November 01, 2024
Economy

IMF projects Namibia's economy to grow by 3.2%

October 02, 2023
IMF projects Namibia's economy to grow by 3.2%

The International Monetary Fund (IMF) says Namibia's real GDP grew by 4.6% in 2022, with continued expansion expected at a rate of 3.2% this year, which is poised to surpass pre-pandemic levels. 

The IMF's mission chief for Namibia, Jaroslaw Wieczorek, highlighted the positive economic outlook that Namibia will experience substantial growth in the coming years, attributing the growth primarily to the mining sector. 

"Driven by mining, Namibia's real GDP grew 4.6 % in 2022, and growth of 3.2 % in 2023 is expected to bring output back above the pre-pandemic level," Wieczorek said as he shared insights during the recently concluded Article IV Consultation

This comes as the Bank of Namibia Economic Outlook for August 2023 projected the domestic economy to grow by 3.3% in 2023 and by 3.0% in 2024.

According to the preliminary findings of the IMF's annual review of the Namibian economy, maintaining the fiscal reform momentum is key to preserving debt sustainability, cushioning against the volatility of SACU revenues, and fostering private sector-led growth.

The assessment follows a visit by an IMF team to Windhoek between 18 September and 2 October 2023, to engage in discussions concerning Namibia's economic prospects and challenges.

"The preliminary findings of our mission highlight the importance of maintaining fiscal reforms to ensure debt sustainability, mitigate volatility in the South African Customs Union (SACU) revenues, and stimulate private sector-led growth," Wieczorek said.

He also underscored the significance of addressing the vulnerable population's needs amid ongoing drought conditions and the potential resurgence of fuel and food prices.

Wieczorek noted the potential for economic diversification through new projects in green hydrogen, oil and gas exploration, and the processing of critical minerals. 

"However, accompanying reforms to address skill mismatches and reduce the cost of doing business are essential," he cautioned. 

He urged a thorough assessment of fiscal risks before committing to budgetary allocations for these projects. 

"Inflation, which rose sharply in 2022 due to high international oil and food prices, has eased in recent months, reflecting the global trend," stated Wieczorek.

He further pointed out that "food price inflation has remained elevated, susceptible to resurging fuel and transport costs and the impact of the drought as well as climate change more broadly".

The IMF’s preliminary report also highlighted developments in Namibia's current account, fiscal deficit, and public debt.

The Bretton Woods institution observed that the current account deficit widened in 2022 as the spike in fuel prices inflated the import bill.

"In 2023, the current account is expected to narrow, reflecting the easing of fuel prices relative to 2022 and the recovery in the SACU revenues. International reserves are expected to increase moderately with external financing needs largely covered by foreign direct investment in mining and the ongoing oil and gas exploration," the IMF said.

In terms of fiscal management, Wieczorek noted that the fiscal deficit has narrowed considerably, from 8.6% in 2021/22 to 5.3% in 2022/23.

He attributed the improvement to, "reduced pandemic-related spending pressures and measures taken to control the public wage bill and enhance the performance of state-owned enterprises."

Meanwhile, public debt continued to rise and reached 68.7% of GDP with the associated interest costs attaining 4.5% of GDP.

Looking ahead, Wieczorek stressed the importance of implementing the authorities' fiscal consolidation strategy to ensure debt sustainability and safeguard against SACU revenue volatility.

"To this end, it is vital to accelerate public wages including introducing early retirement and the reform of state-owned enterprises as the issuance of the public asset ownership policy paper for consultation with stakeholders represents an important milestone," he asserted.

Wieczorek recommended improving the licensing and taxation of natural resource extraction, including fishing, which will enhance revenue mobilisation.

In parallel, he said strengthening public financial management, including improving large public project selection should remain a priority.

Based on the preliminary findings of the mission, staff will prepare a report that subject to management approval, will be presented to the IMF's Executive Board for discussion and decision.

The report is set to be released early next year.

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Last modified on Tuesday, 03 October 2023 14:20
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