PART B: State Of The Economy - Macroeconomic Review

 

SUMMARY OF GLOBAL AND DOMESTIC ECONOMIC AND FINANCIAL DEVELOPMENTS

The global GDP growth rate is estimated to have slowed in 2022 compared to 2021, amid rising global inflation and the disruptive effects of the Russia-Ukraine war. The growth rate for the global GDP slowed from 6.2 percent in 2021 to 3.4 percent in 2022, partly because of the Russia-Ukraine war that resulted in supply disruptions and high inflation, with the lingering COVID-19 pandemic also resulting in further lockdown-related supply disruptions in China. Economic growth slowed in 2022 across Advanced Economies (AEs), Emerging Market and Developing Economies (EMDEs) and sub-Saharan Africa. For 2023, global economic growth is expected to slow further to 2.9 percent, with major risks being monetary policy miscalculation of the right stance to reduce inflation, renewed rises in energy and food prices, and further escalation of geopolitical tension and conflict.

Inflation rose significantly in 2022, and this triggered the majority of monitored central banks to embark on an accelerated path of Monetary policy tightening to tame the rising inflation. Inflation increased in both the AEs and EMDEs, mainly reflecting rising commodity prices and global supply shortages. In response to the elevated inflation, most of the monitored central banks raised their policy rates. Exceptions were Japan, which kept its policy rates unchanged, Russia and China, which cut their policy rates.

The stocks and commodity markets ended 2022 on a negative note, mainly due to skyrocketing inflation, and aggressively rising interest rates. Slow growth in the global economy, underpinned by supply shortages and increased demand as well as rapidly tightening monetary conditions across the globe, also contributed to the weak performance in the markets. Furthermore, geopolitical tensions and the emergence of the Omicron COVID subvariant, XBB.1.5, added to investor uncertainty in the financial markets, contributing further to the relatively poor performance.

The domestic economy built up further growth momentum during 2022, on the back of improved economic activity across all three main industry groupings. Growth in the economy accelerated to 3.9 percent in 2022 from 2.7 percent in 2021. The higher economic growth mainly emanated from improved economic activity across all industries, but was more pronounced in primary industry. On the demand side, the improvement in economic growth for 2022 was underpinned by higher consumption expenditure, as well as private and government investment.

Namibia’s consumer price inflation increased during 2022 compared to the previous year, exerting upward pressure on the cost of living. Overall inflation rose from 3.6 percent to an average of 6.1 percent during the period under review, thereby eroding consumers’ purchasing power. The elevated inflation was predominantly driven by transport inflation on account of high international oil prices, aggravated by exchange rate depreciation. In addition, inflation for food and non-alcoholic beverages as well as housing, water, electricity, gas and other fuels accelerated in 2022, contributing to higher overall inflation.

Growth in broad money supply (M2) and in credit extension remained subdued in 2022, falling well below the current inflation rate, although growth in Private Sector Credit Extension (PSCE) edged higher over the period. Growth in M2 posted an average of 2.7 percent in 2022, maintaining the same rate as in 2021. The growth in PSCE improved to an average annual rate of 3.6 percent in 2022, from 2.4 percent recorded in 2021. The improvement was the result of increased demand for credit by businesses, particularly corporates in the mining, transport and services sectors.

Central Government’s budget deficit narrowed during the financial year (FY)2022/23, while debt continued to rise over the period. The narrowing of the deficit to an estimated 5.2 percent of GDP is ascribed to an increase in revenue collection. This was owing to increases in income tax on individuals, and diamond mining and non-mining companies, coupled with dividends declared by public enterprises. Government expenditure also rose, but at a slower pace in relation to revenue. The increase in expenditure reflected the 3 percent increase in civil servants’ salaries, rising costs of utilities and general inflationary pressures. Fuelled by the deficit, the debt stock of the Central Government rose to 70.3 percent of GDP at the end of December 2022, representing an increase of 3.2 percentage points from a year earlier and rising further above the SADC benchmark of 60 percent of GDP.

Namibia’s external current account deficit widened in 2022 compared to 2021, but financial account inflows were adequate to offset it and enable the stock of international reserves to rise over the period. The current account deficit as a percentage of GDP widened to 13.0 percent in 2022 from 10.0 percent in 2021 due to a significant increase in the merchandise trade deficit, lower secondary income inflows as well as higher outflows in the primary income account. The financial account inflows were sufficient to counter the deficit on the current account and allow the stock of international reserves to rise on an annual basis by 8.4 percent to settle at N$47.5 billion at the end of December 2022. The foreign reserves translated into import cover of 6.7 months, higher than the 6.0 months reported a year earlier. In terms of competitiveness, the Real Effective Exchange Rate (REER) depreciated slightly on an annual basis, signalling a moderate gain in the competitiveness of Namibia’s products in international markets.
 

GLOBAL ECONOMIC AND FINANCIAL DEVELOPMENTS

The global economy recorded slower growth in 2022 as it faced rising inflation and an associated tightening in financial conditions worldwide, acute energy shortages, and uncertainty around the ongoing war in Ukraine. Global economic growth slowed to 3.4 percent in 2022 from 6.2 percent in 2021 (Table B.1), amid rising global oil prices, the effects of the Russia-Ukraine war, and supply disruptions that impacted all monitored economies. In the AEs, the slowdown was mainly due to rising policy rates, resulting in tighter financial conditions, while that in EMDEs was largely ascribed to China’s frequent lockdowns under its Zero COVID-19 Policy and the real estate sector crisis. The Russia-Ukraine war continued to destabilise the global economy and has led to a severe energy crisis.
 

 

GDP growth in AEs slowed in 2022, partly due to rising policy rates. In the United States of America (USA), output growth declined to 2.0 percent in 2022 from 5.9 percent in 2021, as higher interest rates continued to take a toll on consumer spending (Table B.1). Similarly, Euro Area growth slowed down to 3.5 percent during the same period from 5.3 percent in 2021, largely owing to high energy prices, coupled with rising interest rates. Furthermore, growth in Japan’s economic activity slowed to 1.4 percent 2022, compared to 2.1 percent recorded in the previous year, as consumption weakened due to increasing inflation. Growth in the UK economy slowed down to 4.1 percent in 2022 from 7.6 percent in the previous year due to similar developments in household consumption and business investment, and stalling government expenditure.

Real GDP in EMDEs also slowed down in 2022 compared to 2021, driven by a contraction in the Russian economy and a significant slowdown in the Chinese economy. The EMDEs GDP output growth weakened to 3.9 percent in 2022 compared to 6.7 percent in the previous year, led by a significant slowdown in China’s GDP growth rate and a switch to negative growth in Russia (Table B.1). The Chinese GDP growth rate slowed to 3.0 percent in 2022 compared to 8.4 percent in the previous year, chiefly due to the lingering COVID-19 pandemic and the property market crisis which continued to impede economic activity. India’s GDP growth slowed to 6.8 percent in 2022 from 8.7 percent in 2021, partly due to declining growth in major trading partners such as China and the USA. In the worst-case development, Russia’s GDP contracted by 2.2 percent in 2022 compared to a positive growth rate of 4.7 percent recorded in the previous year, as the economy continued to suffer from sanctions from Western states in retaliation for its invasion of Ukraine in February 2022.
 

ECONOMIC OUTLOOK

The IMF expects global GDP to record slower growth in 2023 than it did in 2022. According to the IMF World Economic Outlook (WEO) Update for January 2023, the global GDP growth rate is expected to slow to 2.9 percent in 2023, from an estimated 3.4 percent in 2022 (Table B.1). This would be well below the long-term average of 3.8 percent. On the other hand, the World Bank Global Economic Prospects for January 2023, expects a sharp deceleration of global growth to only 1.7 percent in 2023 from its estimate of 2.9 percent, reflecting monetary policy tightening by central banks aimed at containing very high inflation, worsening financial conditions, and continued disruptions from the Russia-Ukraine war. Major economies like the USA, the Euro Area and China are facing significant risks which worsen the economic and financial challenges faced by EMDEs. Furthermore, the weakening global GDP outlook is mainly on the back of inflation that has eroded economic agents’ purchasing power, tightening financial conditions, and heavy indebtedness which will likely weaken investment and trigger further corporate defaults.

The risks to the outlook are mostly tilted to the downside; however, adverse risks have moderated since the last IMF outlook in the October 2022 WEO. The main downside risks are severe COVID-19 infection rates in China, possible escalation of the Russia-Ukraine war, and tighter global financing conditions that could worsen debt distress. Furthermore, high energy and food price shocks might result in more protracted inflation and resultant high interest rates. Other negative shocks that could push the global economy down are unexpectedly higher inflation, tighter monetary policy, intensified financial stress, deeper weakness in major economies, adverse climate events, and rising geopolitical tensions. There are also possible upside outcomes to the global economic outlook, such as a stronger boost from pent-up demand and a faster fall in inflation.

 

The AEs GDP growth is expected to slow down in 2023. Growth in AEs is projected to slow to 1.2 percent in 2023 from an estimated 2.7 percent in 2022 (Table B.1), partly due to high interest rates, softer labour markets, and persistent energy market disruptions in Europe. USA GDP growth is projected to slow to 1.4 percent in 2023, from 2.0 percent in 2022. Furthermore, the Euro Area growth is forecast at 0.7 percent in 2023, down from 3.5 percent in the previous year, reflecting the carryover from the 2022 outturn, lower wholesale energy prices, and additional energy price controls and cash transfers by the government. Real GDP in the United Kingdom is projected to contract by 0.6 percent in 2023 from positive growth of 4.1 percent in 2022, reflecting tighter fiscal and monetary policies and financial conditions, and elevated energy retail prices weighing on household spending. On a positive note, Japan’s growth rate is projected to recover to 1.8 percent in 2023 from a 1.4 percent in 2022, supported by monetary and fiscal policy support and the weak Japanese Yen exchange rate.

Growth in the EMDEs is projected to rise modestly in 2023. The GDP growth rate for EMDEs is projected to improve to 4.0 percent in 2023 from 3.9 percent in 2022 (Table B.1), supported by China’s strong projected performance. China’s GDP growth is projected to pick up to 5.2 percent in 2023 from 3.0 percent in 2022, chiefly due to pent-up consumer spending following the lifting of pandemic restrictions. In Brazil, the real GDP growth is expected to decline to 1.2 percent in 2023 from 3.1 percent estimated for 2022. The slow growth is on the back of a contraction in investment following an increase in the central bank policy interest rate that started in early 2021. Furthermore, growth in India is projected to slow from 6.8 percent in 2022 to 6.1 percent in 2023. Major risks to India’s outlook are the slowdown in the global economy and rising uncertainty. Russia’s GDP is projected to register modest growth of 0.3 percent in 2023, compared to a contraction of 2.2 percent estimated for the previous year, as the country will continue to export oil to non-sanctioning countries.

 

INFLATION AND INTEREST RATE DEVELOPMENTS

Annual average inflation in monitored AEs rose in 2022 to levels last observed decades ago, fuelled by especially high energy prices. Inflation in the USA averaged 8.0 percent in 2022 compared to 4.7 percent in 2021 (Table B.2), on the back of rising energy costs, as well as higher costs of food and housing. Inflation in the UK reached 9.1 percent on average in 2022, the highest level since October 1981, due to rising grocery costs and petrol prices. This compares to only 2.6 percent recorded in the previous year. Similarly, inflation in the Euro Area increased to 8.4 percent in 2022 from 2.6 percent in the previous year. In the same fashion, Japan’s consumer price inflation was boosted by higher energy costs and averaged 2.4 percent in 2022 compared to a negative rate of -0.1 percent in 2021.

Inflation in EMDEs increased in 2022, mainly due to rising costs of fuel and food as well as currency depreciations. Average inflation in Russia rose steeply to 13.8 percent in 2022 from 6.7 percent in 2021, held up by higher prices of food. In addition, inflation in Brazil averaged 9.4 percent, up from 8.3 percent recorded in 2021, chiefly attributed to global supply disruptions which continued to exert upward pressure on prices. Similarly, South Africa’s inflation trended upward from 4.6 percent in 2021 to 6.9 percent in 2022, due to higher prices of transport, food and housing utilities. Further, inflation in China averaged 2.0 percent in 2022, up from 0.9 percent in the preceding year, mainly due to supply disruptions because of the lingering COVID-19 pandemic in that country. India's inflation also rose from 5.2 percent in 2021 to 6.7 percent in 2022, due to a surge in fuel and food prices.

The majority of the monitored AEs raised their policy rates in 2022, apart from Japan, which kept its call rate unchanged. The US Federal Open Market Committee, in its continued efforts to battle inflation, raised its Fed Funds rate from near-zero at the beginning of the year to the target range of 4.25–4.50 percent by the end of 2022 (Table B.3) – the highest rate in 15 years. Similarly, the Bank of England raised its benchmark interest rate by 325 basis points to 3.5 percent to address a tight labour market, high inflation, and wage growth. The European Central Bank raised its policy rate by 250 basis points to 2.50 percent in 2022, bolstered by elevated inflation, despite cooling economic activity and lingering recession risks. Conversely, the Bank of Japan left its key short-term interest rate unchanged at -0.10 percent and maintained the target for the 10-year Japanese government bond yield at around 0.00 percent.

The majority of the monitored central banks in the EMDEs raised their benchmark interest rates in 2022 to combat rising inflation, except for Russia, which lowered its rate. The Reserve Bank of India raised its repo rate by 225 basis points to 6.25 percent, aimed at keeping inflation in check. Similarly, the South African Reserve Bank raised the repo rate by 300 basis point to 7.0 percent, to combat elevated inflation. In the same fashion, the central bank of Brazil hiked its SELIC rate by 300 basis points to 13.75 percent at the end of December 2022. However, the People’s Bank of China cut its prime lending rate by 5 basis points to 3.65 percent during 2022. The central bank of Russia early in the year raised its policy rate in the face of a surge in inflation and rapid depreciation of the Rouble but reversed its actions as the exchange rate and inflation moved back from their extremes. The net effect was that the Bank of Russia cut its repo rate by 100 basis points to 7.5 percent over the course of 2022, to spur subdued consumer demand.
 

COMMODITY MARKET DEVELOPMENTS

The prices of uranium and Brent crude oil increased in 2022 compared to 2021. The uranium price increased by 41.2 percent to an average of US$49.81 per pound in 2022 (Figure B.1), driven by geo-political uncertainty which started in Kazakhstan in early January 2022. This was amplified by the Russia-Ukraine war that started in late February 2022 which led to the re-examination of supply chains and procurement strategies that are reliant on nuclear fuel coming out of Russia. The global nuclear industry relies on Russia for approximately 14 percent of its supply of uranium concentrates. Due to the growing focus on decarbonisation, there is increased demand for safe, clean and reliable electricity. However, because uranium is a highly trade-dependent commodity, the war has created a transportation risk in the region. The price of Brent crude oil also increased, by 40.6 percent, to an average of US$97.10 per barrel in 2022, largely due to supply restrictions maintained by the OPEC+ grouping and increased transport activity as more pandemic-related restrictions on travel were lifted. In addition, the conflict between Russia and Ukraine further amplified supply disruptions and bolstered the prices of oil and gas, although after peaking in the first half of 2022, the oil price softened notably in the second half of the year as supply from the US and elsewhere expanded.

 

The prices of zinc and gold increased, while that of copper declined in 2022 over 2021. The zinc price increased by 15.9 percent to average US$3,481 per metric tonne owing to concerns over potential shortages resulting from falling inventories and possible reductions in smelter output because of high energy prices. In addition, the price of gold recorded a minor increase of 0.05 percent to average US$1,801 per ounce. Overall, gold had a tough year in 2022, on the back of the US dollar exchange rate appreciation, higher bond yields, and negative investor sentiment. The average price of copper decreased by 5.3 percent to average US$8,822 per metric tonne in 2022 (Figure B.2), mainly due to weak prospects for global demand, amid rising interest rates and a weakening Chinese economy stricken by Covid-19 restrictions and a property downturn.
 

STOCK MARKET DEVELOPMENTS

Global stock market indices ended 2022 with losses, on concerns of rising interest rates, the appreciating US dollar exchange rate and the prospects of a global slowdown. This was observed across most of the developed equity markets, with the US’s S&P 100 experiencing the biggest decline of 19.0 percent (Figure B.3). This was mainly due to skyrocketing global inflation as well as investors feeling disheartened regarding the market, as recession fears continue. The highly transmissible Omicron subvariant, XBB.1.5, also contributed to this performance. Germany’s DAX index slipped by 11.9 percent in 2022 as German companies came under significant inflation pressure. Stock markets in China and Russia recorded losses of 17.7 percent and 43.1 percent, respectively. South Africa’s JSE ALSI was somewhat resilient, as it only lost around 1.0 percent in 2022, while the UK’s FTSE100 generated a 1.0 percent gain.

THE DOMESTIC ECONOMY AND FINANCIAL DEVELOPMENTS

REAL SECTOR DEVELOPMENTS

The Namibian economy built up further growth momentum during 2022, on the back of improved economic activities across all three main industry groupings.

GDP GROWTH

The Namibian economy is estimated to have recorded an improved average growth rate of 3.9 percent during 2022, an increase from 2.7 percent recorded in 2021 (Figure B.4). The higher growth was facilitated by a range of factors including the further relaxation of COVID-related travel restrictions, favourable prices of export commodities, mineral exploration activity, new marine mining capacity, and pent-up demand.

 

During 2022, the improved economic growth emanated from increased economic activity across all industries, but it was more pronounced in primary industry (Figure B.4). During 2022, primary industry grew buoyantly, chiefly supported by a significant increase in the production of diamonds. This was due to additional production brought about by the new diamond recovery vessel, the Benguela Gem, as well as the return to service of some of the mining vessels that had been demobilised during 2020 and 2021.

During 2022, real output of primary industry rose buoyantly, chiefly supported by a significant increase in the production of diamonds. The primary industry grew by a buoyant 9.4 percent, up from 6.2 percent recorded during 2021 (Figure B.5), chiefly supported by a significant increase in the production of diamonds, which grew by 42.6 percent to 2.1 million carats. This was due to additional production brought by the new diamond recovery vessel, the Benguela Gem, as well as the return to service of some of the mining vessels that had been demobilised during 2020 and 2021. During 2022, both onshore and offshore mineral exploration activity were furthermore stepped up significantly. Furthermore, growth in agriculture, forestry and fishing, which rose by 0.9 percentage points to 2.9 percent, also contributed to the expansion in primary industry. Despite significant variation between regions, rain conditions were generally favourable in 2022. Accordingly, crop farming registered healthy growth in 2022 as a record maize crop was harvested, although mahangu (pearl millet) production contracted over the same period as rainfall patterns in some of the main production areas were erratic. In addition, the forestry, and fishing and fish-processing- on-board subsectors also contributed to the rise in real value addition, partly driven by the timely allocation of fishing quotas, coupled with the auctioning of additional quotas by the Government.

Secondary industry switched to positive growth during 2022, arising from improvements in the manufacturing, and electricity and water sectors, which more than offset a further decline in construction activity. In secondary industry, growth amounted to 0.4 percent in 2022, switching around from a contraction of 3.3 percent registered during the previous year (Figure B.6). The increase arose from an improvement in activity in the manufacturing sector, coupled with higher growth in the domestic generation of electricity. This was as a result of improved water inflow into the hydroelectricity power plant at Ruacana due to better rainfall received, alongside an increase in solar electricity production. However, the construction sector contracted further, offsetting some of the rise recorded by the manufacturing, and electricity and water sectors.

Growth in tertiary industry improved, reflected in increased growth in the hotels and restaurants, information and communication, and wholesale and retail trade sectors. Tertiary industry registered a growth rate of 2.2 percent during 2022 (Figure B.7), higher than the 1.9 percent registered during the previous year, owing to improved performances of the hotels and restaurants, information and communication, and wholesale and retail trade sectors. This was mainly ascribed to the lifting of COVID-19 restrictions boosting tourism activity, coupled with sustained demand for internet data on account of hybrid working arrangements and online learning. Activity in the transport sub-sector continued to increase during 2022, driven by road and sea cargo volumes. The pace of growth for the communication subsector moderated in 2022, however, suggesting a degree of normalisation of activity, with more workers returning to the office.

REAL GDP GROWTH BY EXPENDITURE

On the demand side, the improvement in economic growth for 2022 was underpinned by higher expenditure on final consumption and investment. Real GDP increased to N$240.5 billion in 2022 from N$211.5 billion in the preceding year. This increase was largely attributed to rising private final consumption expenditure and total gross capital formation, which increased by 19.8 percent and 13.9 percent, respectively. Similarly, Government final consumption expenditure increased, but at a lower rate of 4.0 percent, as the Treasury continued to limit growth in public spending. Gross fixed capital formation by the Government rose by 29.6 percent in 2022, however, reflecting higher investment by the public sector (Figure B.8).

INFLATION DEVELOPMENTS

Namibia’s inflation rate increased during 2022 compared to the previous year, exerting upward pressure on the cost of living. Overall consumer price inflation rose from an average of 3.6 percent in 2021 to 6.1 percent during the period under review, thereby eroding consumers’ purchasing power. On a monthly basis headline inflation rose as high as 7.3 percent in August 2022 – a pace last seen in 2017 – before softening somewhat towards the year-end (Figure B.9).

 

The elevated inflation was predominantly driven by transport inflation. Inflation for transport increased from 7.3 percent in 2021 to 18.0 percent in 2022 on account of high international oil prices, aggravated by exchange rate depreciation. The imposition of sanctions on Russia as a result of its invasion of Ukraine in February 2022 also contributed to the increase in the international oil price, as did action by OPEC+ to limit petroleum output. Consequently, Namibian pump prices of petrol and diesel surged during 2022, with the pump price of diesel 50 ppm adjusted upward on average by N$7.16 per litre to N$20.59 per litre, while that of petrol was adjusted upwards by N$5.90 per litre to N$19.36 per litre. Inflation for the public transport sub-category picked up during the same period as the upward movement in fuel prices culminated in a rise in domestic taxi fares and bus ticket prices.

Figure B.9 
Inflation Developments

 

Inflation for food and non-alcoholic beverages, as well as housing, water, electricity, gas and other fuels, accelerated in 2022. Food and non-alcoholic beverages inflation rose from 5.7 percent in 2021 to 7.7 percent in 2022, prominently reflected in the oils and fats and fruit subcategories. Annual inflation for housing, water, electricity, gas and other fuels increased from 1.3 percent in 2021 to 1.8 percent, mainly driven by a rise in rental payments for dwellings, as well as water supply, sewerage services and refuse removal.

Inflation for South Africa increased during 2022 and continued trending above that of Namibia, mainly due to higher housing inflation in the former. South Africa’s inflation rate rose by 2.4 percentage points to an average of 6.9 percent during the year under review, 0.8 percentage point above that of Namibia (Figure B.10). This was mainly owing to higher housing and food inflation in South Africa, which averaged 4.7 percent and 8.1 percent, respectively, during the period under review. This compares to Namibia’s average housing and food inflation of 1.8 percent and 7.7 percent, respectively, registered over the same period. Furthermore, it is worth noting that the gap between the two countries’ inflation rates narrowed over time, mainly as a result of sharper increases in Namibia’s transport inflation in relation to that of South Africa.

MONETARY AND FINANCIAL MARKET DEVELOPMENTS

The main monetary and credit aggregates continued to record sluggish growth in 2022 despite improved economic activity and a stronger transactions demand for money. The demand for money in 2022, remained subdued overall as transactions- related money balances picked up, but holdings of fixed and notice deposits waned amid the rising interest rate cycle. The main counterparts to the inert growth in the broad money supply (M2) during the period under review were moderate growth in the net foreign assets and near-stagnation of the domestic claims of the depository corporations.

 

MONETARY AND CREDIT AGGREGATES

Growth in broad money supply (M2) maintained the same rate for 2022 and 2021 but remained below the concurrent inflation rate. Growth in M2 posted an average of 2.7 percent in 2022, maintaining the same rate as in 2021 (Figure B.11). The sluggish growth in M2 during 2022 stemmed from moderate growth of 6.4 percent in net foreign assets, balanced by very slow growth in domestic claims, specifically net claims on Central Government. Growth in money supply continued to trend lower than the annual inflation rate, an indication that depositor demand for real money balances continues to subside.

 

Growth in credit extended to the private sector edged higher in 2022 compared to 2021, amid a recovery in domestic economic activity. The growth in PSCE rose to an average annual rate of 3.6 percent in 2022, from an annual average of 2.4 percent recorded in 2021 (Figure B.12). The moderate improvement in year-on-year growth in PSCE during 2022 was due to increased demand for credit by businesses, particularly corporates in the mining, transport and services sectors. The average annual growth in total credit extended to businesses increased to 4.9 percent in 2022 from 1.2 percent a year earlier. Credit extended to households slowed to an average growth rate of 2.6 percent in 2022 from 3.2 percent in 2021, partly due to rising inflation and interest rates. The growth in total credit extended was concentrated in the cyclically sensitive instalment sale and leasing credit subsector, as well as in other loans and advances during the period under review.

The Bank of Namibia increased its policy rate stepwise during 2022, and as a result, money market rates in general also trended higher over the course of the year. At each of the six MPC meetings held during 2022, the Bank’s Monetary Policy Committee (MPC) increased the repo rate stepwise by a total of 300 basis points from 3.75 percent in January 2022 to 6.75 percent in December 2022 (Figure B.13). These decisions to increase the repo rate were deemed appropriate to continue anchoring inflation expectations, safeguarding the peg arrangement and meeting the country’s international financial obligations while also giving support to the economic recovery to the extent possible. As a result, the prime lending rate of the commercial banks stood at 10.50 percent at the end of 2022, up from 7.50 percent a year earlier. In line with the rise in the policy rate and the banks’ prime lending rate, the banks’ average lending rate rose to 9.58 percent at the end of 2022, compared with 7.06 percent at the end of 2021. Rising less steeply, the average deposit rate rose to 4.22 percent at the end of 2022 from 2.86 percent at the end of 2021 as it typically takes longer to adjust to changes in the policy rate due to the lags before fixed and notice deposits reprice.
 

BOX ARTICLE: EXPANDING NAMIBIA’S MONETARY AND FINANCIAL STATISTICS

INTRODUCTION

This note introduces a new monetary aggregate that is broader than the headline M2 money supply currently being published. The note serves to inform all our data users of the addition of an official new monetary aggregate to the monetary and financial statistics published hitherto, namely M3, which will be a composite of M2 plus Negotiable Certificates of Deposits (NCDs).

An NCD is a fixed deposit receipt issued by a bank that is negotiable in the secondary market. These deposits generally have initial maturities of three months, six months, nine months and 12 months, with a minimum face value of N$10 million. Like other deposits, they are guaranteed by the bank receiving the deposit, but can usually be sold in a highly liquid secondary market often facilitated by the banks themselves. Thus, although they cannot be redeemed before maturity they can through on-selling be converted into cash very quickly. Due to their large denominations, NCDs are bought by corporations who use them as a way to invest in a low-risk, high-interest security. Generally, yields on NCDs are wholesale rates which exceed retail deposit rates, and are dependent on money market conditions.

In the monetary context, because of their short-term and liquid nature, NCDs satisfy the criterion of moneyness, and their value remains stable over time. The inclusion of NCDs in a broad monetary aggregate is in line with the guidelines of the 2016 Monetary and Financial Statistics Manual and Compilation Guide, page 186 section (6.48), which states that short-term (original maturity) debt securities issued by Depository Corporations that can be converted into currency or transferable deposits at short notice, for or close to their full nominal value, meet the definition of broad money. According to the Guide, such short-term debt securities include NCDs and commercial paper issued by Other Depository Corporations (ODCs) and are included in broad money when traded in efficient secondary markets.

METHODOLOGY

Namibia introduced the compilation of monetary and credit aggregates in 1990, under the Guide to Money and Banking Statistics that was based on the International Financial Statistics (IMF, December 1984). In April 2002, with the publication of the International Monetary Fund (IMF) 2000 Monetary and Financial Statistics Manual,¹ the compilation migrated to the new manual which provided a set of tools for identifying, classifying, and recording stocks and flows of financial assets and liabilities; described standard, analytically oriented frameworks in which the statistics may be presented; and identified a set of analytically useful aggregates within those frameworks. This led, amongst others, to changes in the terminology and differences in classifications; and changes in the conceptual framework for the presentation of monetary and financial statistics² in a manner consistent with the 1993 System of National Accounts. In 2016, the IMF updated the manual and merged the methodological and practical aspects of the compilation process of monetary and financial statistics into one volume, The Monetary and Financial Statistics Manual and Compilation Guide. The concepts, accounting principles, and other methodological elements of this manual are harmonised with those of the 2008 System of National Accounts, the sixth edition of the Balance of Payments and International Investment Position Manual, the Government Finance Statistics Manual 2014, and the handbook on Financial Production, Flows and Stocks in the System of National Accounts.

1 The 2000 MFSM was followed in 2008 by its accompanying Compilation Guide (MFS Guide).
2 The purpose of compiling monetary and financial statistics is to assist in the formulation and monitoring of monetary policy and to harmonise the monetary and financial statistics system with other macro-economic statistical systems.

CURRENT COMPOSITION OF MONEY SUPPLY AND THE INTRODUCTION OF A HIGHER MONETARY AGGREGATE

Namibia’s broadest monetary aggregate is currently M2. It is comprised of currency outside depository corporations (i.e., the most liquid form of money), transferable deposits (i.e., ultra- short-term deposits, capable of being withdrawn or transferred immediately to another party) and other deposits (i.e., longer-term deposits). Narrow money (M1) is comprised of currency outside depository corporations and transferable deposits only. Below is a brief analysis, based on the past two years, comparing the data with and without the inclusion of NCDs.

Table BA.1 reveals the current M2 and M3, the latter of which includes NCDs. According to the analysis, the inclusion of NCDs adds N$20.3 billion and N$22.3 billion to the M2 aggregate in 2021 and 2022, respectively. The Bank of Namibia will going forward include NCDs in the M3 series and publish this series on a monthly basis. Thus, the public is cautioned to take note of this additional monetary aggregate. For the time being the M3 aggregate will be presented as additional information without changing the Monetary Analysis, which will continue to take M2 as its pivotal monetary aggregate. This position will be regularly reviewed as the public becomes familiar with M3.

 

It is evident from the above analysis that the newly calculated M3 gives a broader measure of money supply, which is robust in the face of shifts between the public’s preferences for fixed-term deposits repayable to the original depositor only, and fixed-term deposits that are negotiable and therefore repayable to whoever the holder of the NCD is at the time of redemption. Money supply plays a significant role in informing monetary and economic policy and the monetary aggregates supplement other economic statistics on the current and future course of the economy. It is against this background that the addition of a broader monetary aggregate, responsive to the public’s preference shifts as outlined above, is of great importance. The Bank of Namibia has therefore deemed it necessary to expand its range of published monetary aggregates, mindful of the generally increasing importance of NCDs as the financial system has structurally broadened and financial intermediation has deepened over the years.

 

PUBLIC FINANCE

The 2023/2024 Government budget tabled under the theme of Economic Revival and Caring for the Poor targeted the maintenance of a sustainable public fiscal stance while creating a conducive policy environment to stimulate economic activity and create employment. The budget was based on three policy pillars: pro-sustainability, pro-poor, and pro-growth. These three pillars are indicative of the balancing act that is required between ensuring macroeconomic stability, sustaining livelihoods, and supporting economic recovery. The budget reveals an easing fiscal environment on the back of improved revenue outturn and economic growth prospects. As a result, the budget deficit is projected to decline to 4.2 percent of GDP in 2023/2024, which will bring Government debt to 70.1 percent of GDP. Although Government debt is projected to rise by the end of the 2023/2024 fiscal year, it is expected to increase at a slower pace than in previous fiscal years.

EXTERNAL SECTOR DEVELOPMENTS

Namibia’s external current account deficit widened in 2022 compared to 2021, but financial account inflows were sufficient to offset it and enable the stock of international reserves to rise over the period.

Financial account inflows contributed to the accumulation of reserves in 2022. The current account deficit widened to N$25.3 billion in 2022, compared to N$18.3 billion recorded in 2021 while the capital transfer receipts declined to N$1.7 billion during the same period. On the financial account, strong non-reserve related financial account inflows of N$19.8 billion, mainly in the form of foreign direct investment was enough to finance the high current account deficit of (Table B.7). As a result, the overall balance of payments before reserve action registered a moderate surplus amounting to N$1.1 billion in 2022 which the Bank of Namibia absorbed from the market and added to its reserves.

CURRENT ACCOUNT

The current account balance deficit as a percentage of GDP widened in 2022, compared to 2021. The current account balance deficit relative to GDP widened to 13.0 percent (N$25.3 billion) in 2022, compared to a deficit of 10.0 percent (N$18.3 billion) recorded in 2021 (Table B.8). This was ascribed mainly to a deterioration of the merchandise trade deficit due to an increase in imports. Expenditure on merchandise imports rose by 27.9 percent to N$104.7 billion during 2022. The category mineral fuels contributed about 56.3 percent of the annual rise in import payments, reflecting the higher cost of fuel. This was on the back of ongoing higher international fuel prices, mainly due to a recovery in travel activity, coupled with inflationary pressure attributable to the ongoing Russia-Ukraine war. The value of merchandise exports rose briskly by 29.2 percent to N$68.4 billion during 2022 (largely ascribed to higher export earnings from rough and processed diamonds, processed fish and live animals.

The net services balance recorded a net inflow of N$1.3 billion in 2022, compared to an outflow of N$2.6 billion in 2021. The inflow was largely attributable to higher receipts for travel services as well as transportation services. Net outflows on the primary income account rose by 37.7 percent to N$5.9 billion during 2022. The higher outflows were mainly underpinned by an increase in investment income payments to foreign direct investors, particularly in the form of higher dividends as well as higher retained earnings by foreign- owned companies during 2022. Inflows on the secondary income account fell by 11.1 percent to N$15.6 billion during 2022. This was mainly due to lower SACU receipts, which decreased by 13.8 percent to N$14.3 billion during 2022 (Table B.8).

 

The financial account balance recorded a higher net inflow during 2022, when compared to a year earlier. The financial account balance recorded higher net borrowing from the rest of the world to the tune of N$25.0 billion compared to N$17.6 billion recorded in 2021. The net borrowing from the rest of the world was supported by inflows observed across direct, portfolio and other investment.

During 2022, Net foreign direct investment Namibia rose to N$15.3 billion during 2022 compared to N$10.0 billion registered during 2021 (Figure B.15). The higher foreign direct investment inflows were mainly due to equity capital for exploration activities following the offshore oil discoveries, and higher uptake of intercompany loans extended to domestic subsidiaries operating in the mining sector. Moreover, Namibia’s portfolio investment registered a lower net capital inflow of N$2.3 billion compared to a capital inflow of N$8.1 billion recorded a year earlier. The lower net inflow was mainly driven by a reduction in resident institutional investors’ net selling of foreign listed equity securities. Other investment recorded a lower net capital inflow of N$8.5 billion compared to N$9.3 billion in 2021 The decrease in capital inflow was mainly due to lower uptake of external long-term loans by the Central Government.