Namibia’s poor need “inflation relief”

With the escalating unemployment, a record-high inflation and the worst recession weighing down on consumers, the Government have to step in to guard Namibia’s poor against inflation assault.

Namibia has one of the highest unemployment rates  in the world, currently standing at 33.4 per cent, according to the Namibia Labour Force Survey of 2018.  But these statistics could be worsened by last week revelations that 15000 people were retrenched and 815 companies were liquidated after the Covid-19 pandemic ravaged the country’s economy.

Namibia’s poor economic performance was confirmed as Fitch downgraded Namibia’s credit rating.

The staggering unemployment rate means that a sizeable part of Namibia’s economically active population is unemployed, posing major social, political and economic risks, as such high unemployment can yield devastating effects on social exclusion, crime, and economic welfare, erosion of human capital, death, misery and social instability.

The annual inflation rate in Namibia eased to 5.4 percent in May of 2022 from 5.6 percent in the previous month. Costs slowed for housing and utilities (1.3 percent vs 1.7 percent in April); transport (16.7 percent vs 18.9 percent); hotels, café and restaurants (8.5 percent vs 9.3 percent); and furnishings and household equipment (7.5 percent vs 7.7 percent).

In some countries, like Saudi Arabia, France and parts of the United States, governments are planning to reach into their public coffers to offer residents so-called “inflation relief” in the form of grant increases and new, once-off, direct cash transfers.

But in other parts of the world, like Namibia, similar relief may prove more evasive — especially as our governments continue to tighten their purse strings in an effort to restore public funds after Covid-19’s economic onslaught.

This week, Saudi Arabia became the latest country to earmark relief for households struggling against the crush of inflation. The Middle Eastern country will reportedly provide $5.3-billion to support citizens, about half of which will be distributed as direct cash transfers to support social security beneficiaries.

Namibia’s inflation has remained relatively low compared to other countries in the world which, on top of supply constraints, has also grappled with far too buoyant demand. But there are now signs that domestic inflation is catching up and that consumers are feeling the pinch.

Another major increase in the petrol price in July means that inflation will likely remain above the Bank of Namibia 6% ceiling, causing food prices to continue  climbing higher.

Relief should come through in the form of higher social grants or a cash amount, rather than just reducing the fuel levy — because that will only benefit certain consumers and not the broad spectrum,

Namibia has seen three consecutive increases in the prices of diesel and petrol in the past five months, with the latest increase of petrol prices at N$2,50 per litre and diesel by N$1,50 per litre.

The impact of the increase was heavy on small businesses and the unemployed segment of our population.

We expect that continued petrol price increases will push consumer inflation north of 7%.

The reduction of the fuel levy by treasury by 50 percent for the past three months brought relief to consumers and helped to mitigate fuel increase and significant increases in inflation.

The government shouldn’t be looking for other avenues that bump up fiscal spending, given that we have a lot of pressures that are going to come through on the expenditure front and we don’t have any permanent additional revenue streams to match that.

Many emerging markets saw quite a lot of their fiscal buffers eroded during the Covid-19 pandemic.

All households, regardless whether they are the lowest income or highest income, are spending about 50% of their income on either fuel or food.

Hence, the government should at least consider expanding relief beyond the fuel levy cut.

Potential solutions in order to manage the impact on inflation is to top up the existing social grants but then it really must be temporarily.

These are very special circumstances. We have just been through an extremely tough period. We have very high levels of unemployment. So we should explore that option at least.

This situation is one in which the state and the government should intervene. It is as if the country is under attack.