Namibia Economic Outlook
Economic performance and outlook
Following sluggish growth of 0.2% in 2016, the economy recovered in 2017, with real GDP growth estimated at 0.8%. The main growth drivers were agriculture and forestry—which benefitted from a favourable rainy season—and diamond mining, electricity, and water. Wholesale and retail trade, education, and services underperformed, reflecting depressed demand from external trading partners, particularly Angola. In 2018, continued signals of a stronger recovery in agriculture and mining are projected to facilitate 2.6% GDP growth. A boost in uranium mining is expected as new mines achieve full production capacity. The small open commodity-driven economy will continue to be permeable to exogenous external shocks, conditioning macroeconomic stability.
Expansionary fiscal policies stimulated economic growth, increasing the country’s budget deficit and public-sector debt. As of end-2016, public debt was 41% of GDP, breaching the government’s 35% limit. Since then, fiscal consolidation efforts have reduced the debt increase to 0.1%. Public and publicly guaranteed debt stands at 46.9% of GDP in 2017. A considerable fiscal consolidation effort reduced the budget deficit from 6.3% in 2016 to 3.6% in 2017. Sluggish economic activity with less public spending eased inflationary pressures. Consequently, inflation decreased 0.2 percentage point from 2016, to 6.5% in 2017, driven by a decline in food price inflation. Growth in credit to the private sector slowed to 7.3% at the end of the first half of 2017 from 11.7% one year before. Despite the Namibian dollar peg to the South African rand, the Bank of Namibia reduced its policy rate by 25 basis points to 6.75% to foster economic growth.
The economy, with its high dependency on trading partners, is expected to benefit from projected growth in emerging markets and advanced economies. Higher global demand for raw materials and improvements in mining infrastructure, particularly for diamonds and uranium, will fuel the development of the mining sector. Production of uranium is expected to grow 47.7% in 2018 as a new mine comes online. Moreover, with better rainfall patterns subduing the recent regional drought caused by El Niño, agriculture and forestry will round out the group of highest-performing sectors, making the primary sector the growth driver in the country for the short term. Investment in infrastructure, namely, in solar power, boosted domestic power generation and led to a 22% decline in electricity imports in 2017. The services sector is expected to profit in the short term from the projected improvement in the Angolan economy due to better terms of trade and the recovery in oil prices.
The main risk for the economy, with its over-reliance on the extractive sector, lies in the slow recovery of world demand for commodities, affecting both growth and fiscal revenues. In 2017, mining production was lower than expected due mainly to a decline in international uranium prices. The slow pickup in Angola, one of Namibia’s main trading partners and client for services, is a particular risk. The sluggish performance of South Africa’s economy poses another potential risk. The slow recovery of both private and public demand will continue to weaken the secondary and services sectors. In addition, fiscal consolidation could face added difficulties if the Southern African Customs Union’s reduced revenues inflows persist. The fiscal consolidation trend of the medium-term fiscal framework will weigh down public investment, further hurting the secondary sector, in particular, construction and related subsectors. Private investment and private consumption in the short to medium term remained subdued.