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Risks to the domestic economy remain definite

Fri, 17 March 2017 20:17
by Berny Baisako
Business

Due to external factors beyond the control of the central bank which have a direct impact on Namibia’s terms of trade and which might also exert pressure on both the current account balance and international reserves if Bank of Namibia does not consider increasing their foreign reserves economic analyst at IJG Securities Dylan van Wyk said.

According to van Wyk Bank of Namibia (BoN) cited the following as risks to domestic economy; low commodity prices, particularly uranium, strained trade relations between the US and its trading partners, outbreak of army worms in some parts of the country. Risks to the domestic economy remain definite “These are all external factors beyond the control of the central bank. The abovementioned factors have a direct impact on Namibia’s terms of trade and may exert pressure on both the current account balance and international reserves,” van Wyk said.

Van Wyk then suggested that as a precaution BoN may consider increasing their foreign reserves. “BoN may consider increasing their foreign reserves, but the general consensus is that three months import cover will be a sufficient buffer should circumstances deteriorate significantly,” he said.

According to Bank of Namibia (BoN) low commodity prices and global uncertainty emanating from trade relations between the US and her trading partners. Also stating that despite the recent uptick in the uranium price, the reverse in this price could lead to deterioration in Namibia’s terms of trade and exert pressure on both the current account balance and international reserves.

Furthermore, the recent outbreak of army worms in some parts of the country and in the Southern African region constitute a major risk to growth in the agricultural sector Previously the Villager reported that the October domestic growth outlook remained centered on both global and regional spill-overs and the prevailing drought as a weak global demand, emanating from slower growth in advanced economies and major emerging market economies, coupled with slow recovery of international commodity prices, expected to slow production at some of the local mines especially uranium mines.

At the regional level, drought posed an immediate threat to production in primary industries and to food inflation also that the water shortages in Namibia may further restrained growth in sectors such as construction, meat processing and agriculture. The Bank of Namibia released the February 2017 Economic Outlook Update with the domestic economic growth estimated to have slowed to 1.0 percent in 2016, and now expected to improve to 2.9 percent in 2017.

The estimated growth rate is much lower compared to the November 2016 update, which was projected at 2.5 percent and 4.0 percent for 2016 and 2017, respectively. The lower growth expectation for 2016, when compared to the last update is due to deeper contractions in diamond mining and construction than earlier expected.