Structural reforms are needed to strengthen the productivity and competitiveness of the Namibian economy and measures need to be taken to lift business confidence and boost the long-term growth potential of the economy.
The Minister of Finance, Calle Schlettwein, said he agrees with the findings of a special survey mission of the Namibian economy recently concluded by the International Monetary Fund and said the findings would have been better if unforeseen challenges did not arise. Minister Schlettwein was referring to amongst others the first quarter contraction of 3, 2 percent of the South African economy.
“The survey mission, which is an annual affair that every country has to go through, did find that we took the correct action with our consolidation and stabilisation plans because the economy is starting to show better reserves. Debt saturation is also diminishing and is down from 14 to two percent.”
Minister Schlettwein said the third fundamental finding of the mission was that Namibia needs to take measures to induce growth in the economy.
“We have to improve the business and industry climate in the country to attract investment which in turn would induce economic growth. The good news is that we achieved our macroeconomic goals we set for ourselves. There are factors hampering these goals and it is unfortunate that South Africa is not doing well.”
Mr. Geremia Palomba, IMF Mission Chief for Namibia, visited Windhoek during May 22-June 4, 2019 to conduct the 2019 Article IV Consultation with Namibia.
The mission found that the national economy will continue to mildly contract this year and recover gradually thereafter. The mission also found that immediate action is needed to contain the fiscal deficit within the budget limits in the current fiscal year.
Palomba said in a statement that the economy is undergoing a rebalancing process and has been contracting. In 2018, real GDP declined for a second consecutive year, as past economic stimuli dissipated, and the government continued consolidating to stabilise public debt dynamics.
“The IMF expects that the economy will recover only gradually. Growth is projected to remain mildly negative in 2019, as a poor rain season and reduced diamond production continue to weigh on a tentative recovery. Growth is expected to turn positive in 2020 and gradually converge to a long-term rate of about 3 percent, held back by low productivity and declining competitiveness. Downside risks to this outlook include lower than expected Southern African Customs Union (SACU) revenue and fiscal slippages that would undermine the government’s efforts to stabilize public debt dynamics.”
Palomba said in his statement that Namibia’s key challenges are to identify specific policies to fully deliver the authorities’ fiscal consolidation plans to stabilise public debt dynamics and roll out structural reforms to boost long-term growth.
“The authorities’ consolidation plans strike a right balance between stabilizing public debt and supporting the economy, but several actions are needed to deliver this outcome. Immediate measures should be taken to contain the FY19/20 fiscal deficit within the budget limits as spending pressures are rising. Policies to deliver the fiscal adjustment planned for the next two years also need to be fully identified. Policies should focus on rationalizing large spending items, particularly wage costs and transfers to public entities. Moreover, they should combine expenditure and revenue measures that support long-term growth, while protecting and improving social assistance programs.”
According to Palomba rationalizing public entities, strengthening revenue administration, and improving budget and expenditures controls is critical to delivering adjustment plans. Avoiding excessive risk-taking from off-budget operations will strengthen the credibility of the adjustment and reduce fiscal risk.
“The mission welcomes the authorities’ intention to develop restructuring plans for key loss-making public enterprises”
Undertaking reforms to strengthen productivity and competitiveness is a must to lift business confidence and the long-term growth potential of the economy. In parallel with fiscal adjustment policies, special emphasis should be placed on reducing policy uncertainty, streamlining business regulations, removing obstacles that contribute to high electricity and transportation costs which includes reforming public enterprises operating in these sectors, and establishing a well-structured wage policy for the public sector to better align wage dynamics and productivity. Over time, it is important to remove obstacles to exports, address the shortage of well-educated and skilled workers, and foster the adoption of new technologies.
“Despite the economic slowdown, the financial sector remains sound. The authorities are taking steps to curb possible risks arising from structural vulnerabilities in the sector and advance key reforms, such as strengthening banks’ asset classification, tightening concentration risk regulations, and improving the macroprudential policy framework. Further action is planned to upgrade the non-bank regulatory and supervisory frameworks and introducing a resolution regime. These steps will help manage macro-financial risks and address structural vulnerabilities in the sector,” Palomba said.
Minister Schlettwein said that he is optimistic about the findings of the IMF mission and indicated that a more detailed report on the subject, which would require in-depth study, will be availed by the organisation in September this year.