Namibia is not in financial distress: Bank of Namibia

> Timo Shihepo

Windhoek – The Bank of Namibia (BoN) this past week public fear that the country is broke and that the local economy is about to crumble are baseless.

Taking into account key macroeconomic indicators such the fiscal deficit, debt-to-GDP ratio and others, the central bank said Namibia still compares well with other economies in the region and continentally.

Fears have been swirling around that Namibia is on the verge of bankruptcy following series of damning reports about the status of the economy.

These includes that the country’s foreign reserves are drying up, putting massive pressure on the government to meet its obligations.

However, Ndangi Katoma, the BoN’s Director of Strategic Communications and Financial Sector Development told The Southern Times said there is no need for panic.

Katoma stressed that it will be unfair to say that Namibia’s economy is in crisis especially when the recent rating by Fitch of BBB, shows that the country has maintained its international rating and remains amongst the top three countries in Africa in terms of investment climate and other factors.

“This also implies that the economy is generally doing well in comparison to its peers and therefore has access to international financial markets for funds should that be required.

“This means that, for as long as Namibia has access to both domestic and international capital markets, it would not be accurate to state that Namibia is facing financial distress.

“In addition, Namibia’s foreign reserve levels are still sufficient to enable her to fulfil her foreign payment obligations,” he said.

Katoma said ordinarily, when an economy is in sustained economic and financial distress and unable to meet its financial obligations, the results would be among others, the downgrading of that country’s international rating.

“This would reflect badly on a country and may result in the loss of confidence in terms of investment and financial market access as well as competitiveness.  Namibia’s recent rating however speaks for itself in this regard as BBB- credit rating reflects a stable economic outlook,” he said.

Earlier, the Ministry of Finance acknowledged that there was no enough money in the local market for borrowing a situation that forced government to borrow from the international markets.

This has put the country in a difficult position with experts also warning that Namibia is spending and borrowing too much, a practice that can affect the economy severely.

“Namibia’s fiscal policy has been expansionary for the past few years. However, it has always been within the set limit, for example the expenditure cap of 40 percent of GDP.

“The government is currently planning on a fiscal consolidation, implying a gradual reduction in total government spending or an increase in spending at a decreasing rate,” katoma explained.

That however remain to be seen whether it will decrease given the fact that personnel expenditure for the civil service increased to N$21 billion in the 2014/15 budget from N$17 billion in 2013/14 with a further increase to N$22 billion in 2015/2016 and N$23 billion in 2016/2017.

During the 2013/14 financial year, there was a massive 34 percent hike in personnel expenditure. This is equivalent to 44 percent of recurrent spending (excluding interest payments) and 37 percent of total expenditure.

Generally, Katoma noted that expenditure is a good thing to an economy, but admitted it can be bad if there is over spending, misallocation or if spending results in high inflation.

For Namibia, Katoma said the expansionary fiscal policy has thus far served the economy well, although further consolidation is necessary.

“With regards to borrowing, total government debt to GDP is currently at 29 percent, way below the 35 percent national threshold. Thus, although borrowing comes at cost, the country is still faring well with the set limits,” he said.

December 2015
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