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Namibia: 2007 Article IV Consultation

International Monetary Fund (IMF)

28 February 2008

SARPN acknowledges the IMF website as the source of this report: www.imf.org
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Executive summary

Background

Namibia’s economic position has been reinforced since the last consultation. Real GDP growth is in line with regional performance, and a substantial terms of trade improvement and large receipts from the Southern Africa Customs Union (SACU) have contributed to significant external current account and fiscal surpluses. Official reserves have increased to a comfortable level, and it is expected that public debt will be reduced to less than 25 percent of GDP this year.

The economic outlook is generally good, despite a projected partial reversal of the terms of trade gains and prospects for lower SACU receipts relative to GDP. The biggest economic problems are unemployment and poverty.

Policy discussions

Staff supported the authorities’ strategy of broadening the economic base and reducing unemployment while preserving a solid fiscal position.

Staff endorsed the authorities’ intent to increase infrastructure spending, using existing fiscal space and reprioritizing expenditures. There was also agreement on the importance of reinvigorating domestic revenue administration, given the potential vulnerability of SACU receipts.

Staff supports Namibia’s intention to ensure that interest rate differentials with South Africa do not destabilize official reserves or capital flows within the common monetary area (CMA). The authorities are committed to the CMA.

Notwithstanding increased current account surpluses, there was agreement that there is no clear evidence of significant currency undervaluation. To build competitiveness in the nonmining sector, measures to develop skills and enhance labor productivity will be important.

The banking system is profitable and well-capitalized, and there has been welcome progress in reinforcing financial sector supervision in line with FSAP recommendations. The authorities are aware of the risks of tightening domestic investment requirements for the pension and insurance sectors; staff recommended a careful phase-in, and efforts to broaden the investment options.

Staff supported Namibia’s efforts to increase employment opportunities in the nonmining economy by, e.g., making the labor market more flexible. Staff also recommended continuing liberalization of the trade regime, including through broader free trade arrangements.



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