The Namibian economy is projected to contract by 6.6% in real terms during the 2020/21 financial year. Finance minister Iipumbu Shiimi on Wednesday cautioned that this contraction may linger on well into 2021 at a moderate rate of 1.1%, with the new normal average growth rates of between 2.0 and 3.6% in 2022 and beyond.
When tabling the national budget this week, Shiimi stated that nominal GDP, as a measure of the final output for the 2019/20 fiscal year, reduced by 10.9% or N$21.5 billion relatives to previous budget estimates. This, said Shiimi, reflects the combined effects of statistical adjustments in diamond exports and the Covid-19 induced effects during 2020. For 2020/21, the implied reduction in nominal GDP relative to the Medium-Term Expenditure Framework (MTEF) indicative estimate stands at about N$34.7 billion or some 16.9%.
“These shocks on final output have significant implications for fiscal targets, especially over the short-term,” said Shiimi. He added that as such, the macroeconomic outlook of government’s Fiscal Strategy indicates that all elements of final demand, or net consumption and investment, are expected to decline during 2020.
Shiimi further noted that Namibia’s exports are projected to decline by about 11.9% year-on-year in 2020, compared to the estimated decline of 1.1% a year ago. Imports are also expected to decline by 14.9% in 2020, much faster than the fall in exports, reflecting the slowdown in investment and final consumption of goods and services.
Additionally, on the supply side, all major industrial sectors are expected to post negative growth rates in 2020 as a result of production disruptions combined with external and internal demand-side fallouts. During the 2020/21 financial year, the primary industry is projected to contract by a whopping 12.1%, reflecting significant demand-side induced shocks, especially for mining output.
Meanwhile, output in the secondary industry is projected to contract by an estimated 2.6%, mainly as a result of deeper contractions in the construction subsector and manufacturing activity in the beverage and mineral beneficiation subsectors. A decline in the tertiary industry is estimated at 5.7% for 2020, principally as a result of the direct effects of travel and social distancing restrictions on tourism, hotels and restaurants, transport and wholesale and retail trade subsectors. Thus far the Namibian landscape has had to adapt to the adverse impacts of Covid-19 on the economy and financial markets. The Bank of Namibia has already cut the Repo rate twice by a cumulative of 200 basis points to 4.25% since the outbreak of the pandemic. This reduction in the Repo rate was meant to provide short-term relief to borrowers and to boost weak economic activity.
The central bank took these actions amidst a low inflation environment, which stood at 1.6% by April 2020 and which is estimated to average below 3% for 2020. Similarly, Private Sector Credit Extension remains subdued and expanded by only 6.7% during the first two months of the year while Namibia’s trade balance is expected to shrink moderately to a deficit of 10.2% of GDP this year.
“Consequently, the current account deficit of the balance of payments is expected to narrow to about 0.6% of GDP in 2020, from the deficit of 2.3% of GDP in 2019, owing to the expected sharp slowdown in imports and better SACU receipts, and as a result, the stock of international reserves stood at about 4.6 months of import cover by the end of April 2020. At this level, the reserves are adequate to meet international obligations and support the currency peg,” said Shiimi.
2020-05-29 09:45:18 1 months ago