The stock of international reserves stood at N$57.1 billion as at the 30th of September 2024 compared to N$60.8 billion at the end of July 2024, the Bank of Namibia said in a statement last week.
The decline was mainly driven by net commercial bank outflows, customer foreign currency withdrawals, foreign government payments and the appreciation of the exchange rate.
“This level corresponds to an estimated import cover of 3.9 months, which remains adequate to sustain the currency peg between the Namibia Dollar and the South African Rand and meet the country’s international financial obligations. Excluding oil and appraisal activities, the import cover stood higher at 4.6 months of imports,” the Bank said.
This was subsequent to the Monetary Policy Committee (MPC) of the Bank of Namibia announcing that to continue supporting the domestic economy while simultaneously safeguarding the peg between the Namibia Dollar and the South African Rand, the MPC unanimously decided to cut the Repo rate by 25 basis points to 7.25 percent.
This decision was made following a comprehensive review of current and expected domestic, regional and global economic developments.
“Domestic economic activity rose during the first eight months of 2024 relative to the same period in 2023. The recovery was broad-based, with notable increases in the mining, electricity generation, wholesale and retail trade, tourism, financial services, communication and transport sectors as well as the livestock marketing subsector. The pace of expansion nevertheless lost momentum. In this regard, the Namibian economy recorded a slower growth rate of 3.5 percent during the second quarter of 2024, compared to 4.3 percent and 3.6 percent in the preceding quarter and the corresponding quarter of 2023, respectively.
“Looking ahead, growth is projected to moderate to 3.1 percent in 2024 and 3.9 percent in 2025, compared to a firmer pace of 4.2 percent recorded in 2023. The anticipated slowdown is primarily attributed to the weakening primary industry, partly reflecting the prevailing drought conditions and sluggish global demand,” the Central Bank said.
Risks to the domestic economic outlook stemming from external factors have intensified, while those from domestic factors remained broadly unchanged since the last MPC meeting. External risks include the escalation of geopolitical tensions, especially in the Middle East, geoeconomic fragmentation and weaker global demand. Internally, drought conditions and water supply interruptions, particularly at the coastal towns, continue to pose risks.
“The domestic disinflation cycle continued year-to-date. Inflation averaged 4.6 percent in the first nine months of 2024, compared to 6.0 percent recorded during the same period in 2023. The decrease in inflation was essentially driven by lower average food inflation, with communication and, most recently, transport inflation also playing a role. Since the previous MPC meeting, inflation has surprised to the downside, falling from 4.6 percent in July 2024 to 3.4 percent in September 2024, the lowest since August 2021, mainly due to the deceleration in transport inflation.
“Going forward, the medium-term inflation forecast has been revised downward to 4.3 percent in 2024 and 4.0 percent in 2025, compared to 4.7 percent and 4.4 percent, respectively, at the previous MPC meeting. The revised forecast is due to a more favourable outlook for international crude oil prices and a stronger exchange rate,” further explained the Bank.
Since the last MPC meeting, annual growth in PSCE exhibited a modest improvement to 2.1 percent at the end of August 2024 from 1.8 percent at the end of June 2024. However, the average PSCE growth for the first eight months of 2024 was lower at 2.0 percent, compared to 2.7 percent during the corresponding period in 2023. The continued sluggish growth in credit extended to the private sector has been driven by weak demand amplified by the still prevailing tight lending conditions. Nevertheless, the recent tax relief, moderately lower interest rates, and government expenditure could potentially stimulate credit demand going forward.
“Turning to the external front, Namibia’s merchandise trade deficit widened to N$25.8 billion during the first eight months of 2024, relative to N$21.2 billion in the same period of 2023. The wider trade deficit was primarily driven by higher import payments, especially for machinery and consumer goods, which were partly offset by a marginal increase in export receipts during the period under review.”
The global economic recovery slowed slightly since the previous MPC meeting, reflective of subdued growth in the Group of Twenty (G20) countries during the second quarter of 2024. Global inflation has generally drifted lower since the previous MPC meeting, while the monetary policy easing cycle has continued to gain momentum.