities; and IMF staff estimates and projections.
1/ Rate for 2023 is as per MPC decision of October 25, 2023.
2/ Figures are for fiscal year, which begins April 1.
3/ Public and private external debt.
[1] Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.
[2] The Executive Board takes decisions under its laps-of-time procedure when the Board agrees that a proposal can be considered without convening formal discussions.
