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Namibia

Author(s):
International Monetary Fund
Published Date:
February 2012
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RECENT ECONOMIC AND POLICY DEVELOPMENTS

A. A Resurgent Economy

1. The Namibian economy bounced back strongly from the global economic crisis. After declining by 0.4 percent in 2009, GDP grew by an estimated 6.6 percent in 2010, supported by recovery in the diamond and uranium sectors and ongoing growth in non-mining sectors. Activity appears to have weakened in 2011, following severe flooding in the north and the weaker-than-expected state of the global economy, and real GDP may have risen by 3½-4 percent.

2. Inflation remains subdued, despite an upward trend over the past year. Imported inflation weighs heavily in the consumer price basket, with about 80 percent of food staples estimated to be imported from South Africa. Some upside risks therefore arise from the recent depreciation of the rand, to which the Namibian dollar is pegged.

3. The fiscal stance has become much more expansionary. Drawing on the buffers created by earlier fiscal restraint, the government pursued an expansionary fiscal policy in FY2009/10 to support real activity in the face of the global and regional slowdown. The fiscal stimulus continued in FY2010/11 and then increased significantly in FY2011/12 with the launching of the Targeted Intervention Program for Employment and Economic Growth (TIPEEG – see Box 1). Given strong growth, higher than expected revenues, and under-execution of spending, the fiscal outturn in FY2010/11 was much better than initially expected. Significant under-execution of spending again appears likely in FY2011/12, and tax revenues are receiving support from mining sector growth and collection of tax arrears. Nevertheless, the overall deficit for FY2011/12 is projected to rise to 8.9 percent of GDP, with the non-SACU deficit increasing to 18 percent of GDP (from 12.9 percent in FY2010/11). The deficit is being financed from domestic and regional sources, and through the successful issuance of a $US500 million Eurobond in October 2011. Public debt is projected to increase from 16.2 percent of GDP in FY2010/11 to 24.5 percent of GDP by end FY2011/12.

Box 1.The Targeted Intervention Program for Employment and Economic Growth (TIPEEG)

The TIPEEG initiative, announced in the FY2011/12 budget, aims to support job creation and more diversified growth in the economy. This program was motivated by concerns over Namibia’s very high rates of inequality and unemployment, especially among youth, and by what was seen as the need to take significant policy actions to address these problems.

Over FY2011/12 to FY2013/14, TIPEEG is projected to add $N14.6 bn. in government spending (about 15 percent of current year GDP), comprising increases in both current and capital spending. Although implementation has been slow to date and is widely expected to fall far short of 100 percent, at least in FY2011/12, the government has recently tried to step up implementation by reforming procurement processes to strengthen decentralization of TIPEEG-related spending.

Through TIPEEG, the government aims to preserve or create about 104,000 direct and indirect jobs—a sizable share of the total 15+ population of just under 1 million. Four sectors are targeted:

  • Agriculture: funds for improved livestock farming, horticulture development, water supply, and crop production.
  • Tourism: spending on tourism marketing and infrastructure investment.
  • Transport: improvements in transport infrastructure, including road and rail networks and port facilities.
  • Housing and sanitation: funding for servicing of land, construction of low-cost housing, and sanitation facilities.

Although rigorous prioritization and monitoring of TIPEEG projects remains essential, this initiative has the potential to raise growth and employment in some areas. For example, improvements in domestic road, rail, and port infrastructure should complement the strengthening in transport networks in the southern African region and support growth in regional trade. TIPEEG’s targeting of the agriculture and tourism sectors stems in part from domestic analyses identifying these sectors as promising sources of long-term output and employment growth.

4. Despite a rebound in exports, Namibia’s external position weakened in 2010 and 2011. Export earnings improved significantly in 2010–11 because of rapidly rising prices for diamonds and other minerals. Non-mineral export receipts also grew significantly. Nevertheless, the current account shifted from a surplus of 1.8 percent of GDP in 2009 to estimated deficits of 1.8 percent of GDP in 2010 and 6.3 percent in 2011. This deterioration has mainly reflected rapid growth in commodity imports, appreciation of the real effective exchange rate in 2009–10, and the more expansionary fiscal stance. For end-2011, international reserves are estimated at $US1.4 billion, covering 2.4 months of prospective imports of goods and services; this compares with the recent peak of $US1.9 billion in reserves (4.7 months import cover) at end-2009. With the weakening of the rand, the appreciation of the real effective exchange rate has reversed in recent months. Overvaluation estimates currently vary in a range of 1 to 10 percent (see Box 2), but given the uncertainty and volatility in these estimates, the staff’s overall view is that the exchange rate does not deviate significantly from its equilibrium value.

5. The monetary stance remains supportive of the peg to the rand. The Bank of Namibia lowered its policy rate to 6 percent in December 2010, representing a cumulative reduction of 450 basis points since December 2008—in line with similar actions by the South African Reserve Bank (SARB). The rate remains at 6 percent.

6. Conditions in the banking sector have improved as the economy recovers. Total earnings grew by 12.4 percent in 2010, helping maintain bank profitability. Non-performing loans fell to 1.6 percent of total loans at end-November 2011, down from 2.7 percent at end-2009. With overdue loans also declining, the asset quality of the banking sector has remained satisfactory.

7. High unemployment and income inequality are significant policy concerns. The most widely cited official unemployment rate is 51 percent, a rate that includes “discouraged workers” (who have given up looking for employment). But even excluding these, unemployment reaches 38 percent. While some measurement questions surround these official rates, there is no doubt that unemployment is unacceptably high. Unequal income distribution is also very high by international standards (chart).

Box 2.Namibia: Exchange Rate Assessment

The level of Namibia’s Real Effective Exchange Rate (REER) was assessed by the three CGER approaches. While the assessment is subject to significant statistical uncertainty, the results suggest that the Namibian dollar does not deviate substantially from its equilibrium level.

According to the macro balance approach, the Namibian dollar is 1 percent above its equilibrium level. This assessment hinges on an estimated “underlying” current account deficit of about 2½ percent of GDP, which is expected to prevail in 2016 when the output gap is closed, compared to an estimated current account norm of a deficit of about 1 percent of GDP.

The external sustainability approach points to an overvaluation of 9½ percent as the current account that stabilizes the net foreign assets is estimated at a surplus of 1 percent of GDP in 2016.

Lastly, the equilibrium exchange rate approach yields similar results with an estimated overvaluation of 3½ percent. Reduced form estimates point to productivity, investment rate, trade openness and broad money (as a share of GDP) against the main trading partners as the principal determinants of Namibia’s REER.1 However, the estimates also show relatively poor explanatory power, particularly in the past decade in light of the REER’s high volatility (chart).

Actual Current Account and Current Account Norm

(percent of GDP)

Source: IMF staff estimates.

Real Exchange rate and its estimated equilibrium

1 More details on the model are available in “What Do We Know About Namibia’s Competitiveness?” WP/07/191.

Unemployment Rate, Average 1990-2010

(Percent)

Sources: World Bank World Development Indicators.

International Comparison: GINI Coefficient and Real Output Growth

(Size of bubble is 2010 income per capita in US dollars)

Sources: World Bank World Development Indicators and IMF World Economic Outlook.

B. Macroeconomic Outlook and Risks

8. The economic outlook appears favorable. This outlook is supported by projected growth in the natural resource sector, including investment to support diamond output, the recent licensing of the world’s fourth largest uranium mine, and increased optimism surrounding development of natural gas reserves. Exploration is also underway for new mineral resources, including oil, and there is ongoing growth in non-resource intensive area such as construction, manufacturing, and services. Over the medium term, output growth is projected to average around 4½ percent. The staff’s baseline scenario envisages current account deficits of about 3 percent of GDP on average over 2012-16. However, their impact on Namibia’s external debt trajectory is projected to remain modest, as a large share of the projected imports is related to foreign direct investment in the mineral sector (see Debt Sustainability Analysis in the Informational Annex).

9. There are a number of risks to the outlook, however. The current external environment remains fragile and uncertain, especially given the difficulties in the euro area and their potential spillovers. These concerns imply significant downside risks to commodity demand and prices. While significant investment plans and prospects in the resource sector underpin the favorable outlook noted above, these plans could be delayed or put on hold should the global economic climate deteriorate. Furthermore, the expansionary fiscal stance will likely lead to strong growth in domestic demand and imports, and could put upward pressure on prices of non-tradables—weakening the economy’s external position and competitiveness. Given these risks and their potential for undermining the objectives of the TIPEEG initiative, particular vigilance is needed in the implementation of this program. Namibia also faces the prospect that future SACU revenues may decline—for example, if the regional economy slows or if the revenue-sharing formula is revised.

10. In addressing these risks, the current report echoes many of the same policy messages as previous Article IV Consultations. Key messages include the need for fiscal restraint, stronger expenditure and revenue management, and improvements in the business climate, As discussed below, the authorities are making progress in implementing many of these recommendations, although the need for fiscal consolidation, as also recommended last year, has become more pressing given the current expansionary policy stance.

Figure 1.Recent Macroeconomic Performance and Outlook

Sources: Namibian authorities and IMF staff estimates.

Sources: Namibian authorities, World Bank Doing Business Indicators 2011, and IMF staff estimates.

POLICY DISCUSSIONS:

Discussions focused on ensuring a stable macroeconomic environment by rebuilding fiscal policy buffers, reinforcing monetary and financial stability, and buttressing structural reforms to foster diversification and employment growth.

A. Rebuilding Fiscal Policy Buffers

The Issues

11. Discussions on the fiscal stance focused on:

  • Ensuring room for maneuver in the event of shocks: Public debt is projected to rise rapidly in FY2011/12. If sizeable deficits were to continue, Namibia’s room for maneuver in the event of further economic shocks would be impaired. The current global climate and Namibia’s susceptibility to commodity market volatility highlight the need for sound fiscal buffers.
  • Safeguarding Namibia’s external position: Fiscal expansion risks putting upward pressure on non-tradable goods prices, imports, and the current account deficit. The potential deterioration in external balance could lead to official reserves falling below desired levels. Reserves are currently comfortable by some indicators (see Figure), but are below the widely-used international benchmark of 3 months cover.
  • Preparing for a potential decline in SACU revenues: Although the short-term outlook for SACU revenues appears promising, there is considerable uncertainty over their longer-term prospects.1 The non-SACU fiscal deficit has deteriorated significantly—from 9 percent of GDP in FY2008/9 to a projected 18 percent in FY2011/12.
  • Strengthening revenue performance. There is scope for significantly improving revenue performance through reforms in tax policy and administration. Reforms would target improved tax compliance, a more streamlined and robust tax system, and a taxation regime for the mineral sector that balances revenue collection with incentives to invest. Such reforms would support the objectives in the current fiscal framework and help address future risks to revenues.
  • Ensuring high quality public spending. The challenges of strengthening the quality of public spending have increased with the acceleration of spending and associated procurement processes planned under TIPEEG. Also notable is that Namibia’s public sector wage bill is already relatively high by regional standards (see Figure).

Namibia: Reserves Adequacy By Different Rules

Source: IMF staff estimates.

1/ Weighted average of the short-term external debt, other external liabilities, (excl. FDI) broad money and exports (IMF Board Paper, Feb. 2011).

2/ Short-term debt plus 2012 current account deficit.

Wage Bill

(In percent of government spending, average 2005-2010)

Source: Country authorities and IMF staff estimates.

Authorities’ Views

12. The authorities fully recognized the need to ensure internal and external balance in the economy. They stressed that the current fiscal expansion was temporary, aimed at addressing supply bottlenecks and providing a catalyst for economic and employment growth. They signaled their intention to keep public debt below 35 percent of GDP, a goal that is consistent with the fiscal projections in the staff’s baseline scenario (Tables 3b). The authorities noted that medium-term fiscal outturns may be more favorable than currently budgeted as a result of under-execution of capital expenditures, stronger economic growth, and improvements in revenue and spending management. They fully agreed that Namibia should have adequate fiscal buffers to safeguard the country from shocks, particularly those that could arise from the deteriorating global outlook. They also pointed to their past record of reining in public spending and debt to ensure macroeconomic stability.

Table 1.Namibia: Selected Economic and Financial Indicators, 2007–16
Projections
2007200820092010201120122013201420152016
(Annual percentage change, unless otherwise indicated)
National account and prices
GDP at constant prices5.43.4-0.46.63.64.24.44.44.44.4
GDP deflator9.013.74.21.05.05.75.55.45.04.7
GDP at market prices (N$ billions)62.172.975.781.588.697.6107.5118.3129.7141.7
GDP per capita (US$, constant 2000 exchange rate4414509451895543597865307133778184619170
Consumer prices (end of period)7.110.97.03.15.75.55.25.24.54.5
External sector
Exports (US$)9.98.7-1.732.012.05.86.05.96.87.2
Imports (US$)20.724.812.620.423.43.55.25.05.05.8
Export volume-0.76.416.08.1-2.76.36.86.86.86.8
Import volume11.813.121.00.513.03.04.84.54.45.0
Terms of trade (deterioration –)2.0-6.9-5.30.33.0-1.0-1.2-1.3-0.6-0.4
Real effective exchange rate (period average)-3.6-3.94.24.3
Money and credit
Domestic credit to the private sector12.97.310.011.28.710.110.1
M292.810.23.69.81.810.110.1
(Percent of GDP, unless otherwise indicated)
Investment and savings
Gross investment23.728.229.428.132.530.629.629.328.328.5
Public 1/7.59.412.613.716.014.113.112.811.812.0
Private16.218.916.814.416.516.516.516.516.516.5
Gross national savings32.931.031.326.326.328.126.025.325.026.9
Public10.19.16.42.40.41.92.52.63.34.0
Private22.821.924.823.926.026.123.522.721.722.9
Central government budget 2/
Revenue and grants31.931.831.128.130.833.433.832.832.832.8
Of which: SACU receipts12.511.511.17.210.511.110.19.09.19.1
Expenditure and net lending27.129.733.333.839.838.138.437.035.735.2
Of which: Personnel expenditure10.510.311.713.014.714.814.714.113.612.7
Of which: Capital expenditure and net lending5.86.97.87.28.97.27.16.96.36.6
Primary balance (deficit = –)6.73.6-0.6-4.6-6.9-1.9-1.6-1.10.41.0
Overall balance4.82.1-2.2-5.7-8.9-4.7-4.6-4.2-2.9-2.4
Overall balance: Non-SACU-7.1-9.1-12.3-12.9-18.0-15.5-14.4-13.0-11.7-11.2
Public debt/GDP 3/18.418.215.516.224.527.027.729.030.331.4
Gross public and publicly guaranteed debt/GDP23.722.318.918.627.029.730.631.933.434.6
External sector
Current account balance
(including official grants)9.12.81.8-1.8-6.3-2.5-3.6-3.9-3.3-1.6
(excluding official grants)-2.0-9.8-12.1-12.7-18.1-15.3-15.6-14.8-13.9-12.1
Gross official reserves 4/
US$ millions906.61,394.71,918.71,380.11,438.71,541.91,459.01,385.71,537.42,092.2
Months of imports of goods and services2.43.43.92.32.32.32.11.92.02.8
External debt/GDP 5/
US$ millions2,260.82,001.92,193.62,277.82,874.03,131.53,354.93,626.93,910.74,206.5
Percent of GDP25.722.724.620.523.223.523.824.324.825.3
Exchange rate (N$/US$, end of period)6.89.37.47.1
Sources: Namibian authorities; and Fund staff estimates and projections.

Figures include public enterprise and central government investment.

Figures are for the fiscal year, which begins April 1.

Additional debt was issued in 2008 to build up the redemption account for the maturing bonds.

Includes SDR allocations in 2009.

Public and private external debt.

Sources: Namibian authorities; and Fund staff estimates and projections.

Figures include public enterprise and central government investment.

Figures are for the fiscal year, which begins April 1.

Additional debt was issued in 2008 to build up the redemption account for the maturing bonds.

Includes SDR allocations in 2009.

Public and private external debt.

Table 2.Namibia: Balance of Payments, 2007–16
Projections
2007200820092010201120122013201420152016
(In millions of U.S. dollars; unless otherwise indicated)
Current account804.9244.0164.5-201.4-777.3-337.3-500.6-585.8-522.2-261.3
Trade balance-172.0-682.7-1,225.1-1,114.9-1,845.6-1,807.1-1,864.7-1,909.4-1,910.1-1,936.0
Exports, f.o.b.2,915.53,169.73,114.54,111.04,605.54,870.75,163.55,468.45,838.56,261.0
Of which:
Diamonds909.9770.7540.2827.2884.4893.1911.0929.2947.8966.7
Other minerals804.7939.6728.6938.41,207.31,301.81,440.41,577.91,746.21,941.4
Fish445.1367.0339.9408.9478.3494.4509.4524.3545.1569.4
Imports, f.o.b-3,087.5-3,852.4-4,339.6-5,226.0-6,451.1-6,677.7-7,028.2-7,377.7-7,748.6-8,197.1
Services (net)85.9-41.971.2147.694.2178.2188.2308.2449.5577.6
Transportation-120.9-117.9-79.1-86.6-120.7-114.4-114.6-113.4-110.6-111.7
Travel301.5265.2281.7294.2323.0374.0411.1466.9547.1624.2
Other services-94.8-189.1-131.3-60.2-108.2-81.4-108.3-45.413.165.1
Income (net)-109.0-156.360.1-466.4-498.9-432.2-537.7-615.8-743.9-662.9
Compensation of employees-2.3-29.2-4.0-19.0-17.4-13.5-16.6-15.8-15.3-15.9
Investment income-106.8-127.164.2-447.4-481.5-418.7-521.1-600.0-728.6-647.0
Current transfers1,000.11,124.91,258.21,232.31,473.01,723.81,713.61,631.21,682.21,760.1
Of which: SACU receipts 1/957.1959.81,015.0937.01,238.51,466.11,451.11,379.61,425.01,503.0
Capital and financial account-694.9-1,392.623.4458.9835.9440.5417.7512.4674.0816.0
Capital account83.276.366.3110.579.480.480.079.980.180.0
Financial account-778.1-1,468.9-42.8348.5756.5360.1337.7432.5593.9736.0
Direct investment729.2716.1521.3851.4987.61,028.21,130.41,164.51,304.61,369.7
Portfolio investment-1,470.3-1,021.5-590.7-715.2-865.5-951.8-1,044.2-1,034.9-1,022.9-1,008.7
Other investment-37.0-1,163.526.6212.2634.4283.7251.6302.9312.2375.0
Reserve assets (increase -) 2/-444.2-483.7-525.9535.8-58.6-103.282.973.3-151.7-554.7
Errors and omissions334.21,632.3337.9-793.20.00.00.00.00.00.0
Memorandum items:(Percent of GDP)
Trade Balance-2.0-7.7-13.7-10.0-14.9-13.5-13.2-12.8-12.1-11.6
Current account/GDP
Including transfers9.12.81.8-1.8-6.3-2.5-3.6-3.9-3.3-1.6
Excluding transfers-2.0-9.8-12.1-12.7-18.1-15.3-15.6-14.8-13.9-12.1
Nonmineral, non-SACU current account/GDP-21.2-27.5-23.7-26.1-33.2-30.0-30.6-30.0-29.5-28.1
Exports of goods and nonfactor services (GNFS)3,513.23,723.83,760.04,961.25,524.65,869.46,241.56,639.67,122.77,672.1
Exports/GDP (percent)39.942.242.144.644.744.044.344.645.246.1
Imports of GNFS3,599.44,448.44,913.85,928.57,276.07,498.37,918.08,240.88,583.29,030.6
Imports/GDP (percent)40.850.455.053.358.856.256.355.354.554.3
Gross International reserves (end of period) 2/9071,3951,9191,3801,4391,5421,4591,3861,5372,092
Months of imports of goods and services3.03.84.72.82.42.52.22.02.12.8
Ratio of reserves/short-term debt1.34.09.16.06.26.76.36.06.79.1
Short-term debt (US$ millions)718.8345.8211.3230.5230.5230.5230.5230.5230.5230.5
External debt/GDP (percent)25.722.724.620.523.223.523.824.324.825.3
External debt (US$ millions) from IIP 3/2,260.82,001.92,193.62,277.82,874.03,131.53,354.93,626.93,910.74,206.5
Exchange rate (N$/US$, end of period)6.89.37.4
Exchange rate (N$/US$, period average)7.08.38.5
GDP at market prices (US$ Millions)8,811.78,829.98,931.011,119.812,372.513,339.114,074.714,899.915,756.916,626.3
Sources: Namibian authorities; and Fund staff estimates and projections.

Southern African Customs Union.

Includes SDR allocations in 2009.

International investment position.

Sources: Namibian authorities; and Fund staff estimates and projections.

Southern African Customs Union.

Includes SDR allocations in 2009.

International investment position.

Table 3a.Namibia: Central Government Operations, 2007/08–2016/17
MTEF 2011/12-2013/14Projections
2007/082008/092009/102010/112011/122012/132013/142014/152015/162016/17
(In millions of Namibian dollars)
Total revenue and grants20,67223,44724,01723,37828,01233,37537,15439,55643,37047,354
Revenue20,59423,36423,81623,35427,78233,14537,05339,44543,24847,221
Tax revenue19,02721,08622,13821,39326,18531,38335,16637,37240,97844,741
Personal income tax3,7144,6065,0845,9456,8327,4138,4629,29610,17911,122
Corporate income tax2,8343,2692,8523,5854,9445,0296,6317,2847,9768,714
Diamond mining221499511354746659683750822898
Other mining780731612137047441,5641,7181,8812,055
Nonmining1,8342,0392,2793,0183,4933,6264,3844,8165,2735,762
VAT and sales taxes3,8544,0964,7335,0365,6586,2896,9527,6698,4369,038
Taxes on international trade (includes SACU receipts)8,0858,5028,5855,9767,13711,11811,07610,91012,00113,081
Other taxes5396136418301,0331,1271,2481,3711,5011,640
Nontax revenue1,5682,2771,6781,9611,5971,7611,8872,0732,2702,480
Diamond and other mineral royalties6435454928827208509009891,0831,183
Administrative fees, including license revenues478503433545423430461507555606
Other4461,230753534454482525577632691
Grants788320124230230102112122134
Expenditures and net lending17,54121,89825,71228,14236,12438,05342,20944,66247,14050,808
Current expenditures13,81216,85419,70822,15328,00430,84834,43836,31538,75941,255
Personnel6,8057,5599,04510,79713,37514,74416,18717,02217,97918,344
Goods and services2,8643,6834,2714,1056,7927,3698,3858,2088,5929,387
Interest payments1,1791,1111,1979661,8382,7543,2643,7214,2574,858
Domestic1,0679521,1978811,6872,3952,8753,3003,7624,284
Foreign112158085151360389422494574
Subsides and transfers2,9644,5014,9656,2855,9995,9816,6027,3637,9318,665
Capital expenditure2,5303,9255,3345,9897,8526,9497,4678,0148,0159,154
Acquisition of capital assets1,7912,9303,6323,3356,0566,0846,4867,0016,9077,943
Project Financed (extrabudgetary)3552268021,2591,354302302332363397
Capital transfers3837699001,395442563679680745814
Net lending1,2001,1196700267256304334366399
Overall balance 1/3,1311,549-1,695-4,764-8,112-4,678-5,055-5,106-3,769-3,454
Overall balance excluding extrabudgetary spending 2/3,4861,774-893-4,764-6,757-4,376-4,752-4,774-3,406-3,057
Primary balance4,3102,659-497-3,798-6,274-1,924-1,791-1,3854871,404
Financing-3,131-1,5491,6954,7648,1124,6785,0555,1063,7693,454
Domestic financing (net)-3,415-1,6249673,6783,3014,5833,6603,5752,0921,622
Monetary Sector-4,0231,4393,4792,6982,3823,8833,7472,2632,111
Central bank-3,4462,0982,693-78793879548-1,319-1,802
Commercial banks-577-6597863,4842,2903,0043,1993,5823,913
Non-Monetary Sector2,398-4722006042,201-222-172-170-489
External financing (net)284767281,0864,810951,3941,5311,6771,832
Disbursements3552268021,2595,0043021,6221,7821,9512,132
Amortization-71-150-74-174-194-207-228-250-274-299
Memorandum item:
Public and publicly guaranteed debt15,33816,41814,55715,48224,54329,64533,66938,54544,16550,021
Public debt11,92513,38911,92213,47022,23826,98330,44134,99940,08845,344
Domestic 3/8,7829,7558,87610,23314,32118,81121,59324,62028,03231,455
External3,1433,6343,0463,2377,9188,1728,84810,37912,05613,889
Publicly guaranteed debt3,4133,0292,6352,0132,3052,6623,2283,5464,0774,677
GDP at current market prices (N$ millions)64,79873,62977,13683,29190,84699,909109,890120,711132,185144,423
Government deposits4,8427,2342,443121908815-63-70-76-83
Net public and publicly guaranteed debt10,4969,18412,11415,36123,63628,82933,73238,61544,24150,104
Sources: Namibian authorities; and Fund staff estimates and projections.

“Overall balance” reflects externally financed project spending (except for roads) that is not channeled through the state account.

“Overall balance excluding extrabudgetary spending” excludes such spending and thus corresponds directly with the authorities’ concept.

The change in domestic debt includes bonds issued for local capital market development.

Sources: Namibian authorities; and Fund staff estimates and projections.

“Overall balance” reflects externally financed project spending (except for roads) that is not channeled through the state account.

“Overall balance excluding extrabudgetary spending” excludes such spending and thus corresponds directly with the authorities’ concept.

The change in domestic debt includes bonds issued for local capital market development.

Table 3b.Namibia: Central Government Operations, 2007/08–2016/17
MTEF 2011/12-2013/14Projections
2007/082008/092009/102010/112011/122012/132013/142014/152015/162016/17
(In percent of GDP; unless otherwise indicated)
Total revenue and grants31.931.831.128.130.833.433.832.832.832.8
Revenue31.831.730.928.030.633.233.732.732.732.7
Tax revenue29.428.628.725.728.831.432.031.031.031.0
Personal income tax5.76.36.67.17.57.47.77.77.77.7
Corporate income tax4.44.43.74.35.45.06.06.06.06.0
Diamond mining0.30.70.70.40.80.70.60.60.60.6
Other mining1.21.00.10.30.80.71.41.41.41.4
Nonmining2.82.83.03.63.83.64.04.04.04.0
VAT and sales taxes5.95.66.16.06.26.36.36.46.46.3
Taxes on international trade (includes SACU re12.511.511.17.27.911.110.19.09.19.1
Other taxes0.80.80.81.01.11.11.11.11.11.1
Nontax revenue2.43.12.22.41.81.81.71.71.71.7
Diamond and other mineral royalties1.00.70.61.10.80.90.80.80.80.8
Administrative fees, including license revenues0.70.70.60.70.50.40.40.40.40.4
Other0.71.71.00.60.50.50.50.50.50.5
Grants0.10.10.30.00.30.20.10.10.10.1
Expenditures and net lending27.129.733.333.839.838.138.437.035.735.2
Current expenditures21.322.925.526.630.830.931.330.129.328.6
Personnel10.510.311.713.014.714.814.714.113.612.7
Goods and services4.45.05.54.97.57.47.66.86.56.5
Interest payments1.81.51.61.22.02.83.03.13.23.4
Domestic1.61.31.61.11.92.42.62.72.83.0
Foreign0.20.20.00.10.20.40.40.30.40.4
Subsides and transfers4.66.16.47.56.66.06.06.16.06.0
Capital expenditure3.95.36.97.28.67.06.86.66.16.3
Acquisition of capital assets2.84.04.74.06.76.15.95.85.25.5
Project Financed (extrabudgetary)0.50.31.01.51.50.30.30.30.30.3
Capital transfers0.61.01.21.70.50.60.60.60.60.6
Net lending1.91.50.90.00.30.30.30.30.30.3
Overall balance 1/4.82.1-2.2-5.7-8.9-4.7-4.6-4.2-2.9-2.4
Overall balance excluding extrabudgetary spendi5.42.4-1.2-5.7-7.4-4.4-4.3-4.0-2.6-2.1
Primary balance6.73.6-0.6-4.6-6.9-1.9-1.6-1.10.41.0
Financing-4.8-2.12.25.78.94.74.64.22.92.4
Domestic financing (net)-5.3-2.21.34.43.64.63.33.01.61.1
Monetary sector-0.6-5.51.94.23.02.43.53.11.71.5
Central Bank0.5-4.72.73.2-0.90.10.80.5-1.0-1.2
Commercial Banks-1.1-0.8-0.90.93.82.32.72.62.72.7
Non-Monetary Sector-4.73.3-0.60.20.72.2-0.2-0.1-0.1-0.3
External financing (net)0.40.10.91.35.30.11.31.31.31.3
Disbursements0.50.31.01.55.50.31.51.51.51.5
Amortization-0.1-0.2-0.1-0.2-0.2-0.2-0.2-0.2-0.2-0.2
Errors and omissions/financing gap0.00.00.00.00.00.00.00.00.00.0
Memorandum item:
Public and publicly guaranteed debt23.722.318.918.627.029.730.631.933.434.6
Public debt18.418.215.516.224.527.027.729.030.331.4
Domestic 2/13.613.211.512.315.818.819.620.421.221.8
External4.94.93.93.98.78.28.18.69.19.6
Publicly guaranteed debt5.34.13.42.42.52.72.92.93.13.2
Government deposits7.59.83.20.11.00.8-0.1-0.1-0.1-0.1
Net public and publicly guaranteed debt16.212.515.718.426.028.930.732.033.534.7
Nominal GDP (in millions of local currency)64,79873,62977,13683,29190,84699,909109,890120,711132,185144,423
Sources: Namibian authorities; and Fund staff estimates and projections.

“Overall balance” reflects externally financed project spending (except for roads) that is not channeled through the state account.

“Overall balance excluding extrabudgetary spending” excludes such spending and thus corresponds directly with the authorities’ concept.

The change in domestic debt includes bonds issued for local capital market development.

Sources: Namibian authorities; and Fund staff estimates and projections.

“Overall balance” reflects externally financed project spending (except for roads) that is not channeled through the state account.

“Overall balance excluding extrabudgetary spending” excludes such spending and thus corresponds directly with the authorities’ concept.

The change in domestic debt includes bonds issued for local capital market development.

13. The authorities concurred that it was essential to ensure adequate reserves to protect the exchange rate peg and as a further buffer against shocks. They noted that the use of months of import cover as a reserve benchmark may not be fully appropriate for a country like Namibia, especially as large capital imports (e.g., for the resource sector) may be self financed through foreign direct investment (FDI) and other inflows.2 Nevertheless, they acknowledged that keeping reserves at an adequate level by internationally recognized standards would help to support international confidence in the economy and the exchange rate peg, particularly in view of the increased external scrutiny of the economy that will likely follow the recent Eurobond issuance.

14. The authorities stressed the need to increase the economy’s potential output growth rate. This is currently estimated by staff at just over 4 percent (Box 3). Key objectives are the development of high value-added, labor-intensive sectors to help reduce unemployment, poverty, and income inequality.

15. The authorities pointed to reforms aimed at improving tax performance. The Minister of Finance recently presented a range of tax amendments to Parliament, and policy reforms more generally are aimed at closing tax loopholes and increasing reliance on relatively stable sources of tax revenue. Tax administration is being strengthened by streamlining tax procedures, especially for small- and medium-size enterprises; improving computerization of tax collection; and moving toward a taxpayer self-assessment system.

16. The authorities agreed that tax incentives can significantly erode the tax base and need to be regularly reviewed. They noted though that Namibia needs to avoid excessive or regionally uncompetitive tax burdens that may discourage FDI and impair efforts to diversify the economy.

17. The authorities also aim to improve the quality of spending. Measures include use of program-based budgeting, electronic transfers of funds to budgetary units, and real–time reconciliation of government accounts. Improved prioritization and monitoring of development spending is also being emphasized.

Box 3.The Measurement of Potential Growth in Namibia

Namibia registered impressive GDP growth in the years preceding the financial crisis (2000–08), although growth rates have been volatile due to developments in the mineral sector (chart).1 Following the GDP contraction in 2009, growth rebounded in 2010 and is now estimated to have surpassed its pre-crisis level.

Potential output growth was estimated by applying two conventional statistical filters, Hodrick-Prescott and Baxter-King, as well as an unobserved component method. Although the results should be interpreted with caution given both the backward looking bias of the estimation methods and the ability of Namibia’s resource sector to rapidly expand capacity to meet new production opportunities, they suggest that Namibia’s potential growth is around 4¼ percent. Although somewhat decelerating in 2009-10, as was also observed in Namibia’s main trading partners, potential growth is projected to revert back to its pre-crisis rate over the medium term.2

The results also suggest that, during the 2009 episode, the output gap moved sharply negative, to about 2½ percent, from a positive level of 2–2½ percent in the previous two years. In light of the strong growth in 2010, the output gap has narrowed significantly (based on the average of the three estimations). But with projected subdued growth in 2011 and a modest recovery thereafter, the output gap is projected to remain in negative territory until it converges to zero in 2015–16.

Namibia: Estimated output gap

Namibia: Actual and potential output growth

1 The average growth in 2000-08 stood at about 4.9 percent per annum, higher than the average in 1990–99 (4.1 percent).2 Klein, Nir, 2011 “Measuring the Potential Output in South Africa” African Departmental Paper No. 11/02.

18. The authorities expressed concerns about the financial implications of Namibia’s recent reclassification as an upper middle-income country (2009 GNI per capita of $4,130 exceeds the World Bank’s threshold of $3,946 between lower and upper middle-income countries). Financial losses include ineligibility for renewed Millennium Challenge Corporation assistance and reduced access to EU concessional financing. In the authorities’ view, the classification methodology does not pay due regard to the country’s particularly high level of income inequality and still significant development challenges. Staff analysis of national accounts data on a purchasing power parity (PPP) basis highlights Namibia’s relatively low ranking in terms of living standards and consumption patterns vis-à-vis regional comparators (Box 4).

Box 4.Results of the International Comparison Program (ICP) for Namibia and Comparators, 2005

In view of the concerns expressed about Namibia’s recent classification as an upper middle-income country, a methodological question surrounds what exchange rate is best used to compare counties’ income levels. While the income classification exercise relies on market exchange rates, during the last 40 years there have been several attempts to develop economic statistics reflecting the purchasing power parities (PPPs) of national currencies. Such measures may be more useful and less misleading than those based on market exchange rates, which could fluctuate significantly. The ICP, launched by the World Bank in 2003, represents the most recent systematic measurement of world PPPs. The ICP adopted 2005 as the year of reference for measuring price and volume levels of GDP (and its components) on a PPP basis for more than 100 countries around the world, grouped in 5 geographic regions.

The ICP results for Namibia and other regional comparators reveal the following:

I. Namibia, together with Swaziland, Cape Verde, and Lesotho, has significantly lower real GDP per capita than other middle-income African economies.

II. In relation to the African average, Namibia was one of the most expensive countries to live and work.

III. The standard of living in Namibia, as measured by real actual consumption per capita, was at the bottom of the country list, except for Cape Verde and Lesotho. The standard of living in Mauritius and South Africa, which profited from relatively low prices, was the highest in the country sample.

IV. Gross fixed capital formation per capita in Namibia is below the regional average.

V. The price level of gross fixed capital formation is some 22 percent above the regional average.

VI. Namibia generally spends less than comparators across standard CPI spending categories.

Table 1.2005|CP: Real Expenditure Per capita (RXPC) & Price Level Indices, Namibia & Comparators
GDP per CapitaActual Household consumption per-capitaGross Fixed Capital Formation per-capita
USSRXPC index:

AFR = 100
Country

Ranking
Price level

Index; AFR

= 100
Country

Ranking
RXPC index:

AFR = 100
Country

Ranking
Price level

Index; AFR

= 100
Country

Ranking
RXPC index:

AFR = 100
Country

Ranking
Price level

Index; AFR

= 100
Country

Ranking
Botswana5,712542.42102.28202.05126.35206.0282.98
Lesotho77763.78119.64115.6898.2827.98148.71
Namibia3,049204.55145.72176.36149.1293.2612243
Swaziland2,270197.26113.05204.84107.0565.47123.72
South Africa5,162381.34132.63380.22135.14116.84114.55
Mauritius5,053455.83108.76492.21107.06146.73111.86
Cape Verde2,215127.47169.61167.77159.6195.65117.14
Gabon6,190573.41106.57215.65143.93215.51100.07
Africa region1,016100.0100.0100.0100.0100.0100.0
Source: 2005 ICP catabank.
Source: 2005 ICP catabank.
Table 2.Who Spent Most on What in 2005? Se1ected Categories per capita, PPP basisAfrica region = 100
BotswanaLesothoNamibiaSwazilandSouth AfricaCape VerdeMauritiusGabon
Food & non-alcoholic beverages118.4102.2148.6233.3238.0158.6360.4170.4
Clothing & footwear213.6216.7168.2137.9328.880.3425.8150.0
Housing and utilities171.691.7158.1152.2321.1227.0785.5244.3
Transportation305.364.0238.7149.3722.7145.3494.7148.0
Communications466.780.086.7133.3560.0400.01406.73B0.0
Restaurants & hotels11.57.7226.946.2296.2207.7615.4196.2
Health & education325.5217.9280.6293.2397.6184.9462.8366.0
Total233.5150.1212.9227.6358.3183.2520.2268.9
Source: 2005 ICP database.
Source: 2005 ICP database.

B. Reinforcing Monetary and Financial Stability

The issues

19. Discussions on monetary and financial conditions focused on:

  • Potential adjustment in the policy rate. While monetary policy is largely passive given the exchange rate peg, the Bank of Namibia (BoN) policy rate is currently 50 points above that of South Africa. The rationale for maintaining this differential was discussed.
  • Ensuring a robust banking sector. Current financial indicators suggest that the banking sector is well capitalized and profitable. Commercial banks, which are mainly owned in South Africa, have little direct exposure to current financial market concerns in Europe, but there may be indirect exposures—notably through South African parent institutions.
  • Monitoring exposure to housing market developments. The authorities and commercial banks agreed that banks have significant exposure to the housing sector. Loan-to-value ratios appear to be well below 100 percent, however, providing some buffer against potential prices declines. The First National Bank House Price Index indicates that prices have more than quadrupled since 2000, including an increase of around 18 percent in the year to June 2011. This price growth appears to stem mainly from cross-border capital flows (notably from Angola) combined with limitations on domestic supply.
  • Strengthening regulation and supervision of non-bank financial institutions (NBFIs). The NBFI sector has been growing rapidly and has increased interconnectedness with other parts of the financial sector. With support from external technical assistance, including from the IMF and World Bank, the Namibia Financial Institutions Supervisory Authority (NAMFISA) is strengthening its capacity to regulate and supervise NBFIs in line with best international practice, including through increased hiring and training of professional staff. These efforts are being backed by a new Financial Institutions and Market (FIM) bill, which is expected to be sent to Parliament in the first half of 2012.

Authorities’ Views

20. The authorities reaffirmed that the exchange rate peg has helped anchor macroeconomic and financial stability in Namibia. They noted that the BoN policy rate is regularly re-evaluated based on developments in prices and output, within a small margin for maneuver (about +/- 50 basis points) around the SARB rate. They agreed with staff that a tighter fiscal stance would provide greater room for bringing the BoN rate into full alignment with the SARB rate.

21. The authorities acknowledged the increased vulnerabilities in the financial sector given heightened global uncertainty. In recognition of these risks, they noted the ongoing measures to strengthen NAMFISA and to improve the capacity of BoN staff to assess financial sector risks. They also pointed to the Financial Sector Strategy 2010–20, which was recently approved by the cabinet. This strategy aims to deepen and strengthen domestic financial markets, including in the areas of regulation, access, and consumer protection. The authorities agreed that close monitoring of banks’ exposure to mortgage lending is warranted given the rapid house price growth.

C. Structural Reforms to Foster Diversification and Employment Growth

The Issues

22. Discussions on structural reforms focused on measures needed to reduce high unemployment and inequality and help diversify the economy. Key issues included:

  • Impact of TIPEEG. As noted in Box 1, this initiative aims to increase employment and growth in four targeted sectors, including by strengthening infrastructure.
  • Lowering the cost of doing business: Although in the top half of surveyed countries, Namibia’s overall ranking in the Doing Business 2011 indicators is well below that of its middle-income neighbors South Africa and Botswana. Namibia has a particularly low ranking in indicators for starting a business (ranking 124 out of 183 countries) and registering property (136).
  • Improving the operation of labor markets: Staff’s discussions with the private sector, along with other assessments (see Figure 2), suggest that the labor market does not function as effectively as it might—for example with inflexible regulations, unduly restrictive immigration policies, and weak links between pay and productivity. Skill shortages are widely cited as a key impediment to growth.
  • Identifying potential sources of output and export growth: Discussions considered the potential for diversification and growth not just in new sectors of activity but also in areas where Namibia already has some expertise, including mining and services.

Figure 2.Namibia: Labor Market Indicators

Sources: World Bank World Development Indicators and World Economic Forum.

1 Higher values indicate higher link.

Authorities’ Views

23. The authorities drew attention to the catalytic effects expected from the TIPEEG initiative on private investment and employment growth. They noted for example the scope for expansion of transport and trade throughout the southern African region—drawing in part on developments underway in the Walvis Bay port and associated transport corridors. Discussions on the forthcoming Fourth National Development Plan will also provide a forum for considering a wide array of structural measures that could help diversify and strengthen the economy.

24. While disputing the accuracy of survey measures showing Namibia to have a relatively poor business climate, the authorities agreed there was scope for improvement in some areas. To that end, registration processes for starting a business have now been simplified and delays with land registration are being addressed through better land surveys.

25. The authorities underscored the need to strike a balance between labor market flexibility and job security. They emphasized that labor market reforms would be pursued in line with the ILO agenda for decent job and labor standards. In contrast, measures that could be viewed as leading to a “race to the bottom” in terms of hire-and-fire employment norms would not be acceptable under the Constitution. They also drew attention to Namibia’s painful memories of labor relations under the pre-independence apartheid regime.

26. The authorities agreed that the economy could be diversified through growth in areas where Namibia has already demonstrated some comparative advantage. They noted for example the growth in domestic and regional tourism; in health services—where there is already flourishing activity serving a large Angolan population in the border area; in food and beverages processing—including prospects for exporting fish and fresh vegetables to China and MERCOSUR; and in jewel manufacturing. They also signaled the need for industrial and trade policies that encourage creation of local value chains.

STAFF APPRAISAL

27. The outlook for GDP growth appears favorable, although subject to downside risks. The promising outlook, which includes the prospect of further investment in the resource sector as well as growth of nonresource intensive activities, is built in part on the foundations of sound economic management. Staff was encouraged to find widespread recognition among domestic stakeholders of the government’s prudent and pragmatic approach to policy making. This outlook is nevertheless subject to substantial downside risks, particularly in view of the current fragility of the global economy and potential spillovers to the local economy – notably through commodity markets. To help ensure that the economy has adequate buffers against such risks, the key requirements are to rein in the current fiscal expansion, preserve an adequate level of official reserves, and push ahead with ambitious structural reforms to support stronger and more diversified growth in output and employment. Moderation in the envisaged implementation of the TIPEEG initiative would also be desirable to limit the risks that this program could increase prices of non-tradables and reduce the economy’s external competitiveness—developments that would undermine the program’s objectives.

28. Fiscal consolidation is needed to contain the growth of public debt. Staff agrees with the authorities’ intention to keep public debt below 35 percent of GDP over the medium-term, and urges them to stay well within this limit. This objective, which is consistent with the staff’s baseline scenario, is particularly appropriate in view of the weak global outlook and the potential decline in SACU revenues. Given the latter risk, strengthening the non-SACU fiscal balance should also be a policy priority. To reach these goals, increases in current and capital spending planned under TIPEEG need to be unwound at the end of this initiative, if not before, and the risk averted that these increases become locked into permanent growth in public spending. To enhance the credibility of the government’s macroeconomic strategy, these fiscal goals should be presented as formal commitments, reflected in the fiscal framework beginning in FY2012/13, and then adhered to.

29. Measures proposed to strengthen the tax base and revenue collection need to be rapidly implemented. Revenue losses from tax incentives should also be contained—for example, by full accounting of tax expenditures, updating and streamlining the incentive regime, and sunset provisions on the granting of exemptions.

30. Rigorous prioritization and monitoring of development spending is essential. To ensure high-quality public spending, including sound execution of public investment, current plans for spending growth may need to be reined in to ensure such growth is consistent with capacities to assess and implement development projects, including the application of transparent procurement processes. Staff is encouraged to see that the government is commitment to streamline and decentralize procurement while not compromising transparency.

31. Fiscal restraint is needed to help preserve a sound external position and the sustainability of the peg. While the benchmark of 3 months import cover for official reserves may not be entirely suitable for a resource intensive economy such as Namibia, staff agrees with the authorities’ goal of ensuring reserve adequacy by this along with other metrics. This goal is particularly appropriate given the increased scrutiny of the economy by ratings agencies and international investors.

32. The exchange rate peg to the rand has anchored macroeconomic and financial stability. At its current level, the exchange rate appears broadly in line with its equilibrium value. Further alignment of the BoN policy rate with that of SARB should be considered, particularly if fiscal consolidation takes place and if the weakening external environment spills over to the Namibian economy.

33. Namibian banks have weathered the global financial crisis well. Remaining vulnerabilities need to be contained, however, in light of the heightened global uncertainty. In this regard, staff welcomes the authorities’ progress in strengthening regulation and supervision of non-bank financial institutions and the broader reforms envisaged under the new Financial Sector Strategy. The authorities’ enhanced monitoring of commercial banks’ exposure to mortgage lending is also appropriate. This requires that banks’ risk management practices be carefully assessed, with pre-emptive measures deployed as needed to ensure that banks have sufficient capacity to absorb shocks.

34. Implementation of wide-ranging structural reforms is crucial to raise potential output growth and reduce high unemployment. Staff acknowledges that the accuracy of some survey-based measures of the business climate may be open to question. Nevertheless, there does appear scope for strengthening business and trade conditions and hence raising potential growth. As noted in Box 1, TIPEEG includes some potentially useful measures in this regard, including improvements in transport infrastructure and in the tourism and agriculture sectors. Staff also welcomes current efforts to streamline business registration procedures. There is scope for further efforts to support the creation of entry-level jobs (and hence on-the-job training), to ensure that migration rules allow businesses to readily overcome local skill shortages, and to strengthen formal education and training systems. These measures, together with reforms to improve the operation of labor markets, would support private investment and business formation.

35. The widespread concerns expressed by the authorities and development partners about Namibia’s upper middle-income classification are striking. Ongoing domestic efforts, backed by external support, will be needed to tackle the challenges posed by Namibia’s high level of income inequality and significant development needs.

36. Staff recommends that the next Article IV Consultation with Namibia take place on the standard 12-month cycle.

Table 3c.Namibia: Central Government Operations, 2007/08–2016/17(GFSM 2001 Classification)
MTEF 2011/12-2013/14Projections
2007/082008/092009/102010/112011/20122012/132013/142014/152015/162016/17
(In millions of Namibian dollars)
Revenue20,672.523,446.824,017.123,377.928,012.033,374.737,154.439,556.443,370.147,354.5
Taxes19,026.821,086.522,138.221,393.526,185.431,383.335,165.937,372.140,978.244,741.1
Taxes on income, profits, and capital gains6,729.78,069.78,136.69,912.212,218.812,933.815,642.717,183.118,816.320,558.4
Individuals3,714.14,606.45,084.15,945.56,831.67,412.78,462.49,295.710,179.311,121.7
Corporations and other enterprises2,834.13,269.02,851.73,585.54,943.95,028.56,630.77,283.77,976.08,714.4
Payable in the mineral economy1,000.51,229.7572.4567.21,450.71,403.02,246.72,468.02,702.62,952.8
Payable in the non-mineral economy1,833.62,039.32,279.33,018.33,493.23,625.54,384.04,815.75,273.45,761.6
Other income/profits taxes181.4194.3200.8381.3443.3492.6549.6603.7661.1722.3
Taxes on property148.9171.1191.9138.5255.5274.7297.5326.8357.8391.0
Taxes on goods and services4,063.04,343.65,224.55,366.86,574.17,056.78,149.78,952.39,803.210,710.8
VAT, sales and environmental taxes3,854.14,095.94,976.25,056.86,239.76,697.47,748.68,511.79,320.710,183.6
Excises71.1105.581.7101.6118.2123.8142.8156.9171.8187.7
Excise portion of SACU receipts0.00.00.00.00.00.00.00.00.00.0
Fuel levy71.1105.581.7101.6118.2123.8142.8156.9171.8187.7
Stamp duties137.9142.2166.7208.4216.2235.5258.3283.8310.7339.5
Taxes on international trade8,085.18,502.18,585.25,975.97,137.011,118.011,076.010,909.912,000.813,080.9
Customs (part of SACU receipts)8,085.18,502.18,585.25,975.99,567.211,118.011,076.010,909.912,000.813,080.9
Other trade taxes0.00.00.00.0-2,430.20.00.00.00.00.0
Grants78.082.9200.823.5229.9230.1101.6111.6122.2133.5
Current78.082.9200.823.5229.9230.1101.6
Capital0.00.00.00.00.00.00.0
Other revenue1,567.72,277.51,678.11,960.91,596.71,761.31,886.92,072.72,269.72,479.8
Property income1,064.41,738.51,209.81,372.91,112.51,261.51,344.61,477.01,617.41,767.2
Diamond and other mineral royalties643.3544.6491.8882.0720.2850.2900.0988.61,082.61,182.8
Fishing quota levies147.0137.792.8133.1150.7146.7151.2166.1181.9198.7
Interest on loans, investments, and deposits at BoN160.7882.9200.661.488.6102.9117.2128.7141.0154.0
Dividends from parastatals113.4173.4424.7296.5153.0161.7176.2193.6212.0231.6
Compensation for use of the Rand0.00.00.00.00.00.00.00.00.00.0
Administrative fees, including license revenues478.1502.9433.1545.0422.7429.6461.5506.9555.1606.5
Fines and forfeitures25.236.135.143.061.570.380.888.797.2106.2
Expense14,195.417,623.320,607.723,548.228,446.231,411.635,117.236,995.439,503.942,068.7
Compensation of employees6,805.17,559.39,045.010,796.613,375.414,744.516,187.017,021.917,978.818,343.6
Purchases of goods and services2,864.33,683.44,271.04,105.06,792.47,368.58,385.18,208.48,592.09,387.5
Interest1,178.81,110.61,197.5966.51,837.92,754.33,264.03,721.34,256.84,858.1
Other0.00.0229.60.00.00.00.00.00.00.0
Grants and subsidies3,347.25,270.05,864.77,680.16,440.46,544.47,281.18,043.98,676.29,479.5
Gross Operating Balance6,477.15,823.53,409.3-170.2-434.31,963.12,037.12,560.93,866.25,285.8
Net acquisition of nonfinancial assets 1/2,146.43,155.84,433.94,594.07,410.46,385.76,787.87,333.17,270.08,340.3
Net lending/borrowing4,330.72,667.7-1,024.5-4,764.2-7,844.6-4,422.6-4,750.6-4,772.2-3,403.8-3,054.5
Transactions in financial assets and liabilities4,330.72,667.7-1,024.5-4,764.2-4,194.6-4,422.6-4,750.6-4,772.2-3,403.8-3,054.5
Net acquisition of financial assets886.44,564.9-1,428.1-2,692.51,053.8163.2-574.6-213.91,685.02,201.4
Domestic886.44,564.9-1,428.1-2,692.51,053.8163.2-574.6-213.91,685.02,201.4
Currency and deposits-313.23,445.9-2,098.1-2,692.5786.9-92.6-878.5-547.81,319.31,802.0
Loans (net lending)1,199.61,119.0670.10.0267.0255.8304.0333.9365.6399.5
Foreign0.00.00.00.00.00.00.00.00.00.0
Net incurrence of liabilities-3,444.21,897.2-403.52,071.75,248.54,585.94,176.14,558.35,088.85,255.9
Domestic-3,728.51,821.6-1,131.2986.04,088.04,490.92,781.93,026.83,411.73,423.6
Loans-3,728.51,821.6-1,131.2986.04,088.04,490.92,781.93,026.83,411.73,423.6
Commercial Banks-692.0-576.7-658.9786.03,484.42,289.93,004.33,198.73,582.23,913.0
Non Banks-3,036.52,398.2-472.3199.9603.62,201.0-222.4-171.9-170.5-489.4
Amortization
Other
Foreign284.375.6727.71,085.71,160.595.01,394.21,531.51,677.01,832.3
Loans355.0225.7802.11,259.41,354.3302.11,622.01,781.71,951.12,131.7
Amortization due (paid)-70.7-150.0-74.4-173.7-193.8-207.1-227.8-250.2-274.0-299.4
Other
Memo items:
Overall balance3,131.01,548.7-1,694.6-4,764.2-4,461.6-4,678.4-5,054.6-5,106.1-3,769.4-3,453.9
Overall balance excluding extra budgetary3,486.01,774.4-892.5-3,504.8-3,107.3-4,376.3-4,752.5-4,774.2-3,406.0-3,056.9
Primary Balance4,309.92,659.3-497.1-3,797.7-2,623.7-1,924.2-1,790.6-1,384.7487.41,404.2
Non-SACU balance-4,599.1-6,727.8-9,477.7-9,480.7-12,674.5-15,494.4-15,828.5-15,684.1-15,406.9-16,137.8
Sources: Namibian authorities; and IMF staff estimates.

Includes extra budgetary projects financed by foreign loans.

Sources: Namibian authorities; and IMF staff estimates.

Includes extra budgetary projects financed by foreign loans.

Table 3d.Namibia: Central Government Partial Balance Sheet, 2005–11
2005200620072008200920102011
Net Worth
Nonfinancial assetsn.a.n.a.n.a.n.a.n.a.n.a.n.a.
Net Financial Worth-11931.5-11268.5-7758.1-6358.6-5322.2-9601.7-16934.4
Financial assets608.12093.34595.16664.46966.53481.03075.2
Domestic
Currency and deposits w/BoB608.12093.34595.16664.46966.53481.03075.2
Securities other than shares
Loans
Shares and other equity1n.a.n.a.n.a.n.a.n.a.n.a.n.a.
Insurance technical reserves
Financial derivatives
Other accounts payable
Foreign
Monetary gold and SDRs
Currency and deposits
Debt securities
Loans
Equity and investment fund sharesn.a.n.a.n.a.n.a.n.a.n.a.n.a.
Insurance, pensions, and standardized guarantee schemes
Financial derivatives and employee stock options
Other accounts receivable
Financial liabilities12539.613361.812353.313023.012288.813082.720009.6
Domestic
Currency and deposits
Securities other than shares210653.110868.39318.59511.69095.79893.413261.9
Loans
Shares and other equity
Insurance technical reserves
Financial derivatives
Other accounts payable
Foreign
SDRs
Currency and deposits
Debt securities1886.52493.53034.83511.43193.13189.36747.7
Loans3
Equity and investment fund shares
Insurance, pensions, and standardized guarantee schemes
Financial derivatives and employee stock options
Other accounts payable
Sources: Namibian authorities and Fund staff estimates.

Information is not available on existing government investments.

Using market value of the government debt.

Using nominal value of existing foreign loans.

Sources: Namibian authorities and Fund staff estimates.

Information is not available on existing government investments.

Using market value of the government debt.

Using nominal value of existing foreign loans.

Table 4.Namibia: Monetary Developments, 2008–12
Projections
20082009201020112012
(In millions of Namibian dollars, end of period; unless otherwise indicated)
Bank of Namibia
Reserve money2,124.92,5563,2443,4563,807
Currency1,6571,7051,9092,0352,241
Reserves4688511,3341,4221,566
Net foreign assets12,85914,0799,0989,50010,699
Net domestic assets-10,734-11,523-5,854-6,044-6,893
Domestic credit-7,455-9,919-5,058-4,902-5,244
Government (net)-6,664-6,967-3,481-3,188-3,356
Banks-814-1,466-1,599-1,739-1,915
Other items (net) 3/-3,279-1,603-796-1,142-1,648
Monetary survey
Broad money (M2)47,84149,56854,42955,39961,017
Currency1,1401,1571,2921,8071,984
Deposits46,72048,43251,90353,59259,034
Net foreign assets13,57516,93320,59821,04622,762
Net domestic assets15,66614,03533,83234,35338,256
Domestic credit25,84023,96232,60339,05344,749
Claims on central government (net)-4,643-5,846-1,8391,5983,497
Claims on private sector33,26036,57840,66344,21948,704
Others-2,777-6,770-6,221-6,765-7,451
Other items (net) 3/-10,173-9,9271,229-4,700-6,494
Base money2,1252,5563,2443,4563,807
Currency outside banks1,6571,7051,9092,0352,241
Commercial bank deposits4688511,3341,4221,566
Memorandum items:
Base money29.020.326.96.610.1
Credit to the private sector7.310.011.28.710.1
M2-to-GDP ratio (in percent)65.665.566.862.562.5
Base money multiplier (M2/base money)22.519.416.816.016.0
Credit to the private sector (in percent of GDP)45.648.349.949.949.9
Contribution to change in broad money
Broad money10.23.69.81.810.1
Currency0.70.00.30.90.3
Deposits52.43.67.03.19.8
Net foreign assets15.57.07.40.83.1
Net domestic assets-5.3-3.439.91.07.0
Domestic credit0.9-3.917.411.810.3
Government (net)-5.8-2.58.16.33.4
Private sector5.26.98.26.58.1
Others 1/1.4-8.31.1-1.0-1.2
Other items net-6.20.522.5-10.9-3.2
Memorandum items:
Annual percent change
Reserve money29.020.326.96.610.1
Private sector credit7.310.011.28.710.1
Velocity1.51.51.51.61.6
Money multiplier22.519.416.816.016.0
Net foreign assets (US$ millions)1,458.82,294.5
Bank of Namibia1,381.91,907.8
Commercial banks76.9386.7
Domestic interest rates (end of period)
Deposit rate8.65.1
Lending rate13.710.8
BoN repo rate10.67.0
Three-month T-bill rate10.67.1
Sources: Namibian authorities; and Fund staff estimates and projections.

End of period

Include public enterprises and the local government.

Including valuation.

Sources: Namibian authorities; and Fund staff estimates and projections.

End of period

Include public enterprises and the local government.

Including valuation.

Table 5.Namibia: Millennium Development Goals, 1990–09
1990199520002009
Eradicate extreme poverty and hunger 1/
Income share held by lowest 20%1.4
Malnutrition prevalence, weight for age (% of children under 5)21.520.317.5
Poverty headcount ratio at $1.25 a day (PPP) (% of population)49.0
Prevalence of undernourishment (% of population)29.029.021.0
Achieve universal primary education 2/
Literacy rate, youth female (% of females ages 15–24)90.093.095.0
Literacy rate, youth male (% of males ages 15–24)86.091.091.0
Persistence to grade 5, total (% of cohort)84.0
Primary completion rate, total (% of relevant age group)71.092.081.0
School enrollment, primary (% net)90.091.0
Promote gender equality and empower women 3/
Proportion of seats held by women in national parliament (%)7.018.022.027.0
Ratio of girls to boys in primary education (%)108.0100.0101.099.0
Ratio of girls to boys in secondary education (%)122.0112.0117.0
Ratio of young literate females to males (% ages 15–24)84.0132.0
Share of women employed in the nonagricultural sector (% of total employment)42.8
Reduce child mortality 4/
Immunization, measles (% of children ages 12–23 months)76.068.069.073.0
Mortality rate, infant (per 1,000 live births)49.048.051.031.0
Mortality rate, under-5 (per 1,000)72.071.077.042.0
Improve maternal health 5/
Births attended by skilled health staff (% of total)68.076.081.0
Maternal mortality ratio (modeled estimate, per 100,000 live births)
Combat HIV/AIDS, malaria, and other diseases 6/
Incidence of tuberculosis (per 100,000 people)322.0465.0671.0747.0
Prevalence of HIV, female (% ages 15–24)10.3
Prevalence of HIV, total (% of population ages 15–49)15.3
Tuberculosis cases detected under DOTS (%)22.077.071.0
Ensure environmental sustainability 7/
CO2 emissions (metric tons per capita)0.01.11.0
Forest area (% of land area)11.010.010.09.0
Improved sanitation facilities (% of population with access)26.029.032.0
Improved water source (% of population with access)57.070.081.0
Nationally protected areas (% of total land area)
Develop a global partnership for development 8/
Mobile phone subscribers (per 100 people)0.00.04.049.0
Telephone mainlines (per 100 people)3.74.75.97.0
Internet users (per 100 people)0.00.01.65.3
Source: World Development Indicators database, 2010.

Goal 1 targets: Halve, between 1990 and 2015, the proportion of people whose income is less than US$1 a day. Halve, between 1990 and 2015, the proportion of people who suffer from hunger.

Goal 2 target: Ensure that, by 2015, children everywhere, boys and girls alike, will be able to complete a full course of primary schooling.

Goal 3 target: Eliminate gender disparity in primary and secondary education preferably by 2005 and to all levels of education no later than 2015.

Goal 4 target: Reduce by two-thirds, between 1990 and 2015, the under-five mortality rate.

Goal 5 target: Reduce by three-quarters, between 1990 and 2015, the maternal mortality rate.

Goal 6 targets: Have halted by 2015, and begun to reverse, the spread of HIV/AIDS. Have halted by 2015, and begun to reverse, the incidence of malaria and other major diseases.

Goal 7 targets: Integrate the principles of sustainable development into country policies and programs and reverse the loss of environmental resources. Halve, by 2015, the proportion of people without sustainable access to safe drinking water.

Goal 8 targets: Develop further an open, rule-based, predictable, non discriminatory trading and financial system. Address the special seeds of the least developed countries. Address the special needs of landlocked countries and small island developing nations.

Source: World Development Indicators database, 2010.

Goal 1 targets: Halve, between 1990 and 2015, the proportion of people whose income is less than US$1 a day. Halve, between 1990 and 2015, the proportion of people who suffer from hunger.

Goal 2 target: Ensure that, by 2015, children everywhere, boys and girls alike, will be able to complete a full course of primary schooling.

Goal 3 target: Eliminate gender disparity in primary and secondary education preferably by 2005 and to all levels of education no later than 2015.

Goal 4 target: Reduce by two-thirds, between 1990 and 2015, the under-five mortality rate.

Goal 5 target: Reduce by three-quarters, between 1990 and 2015, the maternal mortality rate.

Goal 6 targets: Have halted by 2015, and begun to reverse, the spread of HIV/AIDS. Have halted by 2015, and begun to reverse, the incidence of malaria and other major diseases.

Goal 7 targets: Integrate the principles of sustainable development into country policies and programs and reverse the loss of environmental resources. Halve, by 2015, the proportion of people without sustainable access to safe drinking water.

Goal 8 targets: Develop further an open, rule-based, predictable, non discriminatory trading and financial system. Address the special seeds of the least developed countries. Address the special needs of landlocked countries and small island developing nations.

Table 6.Namibia: Financial Sector Indicators, 2005–10
200520062007200820092010
(In percent; unless otherwise indicated)
Banking indicators
Capital adequacy
Capital to assets7.87.57.98.07.98.4
Regulatory capital to risk-weighted assets14.614.215.715.515.015.3
Regulatory tier I capital to risk-weighted assets11.211.111.611.811.711.1
Nonperforming loans net of provisions to capital3.42.57.210.48.73.8
Asset quality
Large exposure to capital182.8189.3166.1170.5176.5178.5
Nonperforming loans to total gross loans2.32.62.83.12.72.0
Bank provisions to nonperforming loans85.390.377.264.766.2
Earnings and profitability
Trading income to total income3.83.75.66.95.3
Return on assets3.51.53.54.23.03.5
Return on equity45.619.944.952.138.441.9
Interest margin to gross income49.853.753.445.347.851.3
Noninterest expenses to gross income54.963.756.951.957.96.5
Spread between reference lending and deposit rates4.85.65.35.44.9
Personnel expenses to noninterest expenses47.839.649.850.948.949.5
Liquidity
Spread between highest and lowest interbank rate5.310.32.31.24.1
Liquid assets to total assets1.21.01.11.11.01.0
Liquid assets to short-term liabilities9.59.19.210.110.0
Customer deposits to total (non-interbank) loans94.6101.897.8103.9109.8106.2
Exposure to foreign exchange risk
Net open position in foreign exchange to capital1.40.30.30.90.41.3
Foreign currency-denominated loans to total loans0.71.00.10.20.00.1
Foreign currency-denominated liabilities to total liabilities1.12.52.71.62.03.7
Financial system structure (in number)
Banks444444
Private commercial111111
Branches of foreign banks000000
Foreign-owned subsidiaries333333
Source: Bank of Namibia.
Source: Bank of Namibia.
1SACU revenues currently provide over 25 percent of total budget revenues.
2Staff notes for example that the import cover of official reserves is currently close to 3 months if imports stemming from foreign direct investment (which is mainly directed at the resource sector) are excluded.

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