The International Monetary Fund (IMF) has cautioned Namibia to closely monitor the sovereign-bank nexus and household debt.

In its recent country report, directors at the IMF say the country has done in well making sure the financial sector is sound.

"Directors welcomed the continued progress in enhancing financial sector resilience, notably through the introduction of the bank resolution policy. They encouraged the authorities to continue to monitor risks including from the sovereign-bank nexus and household debt," reads the report.

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Sovereign-bank nexus refers to the deep interconnections between a government's financial health and the stability of its banking sector, where problems in one can quickly spill over to the other.

Meanwhile, rising household debt can expose the financial system to vulnerabilities if individuals struggle to repay their loans.

Beyond risk monitoring, the IMF directors recommend that Namibia finalise additional policy measures.

These include the implementation of counter-cyclical capital buffers, which would require banks to build up extra financial reserves during periods of economic expansion.

"Directors recommended finalising additional policy measures, including counter cyclical capital buffers and strengthened cooperation on crisis resolution," says the report.

Additionally, the directors recommend that the government continues their efforts to establish a strong governance framework for the sovereign wealth fund and a natural resource management framework.