droughts, only modestly contributed to NAMIBIA overall economic growth, given its size in Recent developments Namibian economy. The expansionary fiscal policy since The Namibian economy slowed substan- FY2011/12 resulted in a sharp increase in tially in 2016, with a real GDP growth of public debt that exceeded the national cap Table 1 2016 1.1 percent, compared to 6 percent in the of 35 percent of GDP. Large borrowing P o pulatio n, millio n 2.5 preceding year. The economic slowdown needs from the Government on the do- GDP , current US$ billio n 10.9 is mostly due to the contraction of the mestic market, drained the liquidity and GDP per capita, current US$ 4354 construction activity, low mineral prices, the credit to the private sector and was a and the process of fiscal consolidation. partly met by accumulating arrears. In Internatio nal po verty rate ($ 1.9) 22.6 Lo wer middle-inco me po verty rate ($ 3.2) a 47.0 The construction activity contracted sig- October 2016, the Government made the Upper middle-inco me po verty rate ($ 5.5) a 67.3 nificantly in 2016 due to the completion of decision to shift from an expansionary to a a 61.0 the Husab uranium mine, which was not contractionary fiscal stance. Consequently, Gini co efficient b replaced with new mega-projects. The little-to-no space for further fiscal expan- Life expectancy at birth, years 64.7 contraction was also reinforced with the sion remained, and a necessary process of Source: WDI, M acro Poverty Outlook, and official data. process of fiscal consolidation that was fiscal consolidation began with the mid- Notes: (a) M ost recent value (2009), 2011 PPPs. primarily achieved through the reduction year budget review of October 2016. Ac- (b) M ost recent WDI value (2014) of capital investments. cordingly, the budget deficit was reduced Subdued growth in the global economy, by one and a half percentage points com- and low mineral prices have negatively pared to the previous FY. The budget cuts affected mining activity in Namibia, as have been exacted mostly on capital ex- delaying the startup of the Husab urani- penditures, and in absence of large private The pace of economic growth significantly um mine till beginning of 2017. Diamond investment projects, it resulted in signifi- subsided in 2016, as construction activity production declined in 2016 because of cant contraction of overall investments in lower offshore extraction due to a regular the country. Reduced investment activity shrank and mineral prices remained low. maintenance of the vessels. This yielded and lower credit growth negatively affect- In the medium-term, growth is projected significant negative spillovers to many ed private consumption that also slowed to recover gradually, reaching 3 percent sectors of the economy including external in 2016. Because of the recent deteriora- by 2018, driven mostly by mining and trade and public sector finance. tion of the macro and fiscal position of the services sector activities. The fiscal con- With declining oil prices, the economic country and the appearance of liquidity slowdown in Angola also adversely affect- problems, in August 2017 Moody’s down- solidation is expected to continue, though ed most of Namibia’s tertiary sector activi- graded Namibia’s credit rating to sub- its success will be highly dependent on ties: wholesale and retail trade, transport investment category. Fitch has also down- mining sector revenues, SACU receipts and communication and real estate activi- graded the outlook for Namibia from sta- and policy commitment. With expected ties. Financial intermediation services ble to negative in September 2016. have also registered a slow-down that is The current account deficit has narrowed weak per capita growth in the medium consistent with reduction of the credit in 2016 mostly because of lower imports run, modest gains in poverty reduction growth in the country. The rebound in of machinery and equipment due to the are forecasted. agriculture, following the end of completion of the Husab mine and the FIGURE 1 Namibia / Actual and projected current account FIGURE 2 Namibia / Actual and projected poverty rates and and overall fiscal balance GDP per capita Percent of GDP Poverty rate (%) GDP per capita (constant LCU) 0 80 50000 -2 70 40000 -4 60 -6 50 30000 40 -8 30 20000 -10 20 -12 10000 10 -14 0 0 -16 2003 2005 2007 2009 2011 2013 2015 2017 2019 2013 2014 2015 2016 2017 2018 2019 International poverty rate Lower middle-income pov. rate Current account balance Fiscal balance Upper middle-income pov. rate GDP pc Sources: Bank of Namibia, Ministry of Finance and WB staff calculations Source: World Bank. Notes: see table 2. MPO 258 Oct 17 slowdown of domestic activity. Inflation driven by the increase in mining production. per day will rise by a very marginal 0.1 in 2016 went up to 6.7 percent, reflecting The uranium production will be determined percentage point between 2016 and 2017. an increase in imported and domestic to great extent by the operation of the Husab Marginal reduction in poverty is expected food and oil prices. mine that currently operates with very low to prevail in 2018 and 2019 when the $1.9 The weak economic activity in 2016 has capacity. Services are also expected to con- per day poverty rate is projected to be 16.9 likely entailed a marginal increase (near tribute significantly to recovery, as the re- and 16.6 percent, respectively. The pov- stagnation) in the poverty rates between gional trading partners slowly recover; erty gains in the medium-term will be 2015 and 2016: 17.0 percent of Namibians while a further boost, though with limited supported by recovery in economic activi- lived below the $1.9 per day international impact, should stem from recuperation in ty, particularly agricultural production. poverty line in 2016 compared to 16.8 agricultural production. An impeding factor The U.N. Food and Agriculture Organiza- percent in 2015, a marginal increase of 0.2 to growth recovery will be the recent credit tion forecast cereal production to double percentage point. The recovery of agricul- rating downgrade that will further reduce in 2017 and this, together with expected tural production following a persistent investors’ confidence. fall in food prices, is expected to contrib- and deepening drought had a positive Fiscal consolidation will continue through ute to improved food security in 2018. but limited boost on economic activity, FY 2019/20, according to which the budget but was not sufficient to support poverty deficit is projected to narrow to 2 percent reduction between 2015 and 2016. With a consumption Gini coefficient of 0.597 in of GDP with further cuts in government spending. The liquidity problems have Risks and challenges 2010, high inequality remains a drag on eased in early 2017 mostly due to the poverty reduction. At 28.1 percent in budget support provided by the African Namibia is highly vulnerable to external 2014, unemployment rates are relative Development Bank. shocks. As an economy heavily dependent high and remain a major reason for slow The current account deficit is anticipated on commodity-exports and public sector poverty reduction. to narrow in 2017 and 2018 due to urani- activity, major risks stem from a weaker- um exports from the operation of the Hu- than expected global recovery, principally sab mine and the recovery of the rest of placing downward pressure on mineral Outlook the mining sector production. Inflation is expected to accelerate moderately in 2017 prices. And more sluggish recovery of countries in the region would result in even due to the rising food and oil prices, and lower than expected SACU revenues, inhib- Economic activity is expected to recover ease into the medium term. iting fiscal consolidation. The risk of run- gradually, reaching GDP growth of 1.7 per- No gain in poverty reduction is expected ning ineffective fiscal consolidation may cent in 2017 and above 3 percent in the for 2017. Forecasts suggest that the pro- additionally increase the public-sector debt years thereafter. Near-term recovery will be portion of Namibians living below $1.9 for which the borrowing space is limited. TABLE 2 Namibia / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2014 2015 2016 e 2017 f 2018 f 2019 f Real GDP growth, at constant market prices 6.4 6.0 1.1 1.7 3.0 3.5 Private Consumption 6.9 11.8 6.8 1.8 2.9 3.6 Government Consumption 4.6 11.9 -0.2 -1.5 -1.2 -0.9 Gross Fixed Capital Investment 33.8 8.6 -25.3 -9.5 2.8 4.7 Exports, Goods and Services -0.5 -0.6 6.1 6.4 6.7 6.0 Imports, Goods and Services 17.6 11.5 -4.7 -1.4 3.4 4.0 Real GDP growth, at constant factor prices 6.5 5.4 0.8 1.7 3.0 3.5 Agriculture 5.5 -5.6 3.6 3.8 3.5 3.4 Industry 4.0 3.0 -7.1 -1.8 2.5 3.6 Services 7.9 7.8 4.0 2.9 3.1 3.5 Inflation (Consumer Price Index) 5.4 3.4 6.7 7.1 6.3 5.5 Current Account Balance (% of GDP) -9.0 -14.7 -11.8 -8.4 -6.9 -7.0 Financial and Capital Account (% of GDP) 10.0 15.3 12.3 8.9 7.4 7.4 Net Foreign Direct Investment (% of GDP) 3.9 3.8 3.7 3.7 3.6 3.6 Fiscal Balance (% of GDP) a -6.0 -7.0 -6.5 -3.8 -3.0 -1.9 Debt (% of GDP) 23.6 38.2 40.7 41.5 41.8 42.1 Primary Balance (% of GDP) a -4.5 -5.5 -4.3 -1.3 -0.5 0.0 International poverty rate ($1.9 in 2011 PPP) b,c 17.7 16.8 17.0 17.2 16.9 16.6 Lower middle-income poverty rate ($3.2 in 2011 PPP) b,c 41.2 40.1 40.4 40.6 40.3 39.8 Upper middle-income poverty rate ($5.5 in 2011 PPP) b,c 63.7 62.9 63.2 63.3 63.1 62.8 So urces: Wo rld B ank, M acro eco no mics and Fiscal M anagement Glo bal P ractice, and P o verty and Equity Glo bal P ractice. No tes: f = fo recast. (a) Fiscal year starts fro m A pril 1st. (b) Calculatio ns based o n 2003-NHIES and 2009-NHIES. No wcast: 201 4 - 2016. Fo recast are fro m 2017 to 2019. (c) P ro jectio n using annualized elasticity (2003-2009) with pass-thro ugh = 1based o n GDP per capita in co nstant LCU. MPO 259 Oct 17