The central bank, Bank of Namibia (BoN) has said that for Namibia to build resilience from external shocks, it will require specific interventions that are most appropriate to the Namibian economy with key responses involving interventions to respond to trade distortions through economic diversification; interventions to rebuild fiscal policy buffers and ensure external sustainability and interventions that deal with the problem of the poor and vulnerable.
Commenting in its recently released Annual Report, the Bank highlighted that the Namibian economy is mainly affected through the trade channels, especially through reduction in commodity prices that lead to terms of trade shocks, which reduces growth and worsens government revenue.
Amid a fragile global economic environment, the domestic economy has demonstrated some resilience in 2021 and 2022, as it continued to recover from the Covid-19 pandemic shock.
“Consistent with this evidence, the on-going global slowdown has spilled over into Namibia, although their effect remains contained. The mineral demand side (increased in mineral exports) continues to shield Namibia from major economic shocks. However, it should be noted that further deterioration of the euro area economies may generate significant negative spill-overs to the Namibian economy through trade linkages,” the Bank said adding that Despite the estimated improvement in growth in 2021 and 2022, the impact on Namibia’s main economic challenges, namely, poverty, inequality and unemployment, remain inadequate and calls for concerted efforts to sustain and improve economic growth.
“For Namibia, mitigating the global shocks’ impact on economic activity, protecting vulnerable groups, and building fiscal buffers are immediate policy priorities. In the medium-term, policies should focus on structural reforms and modernising policy frameworks to boost growth, support the vulnerable, strengthen governance, and tackle the rising levels of debt,” said the Bank.
Policy options
Offering solution, the Bank proposed structural reforms to support economic diversification and enhance productivity should be implemented.
“Diversifying the economy, building fiscal buffers and protecting the vulnerable people are key to building resilience,” the Bank noted further stating the improvement investment climate and boost productivity as another key enabler.
“To support private sector-led growth, underpinned by exports and investments, structural reforms should focus on improving governance, diversifying exports, increasing productivity, and building climate resilience to lift the economy’s growth potential. This will enhance diversification efforts, which will help the country to manage volatility and provide a more stable path for equitable growth and development,” said the Bank.
In another option, the Bank expressed that Namibia’s fiscal consolidation strategy is crucial to preserve debt sustainability. In this, the Bank noted that containing the wage bill, advancing the reform of state-owned enterprises, and strengthening tax administration are key.
“In parallel, it is important to preserve social spending and growth-supporting public investment and mitigate the impact of higher food and fuel prices on the poorest. Improvements in the SACU receipts, when they occur, must therefore be used to reduce the deficit, stabilise the debt level and save for the future through the sovereign wealth fund (the Welwitschia Fund).”
The Bank also said that the country should enhance resilience of food production to climate change through access to water, resilient seeds and fertilizer among others. Essentially, Namibia should consider as an example, rainwater harvesting to increase food productivity. Rainwater harvesting can positively impact the agricultural sector by enabling increased productivity in the dry season.
“The Government of Namibia should therefore encourage rainwater harvesting by providing financial support to the farmers, and by conducting awareness campaigns that increase knowledge and stress the importance of rainwater harvesting. In addition, the Government should increase the supply of resilient seeds and access contaminant-free fertilizers appropriate for specific weather shocks, soil, and crops,” added the Bank.
Protecting the vulnerable members of society against shocks should be a priority, the Bank also said.
“Systems of social protection should be strengthened to provide buffers to shocks, especially for particularly vulnerable segments of the population. These systems should be made adaptive – integrated with disaster risk reduction and climate change adaptation,” concluded the Bank.