The Executive Board of the International Monetary Fund (IMF) has completed its Article IV Consultations for Namibia, revealing a deceleration in the nation's economic growth.
According to a report published by the IMF this week, Namibia's economic growth slowed from 5.4% in 2022 to an estimated 3.7% in 2024. This slowdown is primarily attributed to a decline in diamond production, which responded to lower international diamond prices, and the severe drought that significantly impacted the agricultural sector.
While rising prices for gold and uranium offered some economic momentum, oil exploration activities plateaued in 2024 after experiencing a spike in 2023. The report also noted a decrease in Namibia's inflation, largely due to a drop in global food and fuel prices.
Looking ahead, the report projects growth to be about 3% in the medium term and 3.75% in 2025 and 2026. However, increased global trade policy uncertainty, weak diamond market, and structural rigidities despite increased public capital expenditure, will dampen momentum. Average inflation is projected to ease to 4.1% in 2025 and remain around 4.5% in the medium term.
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In addition, commodity price fluctuations, further worsening of global trade tensions, a deepening of economic fragmentation, tighter global financial conditions, social discontent resulting from continued high unemployment and inequality, and increased volatility associated with weather shocks are said to further pose risks to the outlook.
Meanwhile, positives can be expected from an easing of global trade policy tensions and faster development of oil, gas, and green hydrogen projects.
The Executive Directors took note of Namibia's positive economic resilience, with slowing inflation and improved external position, despite the challenging external environment, and welcomed the new government's commitment to fostering inclusive growth and building resilience to climate shocks.
Noting the subdued growth outlook, the Directors emphasised the need for further efforts to harness economic potential and raise per capita income by promoting a private-sector-led, inclusive, weather-resilient and diversified economy.
The Directors called for sustained and larger fiscal consolidation over the medium term to maintain public debt and strengthen the external position. This includes a comprehensive civil service reform to contain the wage bill, state-owned enterprise reforms, strengthened public financial and investment management, and enhanced tax administration. They recommended increasing public investment to enhance growth, expand social protection, and build resilience to weather shocks.
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They encouraged the authorities to continue their efforts to establish, with Fund technical assistance, a strong governance framework for the sovereign wealth fund and a natural resource management framework to safeguard long-term macroeconomic stability and support economic development.
Moreover, the Directors recommended gradually aligning the policy rate with that of the South African Reserve Bank (SARB) policy rate to safeguard the currency peg, taking advantage of SARB's rate reductions. However, they stressed that the Bank of Namibia should remain vigilant to economic conditions.
The Directors welcomed the continued progress in enhancing financial sector resilience, but encouraged authorities to monitor risk, including the sovereign bank nexus and household debt. They recommended finalising additional policy measures and for the country to continue its efforts to strengthen the AML/CFT framework to expedite removal from the Financial Action Task Force (FATF) grey list.
Directors highlighted that bold structural reforms are essential to fostering sustainable, inclusive, and private sector-led growth and improving external competitiveness. This involves improving human capital and reducing skill mismatches, enhancing the business climate, strengthening governance, and fostering digitalisation. Directors supported the development of policies to harness prospective oil, gas, and green hydrogen for economic diversification and job creation.
