Namibia’s central bank left its benchmark repo rate unchanged at 6.50 percent, saying domestic economic activity slowed in the first 10 months of the year, inflation remains low but the stock of international reserves continues to be sufficient to support the currency peg with South Africa.
The Bank of Namibia (BON), which cut its rate in August by 25 basis points for the first time since August 2017, added the economic slowdown was mainly reflected in mining, manufacturing, construction, wholesale and retail trade, and agriculture.
“Going forward, the domestic economy is projected to remain weak in 2019,” BON said.
In August the central bank forecast contraction of 1.7 percent this year before returning to growth in 2020. The economy shrank by an estimated 0.1 percent in 2018.
Namibia’s gross domestic product contracted by an annual 2.6 percent in the second quarter of this year, slightly better than a 2.9 percent shrinkage in the first quarter, hit by lower mining and diamond output, while drought has lowered agricultural output.
Amid strong growth in 2010-2015 fueled by rapid credit growth, Namibia’s public debt rose sharply and international reserves fell.
Although the government is now adjusting its fiscal policy, public debt remains on a rising path and banks’ asset quality has deteriorated, according to the International Monetary Fund in September.
Namibia’s economy has been in a slump since the start of 2017, with GDP on an annual basis contracting in the last 9 of 10 quarters. The second quarter of 2018 was the last quarter to show positive annual growth of 0.6.
“A likely slow recovery, the need for further fiscal adjustment to bring public debt to a sustainable path, persistent inequalities and structural impediments to growth, point to a challenging outlook,” IMF said, adding absent structural reforms growth is expected to converge to a long-term level of 3 percent, which is took low to deliver meaningful improvements in income and reduce unemployment.
The IMF forecast a 0.2 percent decline in GDP this year and then growth of 1.6 percent in 2020.
Growth in private sector credit rose marginally to 6.8 percent in the first 10 months of the year from 6.2 percent in the same 2018 period, mainly due to higher uptake of credit in retail, real estate, financial and other services sectors.
But growth in credit to individuals slowed from last year and in October the annual growth in private sector credit extension was unchanged at 6.4 percent.
Namibia’s inflation rate has been trending lower since 2017 and fell to a 2019-low of 3.0 percent in October, down from 3.3 percent in September, and the recent peak of 5.6 percent in November 2018.
BON projected average inflation of 3.8 percent in 2019, below IMF’s estimate of 4.8 percent.
Namibia’s stock of International reserves was practically unchanged at N$32.5 billion from N$32.3 billion at the previous meeting of its monetary policy committee, enough to cover 4.3 months of imports, a level the central bank said was “sufficient to protect the peg” of the Namibia dollar to the South African rand and meet its international financial obligations.
Namibia maintains rate as economy slows in 2019