Namibia’s GDP growth expected to slow down

Martin Endjala

Namibia’s real Gross Domestic Product (GDP) growth is expected to slow down in 2023 and 2024, due to weaker global demand.

Considering the current macroeconomic conditions, the Macroprudential Oversight Committee (MOC) deliberated and deemed it important to recommend a policy intervention on the existing Loan-To-Value ratios (LTV) regulation.

Contrary to the robust growth of 4.6 percent observed in 2022, the domestic real GDP growth is projected to moderate to 3.0 percent in 2023 and is further expected to slow down to 2.9 percent in 2024.

The moderation is mainly on account of global monetary policy tightening and ongoing geopolitical tensions. In addition, water supply interruptions at the coast, climate change and spillover effects of electricity cuts in South Africa continue to increase risks for the domestic economy.

This comes after the MOC of the Bank of Namibia convened its first meeting of the year on Monday, to assess risks and vulnerabilities faced by the Namibian Financial System.

Following a critical in-depth analysis of both the domestic and external economic environments, the Committee affirmed that the domestic financial system continues to demonstrate stability, robustness and resilience, amidst heightened risks and vulnerabilities originating from both the domestic and global sphere.

In addition, the banking and non-banking sectors remained liquid and well-capitalised to absorb potential losses.
To support the domestic economy, the MOC, concluded that there is a need to enable a macroprudential policy intervention on the existing LTV regulation.
The Committee also emphasised continued monitoring of inflationary pressures and geopolitical tensions, which have the potential to undermine economic recovery and negatively impact the financial system.
Meanwhile, the Financial Stability and Macroprudential Oversight Director at the Bank of Namibia, Florette Nakusera stated that the Namibian financial system remains stable sound and resilient amidst a challenging global and domestic economic environment.
After a comprehensive review of global and domestic financial stability was conducted, with a specific focus on the vulnerabilities within the Namibian financial system, the Committee said it observed that global financial stability risks increased, putting strain on the resilience of the global financial system.

These risks stem from various factors including inflationary pressures, tight monetary policy conditions, geopolitical tensions and low economic growth.

The recent occurrence of bank failures further added to the challenges faced by the banking sector in more Advanced countries. While inflation decreased in some jurisdictions due to the central bank interest rate hikes, it remains elevated and above target in other economies.

An Independent Economic Analyst and Bank Researcher, Josef Sheehama, yesterday said that Namibia felt the effects of COVID-19 and geopolitics deeply when some of the major markets in the world were struck by the economic meltdown.
The Namibian financial system continued to function without interruption despite the global turmoil.
However, he opines that even slower, and more inequitable domestic economic growth will likely test this resilience beyond the forecast period.
He added that the economic rationale for the discussion of macroprudential policy and to assess the effectiveness of macroprudential policies, macroprudential policy is viewed as a tool to correct externalities that create systemic risk or financial instability.
He stated that tightening macroprudential policy tools when lending practices are exuberant however, loosening those tools are just as important when risks recede or when credit conditions need a boost.

Sheehama is of the opinion that domestic policies should address the impacts of high energy and food prices and should focus on those most affected without distorting prices.

He stressed that a balance of macroprudential regulation is required for a healthy financial system. Besides prioritizing a swift resolution of the Namibia electricity crisis, avoiding the risks of slow growth for longer will require urgent action in eradicating inefficiencies at notable state-owned entities, he added.

“Namibia has sound financial stability and I am confident that our GDP will exceed the anticipated figures. Despite Namibia’s recent strides in lowering inflation, there is still a need to maintain control and promote sustainable economic growth,” he explained.

He said this can be done by adopting effective strategies from other countries and implementing bold measures to tackle structural issues.

“Namibia can build a stable and prosperous future for its citizens which is consistent with President Hage Geingob’s declaration that 2023 should be the year of revival,” he maintained.

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