No recovery from pandemic in sight
Due to the outbreak of the Covid-19 pandemic last year, resulting to inactive economic activities, the domestic economy contracted by 8.5%. During the first quarter of 2021, the economy further contracted by 6.5% and posted positive growth of 1.6% during the second quarter of 2021 which is deemed insufficient to help the economy fully recovery from the economic loss in 2020.
According to Simonis Storm (SS) quarterly report, the Namibian economy has been in a steady decline long before the pandemic outbreak, something policy makers might forget as Covid-19 gets most of the blame for recent economic turmoil.
“Our economy has been contracting by 1.9% on an annualised basis since 2015. Excluding the extreme impact of the Covid 19 pandemic, the annualised contraction reduces to about 0.2%,” SS pointed out.
Currently the biggest risks to economic growth remain a slow vaccination uptake, additional waves of Covid 19 causing infections and how we decide to respond to them. In the last 100 years, no country combatted large scale viral infections with economic lockdowns. Therefore, the economic harm caused is a result of how we choose to respond to future waves, SS said.
Recently, central bank governor, Johannes !Gawaxab at stakeholder engagement at Keetmanshoop said for the past five years, the local economy has been affected by persistent droughts, low mineral prices and now the Covid-19 pandemic.
However, the demand for Namibia’s exports, mainly minerals, is expected to pick up in 2021 as major economies are projected to make full recoveries. In relation to the Covid-19 pandemic, it is expected to remain a global health problem for the remainder of 2021, while vaccination campaigns are underway, he said.
The Governor reiterated that Namibia is not out of the woods yet as far as the Covid-19 pandemic is concerned, despite the recent declining transmission and mortality rates. He was of the view that containing the pandemic and its spill-over effects should not be left to authorities alone but should be everyone’s pre-occupation in order to reduce the impact on the economy which has been evident in job losses reported at 13 000 during 2020 and the first half of 2021.
!Gawaxab shared that the Namibian economy is expected to recover gradually during 2021 by 1.4% and then improve to 3.4% growth in 2022. This is on the back of most countries opening their economies and successful Covid-19 vaccinations.
Simonis Storm, however, said Fitch maintains their negative outlook on the Namibian economy due to continued rise in government debt, wide deficits, low growth aggravated by the pandemic and the challenge of conducting fiscal consolidation in the face of subdued growth and high-income inequality. In the last 20 plus years, Namibia has never restructured its public debt and this has a positive impact on the overall credit profile according to credit rating agencies.
Namibia’s financial flexibility is supported by a well-developed non-banking financial sector, with assets of about N$ 316 billion (about 240% of real gross domestic product (GDP). How much longer government can extract from these savings is limited, unless new regulations are imposed government’s financing costs as a percentage of GDP is 3.6% for domestic debt and 2.2% for foreign debt, SS added.
The Ministry of Finance projected total debt to be N$109 billion for the 2020/21 period. Currently, total debt stands at about N$117.5 billion (7.8% higher than projected), of which domestic debt is N N$83.9% billion and foreign debt is N$33.6 billion. This brings the total debt to GDP ratio to N$88.7 compared to N$75.8% of GDP a year ago. This naturally excludes the two loans of about N$5 billion that is expected to be received over the next five years from the IMF and African Development Bank. “While fiscal metrics are likely to worsen, we do not expect sovereign credit rating changes by Fitch and Moody’s in October 2021,” SS said.