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More Urgent Stimulus Needed to Support Recovery

By: Nghiinomenwa-vali Erastus

There is an urgent need to lubricate the economy to further support the generally benign economic activities across many sectors, said the central bank governor, Johannes !Gawaxab.

The Bank of Namibia governor highlighted the need in a recent engagement with the banking industry.

The governor admitted that the economy is nowhere out of the slump, worsened by the Covid-19 slump, and policymakers and economic custodians should not loosen up packages that were meant to stimulate more activities.

“We are not out of the woods yet, and our economy desperately needs appropriate stimulus, which can take the form of credit extension for productive purposes to fuel the economy,” said the governor.

!Gawaxab also encouraged the banking institutions to continue to lend responsibly to critical sectors of the economy to sustain the economic recovery that has been observed over the last eight months.

His call to commercial banks comes as the credit extension to businesses and households remains muted, “which is concerning”.

According to the central bank, Namibia’s economic structure has not changed significantly over the last decades.

Growth is still dependent on extractive industries, which needs to change, the bank presented early this year.

The central bank acknowledged that government had fiscal space to support the economy during the global economic crisis, which is not the case now.

“Hence, the private sector needs to drive the recovery,” advised the bank in their 2022 presentation.

By the time Covid-19 impacted the economy, Namibia was already experiencing a prolonged recession- making the recovery process more complex.

According to the governor, even though Namibia presently enjoys stable monetary and financial conditions, which are essential for macroeconomic stability, sustainable economic development in the post-Covid-19 environment will be elusive unless all stakeholders take meaningful actions toward the economic recovery effort.

As a result, he guided that it is crucial to step up efforts to create an environment that will ultimately lead to sustaining the economic recovery underway; moreover, economic development, employment creation, and poverty eradication.

He said this observation calls for an “urgent need to lubricate the economy further to support the generally benign economic activities across many sectors of the economy”.

While businesses have been reluctant to incur long-term debt obligations amid the pandemic, the household sector has also been less willing to take on credit due to lower household incomes (largely due to job losses) caused by the pandemic.

Businesses and households borrow to fund their operation, expansion and acquisition of productive assets, while households borrow to fund their consumption and income generation assets; as a result fueling consumption and investment.

The borrowing also indicates the business and consumers’ confidence in the economy’s outlook as guided by internal policy movement, stimulus packages, and geopolitics.

Private Credit Extension, which captures money extended to the private sector, grew by 3.3 per cent on average in the first seven months of 2022 and is expected to grow by 5.0 per cent in 2022 as a whole.

Overall, growth in credit extension to the private sector has remained in the single digits since November 2016 and longer than ever before in the post-independence history of Namibia, the central bank observed.

The banking institutions are poised to play a critical role in the recovery effort as financial intermediaries facilitating access to capital from depositors’ funds and lending it to those with bankable projects.

The governor urged banking institutions to strike a balance between the interests of all stakeholders in this post-Covid environment and, where feasible, do more to assist the economy.

!Gawaxab has also assured the business community that their pleas regarding their struggle to stay afloat are not falling on deaf ears.

For this reason, the Bank of Namibia has retained the relief measures instituted since the pandemic’s outbreak, such as providing relief to banking institutions dealing with impaired loans and supporting financial lending to the real economy.

Furthermore, other liquidity relief measures, such as releasing the capital conservation buffer and postponing the concentration risk limit / single borrower limit.

He said this is intended to ensure that financial institutions respond effectively and prudently to the challenges businesses and households face.

!Gawaxab highlighted that the governor will continue to engage in bilateral discussions with industry over the next few weeks to address these issues.

“Our fortunes and Namibia’s prosperity are dependent on how we come together as a financial sector, businesses, and policymakers to reverse recent economic hardships, restore business confidence, and revive ailing businesses,” he wrote.

STRATEGIES FOR POST-COVID RECOVERY

Early this year, the director of research and financial sector development at the central bank, Emma Haiyambo, presented various strategies for recovery.

Haiyambo acknowledged that many economic recovery strategies in other countries are government-led, which is not feasible in Namibia, given the fiscal consolidation drive.

She said government might drive policy, but the private sector should lead recovery-related activities.

The central bank proposes enhanced use of digital platforms to increase efficiency and cost-effectiveness of service delivery.

Thus, it will require further investment in ICT to facilitate e-commerce and the efficient delivery of public services.

The bank also advocates for enhancing the role of the private sector in the economy- which will require regular consultation between government and the private sector.

The central bank said it will enable the private sector to take advantage of opportunities arising from investment in ICT and digital infrastructure, health, education, and other social sectors to complement government efforts in fighting the pandemic – and beyond.

Another suggested strategy is continuous support for small and medium enterprises- the bank sector is severely impacted by measures to contain the spread of the pandemic, which led to the loss of business, jobs, etc.

The post-Covid-19 strategy needs to allocate priority to renewed growth in the sector, the bank advised.

The country is also encouraged to invest in clean, green and resilient growth as the bank emphasises that Namibia has abundant sunlight throughout the year and proximity to billions of cubic meters of seawater.

As a result, the bank proposes a green recovery, which will significantly enhance the economy and local communities’ resilience in the face of economic and environmental challenges.

They acknowledge the time and investment required for clean and green growth because time frames vary from weeks for rooftop solar electricity to several years for green hydrogen.

Another proposal from the central bank is for the country to intensify investment in housing- Namibia has an acute shortage of affordable housing, which is negatively impacting house and rental prices, estimated at 300,000 units in 2022.

The housing backlog is high in the lowest income categories. The bank is encouraging municipalities and financial institutions to increase housing through PPPs. Email:erastus@thevillager.com.na

Nghiinomenwa-vali Erastus

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