A high appetite for luxurious and non-productive imported commodities by Namibians across the board is pulling the economy down the central bank has warned.
Speaking at the handover of dividends to the Ministry of Finance Governor Ipumbu Shiimi said most Namibians are hooked to borrowing to finance luxury a move he reckons is affecting production locally.
“We are spending more on imports than we are spending in the country which is putting a strain on the economy. Namibians are buying unnecessary luxury commodities which is why we are working on the import right bill so that we can discourage people to spend less on unnecessary luxuries” Bank of Namibia Governor,” Ipumbu Shiimi said.
He added that drastic measures would have to be enforced to assure that the country remains economically stable to sustain itself. Amongst the bank’s worries is the rate at which loans are repaid. Shiimi told the Minister of Finance and banking stakeholders that, Namibians are also borrowing more than they can pay back. Namibians are over drafting more now which has also put a strain on the performance of the markets.
“During 2014, the bank tightened its monetary policy stance in response to increased household credit. The bank raised its repo rate by 50 basis points to 5.0% during 2014. Annual growth in the private sector credit rose to 16.4% in 2014, driven by both businesses and individuals. The upward repo rate increases in 2014 were triggered by concerns about the widening trade deficit, which was partially financed by instalment credit; thus putting increased pressure on international reserves” Shiimi said.
According to BoN the Namibian economy continued to be relatively strong during 2014, driven by robust construction and sustained growth in diamond mining and wholesale and retail trade activities.
“Namibia has been able to sustain itself because of construction, especially at mines. We have constructions happening at Husab, Tschudi and B2 Gold mines. Even if you go around Windhoek you will see construction happening” Shiimi said.
He added that the annual economic growth estimated to have expanded by 5.3% in 2014 from 5.1 in 2013, primarily on account of robust construction activities, reflecting large private sector projects, including those in the mining sector and public infrastructure investment.
According to Shiimi on the fiscal front, the government recorded a wider budget deficit in 2014/15, compared to the smaller deficit during the preceding fiscal year.
“While government debt is expected to have increased by end of fiscal year 2014/15 in line with the widening deficit, debt as percentage of GDP, amounted to 22.9% as at the end of December 2014, from 23.6% at the end of 2013. This ratio therefore remained within the government debt ceiling of 35%. Similarly, total loan guarantees as a ratio of GDP declined to 5.3% at the end of 2014 from 6.0% at the end of 2013 and remained within the government ceiling of 10%” Shiimi said.
This is not the first time that the central bank has raised alarm over uncontrolled borrowing and expenditure as last year they issued a warning to locals who were getting hooked to importing luxury vehicles. Some middle to low income earning Namibians have also developed a habit of importing cheap second hand cars from Botswana and the United Kingdom , a move that locals believe is killing the automobile industry.
N$224 billion for infrastructure
A study conducted determined that Namibia would have to find funding sources in order to invest the required N$224 billion to develop infrastructure.
The Financing Infrastructure for Sustainable Development in Namibia study says there is need for infrastructure investment in the country and the realisation of the significance of infrastructure investment in promoting economic growth as outlined in the NDP4.
Both the private and public investment would be required to curb the infrastructure deficit, although the SOEs can only manage to raise N$74 billion through the combination of user fee charges, government subsidies and borrowing. However there will be a gap of N$150 billion.