Staff Writer
Namibia is likely to feel the full impact of a global oil price shock because of its fixed exchange rate with South Africa and its reliance on imported fuel, according to a report by Simonis Storm.
The Namibian dollar is pegged one-to-one to the South African rand under the Common Monetary Area. When the rand weakens against the US dollar, the Namibian dollar weakens by the same amount. Any rise in rand-denominated oil prices in South Africa is also reflected in Namibia.
Namibia therefore has no independent exchange rate mechanism to soften external shocks. The Bank of Namibia aligns its monetary policy with the South African Reserve Bank. When the South African Reserve Bank pauses or reverses its easing cycle, Namibia usually follows, which limits local policy flexibility.
Higher fuel prices in South Africa are passed on to Namibia through a pricing system that follows South Africa’s import parity pricing model.
The Fuel Equalisation Fund can smooth short-term price changes, but it cannot absorb a long period of high oil prices without fiscal support or price increases for consumers.
Namibia remains a net importer of refined fuel products. A sustained increase of US$10 per barrel in Brent crude oil would raise the country’s fuel import bill, increase demand for foreign currency and widen the trade deficit.
“Should Brent crude stabilise in the US$90 to 100 per barrel range, Namibia’s external balance would deteriorate due to higher import costs, particularly as export earnings remain heavily commodity-dependent and subject to global price volatility,” the report said.
Higher oil prices would also push inflation higher. Transport and fuel costs constitute a large part of Namibia’s consumer price index. When pump prices increase, their effects usually spread to food prices, utilities and distribution costs within one to three months.
Under a base scenario where Brent crude trades between US$80 and US$90 per barrel and the rand stays between R16.50 and R17.50 against the US dollar, Namibia’s inflation could rise to between 4.0% and 5.0%. This would still fall within the country’s target range of 3% to 6%, but it would be higher than current levels.
In a more severe case where oil prices stay above US$100 per barrel for a long period, inflation risks would move closer to the upper end of the target range as higher transport and food costs appear in official data.
