Rebalancing economy needs more action – IMF

By Hilary Mare

THE International Monetary Fund (IMF) has warned that Namibian authorities must act urgently to and implement key measure if they are to save the falling economy.

In an IMF country report for Namibia released recently, the IMF noted that after a period of exceptional growth and rising macroeconomic imbalances, Namibia’s public debt remains on a rising path, international reserves below adequate levels, and growth has come to a halt.

“Years of strong growth masked slowing productivity and declining external competitiveness, hindering growth prospects, while income inequality and unemployment have remained high.

“Real GDP is projected to mildly contract in 2019. In the absence of structural reforms, growth is expected to converge to a long-term level that is too low to deliver significant improvements in per capita income. Downside risks emanate from possible fiscal slippages that could trigger further debt increases; lower SACU revenue, and weak demand for key exports,” the international body said.

IMF father stated that immediate measures are needed to deliver the authorities’ fiscal adjustment plans and bring public debt to a sustainable path.

“Policies should combine spending reductions and revenue increases that support long-term growth. Better targeting of cash transfers would protect the poor. Reforming public enterprises, improving revenue administration and public financial management, and managing fiscal risks are essential to deliver the adjustment plans. To support the peg, Bank of Namibia (BoN) should keep the policy rate broadly in line with the South African Reserve Bank (SARB)’s rate.

“Structural reforms are urgently needed to strengthen productivity and external competitiveness, and boost long-term growth. Reforms should streamline business regulations, contain public sector wage dynamics, and reduce costs of key production inputs. Over time, it is important to remove non-tariff barriers to exports, foster the adoption of new technologies, and address shortages of skilled workers.”

While acknowledging that the financial system remains sound and that recent improvements in large exposures regulation are welcome steps, the IMF noted however that legislative changes to address regulatory gaps for the NBFIs should be accelerated.

“Finalizing the BoN’s macro prudential mandate and expanding the macro prudential toolkit are critical steps to manage macro-financial risks. Efforts to develop a full crisis management and resolution framework should be stepped up,” IMF said.

The Bank of Namibia released an economic outlook report last month in which it revised earlier economic forecasts stating that the Namibian economy will slow down by 1,7% in 2019, before recovering to a positive growth of 0,8% and 1,2% in 2020 and 2022.

“Accelerating structural reforms would boost productivity and competitiveness and long-term growth, while supporting the fiscal adjustment strategy. Structural reforms should focus on reducing policy uncertainty and removing existing obstacles to stronger and more inclusive growth. Reforms should aim to: streamline business regulations (e.g., lowering regulatory compliance costs); reduce the high electricity and transportation costs (e.g., reforming public enterprises operating in these sectors); contain public sector salary dynamics to better align productivity and wage dynamics in the economy; and, avoid regulations hampering domestic competition (e.g., preferential procurement rules).

“Over time, it is important to reduce non-tariff obstacles to exports (e.g., quotas, imports ban, SACU-related restrictions); address shortages of well-educated and skilled workers through better access and quality of higher education, vocational and on-the-job training programs; and foster the adoption of new technologies (e.g., better broadband services). The potential gains from improvements in the above areas could be large,” extended IMF.