05 Jun 2019 17:30pm
WINDHOEK, 05 JUN (NAMPA) According to projections by visiting International Monetary Fund (IMF) staff, the Namibian economy will continue to contract mildly this year before it recovers gradually in 2020.
The IMF staffs analyses of Namibias current economic state, which were presented at a media briefing by IMF Mission Chief for Namibia Geremia Palomba on Wednesday, found that it is crucial that governments consolidation remain intact to prevent public debt from spiralling out of control.
We see spending pressure rising and it is very important for the authority to stick to the deficit target that they have in the budget. There is a need to deliver the budget as is, the IMF said.
Namibias debt-to-GDP ratio stands at 47 per cent.
The IMF team, which visited Windhoek last week, based its analysis on how Namibias fiscal consolidation efforts are evolving, and what the country is doing to fast-track economic growth and improve the health of the financial sector.
They called on the Namibian Government to immediately deploy a plan to contain the 2019/20 financial years fiscal deficit within the budget limits.
In addition, structural reforms are needed to strengthen productivity and competitiveness, lift business confidence and boost the long-term growth potential of the economy, the IMF team recommends.
Palomba said over the last three years, the local economy has been contracting and undergoing a rebalancing process.
The economy is going through a deep rebalancing process. When I arrived here [in 2016], there was an economy that was growing very fast, government was expanding, housing prices were growing at 14 per cent. It was an overheated economy. The current account was large and the central bank was losing reserves, he said.
For now, economic growth is projected to remain mildly negative in 2019, mainly on account of the prevailing drought situation and reduced diamond production.
Growth is expected to turn positive in 2020 and gradually converge to a long-term rate of 3 per cent.
This is lower than what the country experienced in the past. One of the reasons we see [is] that the competitiveness of the country has gone down in the last few years. The productivity is also coming down, he said.
On the downside, the anticipated growth is based on the lower-than-expected Southern African Customs Union (SACU) revenue and fiscal slippages that could undermine governments efforts to stabilise public debt, the IMF staff found.
Government was further advised to address the high public wage bill and the cost of state-owned enterprises.
These two items alone cost the government about 70 per cent of total non-interest spending. So obviously, going forward the [financial] policies have to focus on these two items, Palomba said.
The preliminary findings and views of the IMF staff will be presented to the IMFs Executive Board for discussion and decision.