The level of international reserves is anticipated to increase in 2023 and are projected to increase by 5.9 percent to N$50.8 billion at the end of 2023, from N$47.9 billion in 2022, the Bank of Namibia (BoN) has said.
The projected increase is attributed to an improvement in export revenues, higher SACU receipts and revaluation in existing reserves due to an expected depreciation in the Namibia Dollar against major trading currencies.
In an economic update outlook last week, the central Bank went on to say that the financial account is expected to record a net borrowing from the rest of the world in 2023.
“Namibia’s financial account balance is estimated to have registered a net borrowing of N$28.7 billion in 2022 and is projected to decline to N$7.3 billion in 2023. This reduction is expected to result from lower net direct investment inflows.
“As a percentage of GDP, the projected financial account balance for 2023 translates into an inflow of 3.4 percent in 2023, substantially lower than an estimated 14.5 percent during 2022. Notably, the projected net borrowing figure for 2023 has been revised downward from N$11.9 billion estimated in the December 2022 Economic Outlook update,” said the Bank.
Foreign direct investment liabilities inflows are projected to moderate to N$16.3 billion in 2023 from an estimated of N$17.0 billion during 2022. The anticipated decline in net FDI inflows is expected to be driven primarily by lower reinvestment of earnings by non-residents.
Furthermore, Bank expressed that “Namibia’s portfolio investment is projected to register a net capital outflow of N$4.6 billion in 2023, which is a reversal from a net inflow of N$4.2 billion recorded during 2022.”
The expected outflow in net portfolio investment during 2023 is a result of increased extension of equity mandates to non-residents by local institutional investors.
“Following an estimated inflow of 9.7 billion recorded during 2022, other investment is expected to record an outflow of N$1.2 billion in 2023. The anticipated outflows are expected to be driven by larger repayments of loans by companies,” further explained the Bank.
SLOWER ECONOMIC GROWTH
Namibia’s growth performance is projected to slow down during 2023 and 2024, largely due to weaker global demand. Real GDP growth is estimated to moderate downwards to 3.0 percent in 2023, from 4.2 percent in 2022. The latest growth projection of 3.0 percent for 2023 represents a slight improvement from 2.7 percent published in the December 2022 Economic Outlook update.
“The 2022 growth estimate has also been increased in this update to 4.2 percent, from 3.9 percent published in the December 2022 Economic Outlook update. The improved growth for 2022 is largely based on higher production volumes from the diamond mining sector. Going forward growth is expected to moderate further to 2.9 percent in 2024,” BoN said.
Namibia’s current account is expected to register a lower deficit in 2023, due to an anticipated slowdown in import growth and an increase in SACU receipts. The current account deficit as a percentage of GDP is projected at 5.4 percent in 2023, compared to an estimated 13.0 percent in 2022.
“The projected moderation in the current account deficit during 2023 is attributed to a higher growth in exports relative to the growth in imports, and a 52.2 percent increase in SACU receipts. Risks to domestic growth are predominantly in the form of monetary policy tightening globally and high costs of key import items that are likely to remain for the entire forecast period. Major central banks in the world continue to tighten monetary policies, a phenomenon that is anticipated to result in a global slowdown in 2023 and 2024.
“Furthermore, the war between Russia and Ukraine is likely to continue for longer and so is the high prices for affected commodities for which Namibia is a net importer, including fuel, wheat and cooking oil. Other domestic risks include water supply interruptions that continue to affect mining production at the coast, potential spillover of electricity cuts in South Africa to Namibia, and uncertainty about the effects of climate change going forward,” explained BoN.