By: Nghiinomenwa-vali Hangala
As the Namibian economy continues to struggle to deliver quality growth, while capital flow to business remains low, the business community engaged the Central Bank and Monetary Committee on the cost of the Namibian currency being pegged to South Africa.
The question on the cost of the peg to the Namibian economy keeps coming under scrutiny from the business community and households as borrowing and monetary policy as a tool are not felt by many beyond monthly installment increases.
This is due to the fact that the central bank keeps prioritising, along with price stability, maintaining the peg as one of the main primary objectives in monetary policy decisions.
Supporting economic growth is a secondary objective.
Last week veteran business leader and Namibia Chamber of Commerce and Industry President, Vetumbuavi Mungunda, asked the Central Bank’s governor and the Monetary Policy Committee about the cost of the currency peg during the Monetary Policy Dialogue last week.
Mungunda also asked if the peg arrangement is the only option available for ensuring price stability, saying the country needs to understand the cost of the peg in the long run.
The Central Bank governor, Ebson Uanguta, in his response explained that they are not as fixated with the peg as the public thinks. However, being pegged to the Rand is the arrangement that the country has chosen to stabilise prices (control inflation) at this point in time.
He added that inflation is one of the greatest evils that need to be fought at all times, “when prices rise, they do not want to revert, that is why we say prices are sticky.”
Uanguata stated that it will be difficult to assess the cost of having alternative arrangements. However, he used the exchange rate under different regimes to answer the cost of the peg.
He highlighted that the alternative of leaving the peg is to float the Namibia dollar, making the exchange rate flexible.
He said if the country leaves the peg today, and floats the currency, its exchange rate will be changing everyday in line with demands and making economic predictions difficult.
“When the exchange rate becomes too volatile, planning becomes very difficult for businesses,” he explained.
He added that volatile exchange rates can differ between when businesses order their goods and at delivery, which will make business operation difficult.
“It becomes an unhealthy environment to do business,” he said.
Uanguta noted that to stabilise the exchange rate or to make it more predictable is only possible when the country has the foreign reserves muscles.
“Will you pretend you have the muscles when your reserves are only able to cover three months? The businesses know we have no reserve muscles,” the governor stated.
At the macro level, the governor also indicated that the country’s trade is not showing any signs for an alternative exchange regime to be explored by the central bank.
“Looking at the trade traction, we still feel that the current peg arrangement is still the most appropriate exchange arrangement,” the governor said.
He, however, noted that if the country builds its reserves enough to cover for at least 20 months of imports, particularly with the prospect of oil production and other activities, the discussion will be different.
The Monetary Policy Committee (MPC) met on the 10th and 11th of August 2026 to decide on the appropriate monetary policy stance for the next two months.
The MPC decided to keep the repo rate at 6.75% to continue safeguarding the peg between the Namibia Dollar and the South African Rand.
This is deemed appropriate to support the foreign reserves and safeguard the exchange rate peg.
The stock of foreign reserves stood at N$56.4 billion at the end of June 2026, translating into an estimated import cover of 3.5 months.
Namibia’s repo rate has also been below the South African rate for a while now, and business leaders who attended the dialogue questioned the central bank’s position on the gap/differential between the repo rate of the two countries.
Uanguta explained that the bank has no official position on the interest differential between the two countries but it considers certain factors to reduce outflow of capital to the South African market, since the South African money and capital market is larger and more diversified compared to the Namibia market.
He explained beyond its responsibility of price stability, the bank also looks at the economic growth performance, even though it is not their mandate as they manage the interest differential.
Currently the interest rate differential between Namibia and South Africa is about 25 basis points, which was narrowed in June 2026 from 50 basis points given the country’s level of reserves.
“We allow policy sprout given the free flow of capital between the two markets. However, we cannot allow the interest rate differential to get too big, it will start putting pressure on various indicators,” he said.
Uanguata revealed that capital outflow year to date from Namibia to South Africa is around N$10 billion compared to the N$18 billion of last year during the same period.
He noted that the Bank will continue to monitor the differential in interest.
DOMESTIC CREDIT UPTAKE ISSUES
Private sector credit uptake remained low across businesses and households alike, largely reflecting limited activity in the property (mortgage) sector, amid the prevailing slower economic activity.
Currently, the Private Sector Credit Extension, which measures capital extended to economic agents (businesses and households), stands at 4.5%, as it struggles to reach the 6% of last year.
Business lending is also floating around 4.5%, one of the lowest levels this year.
The audience at the Monetary Policy Dialogue asked if the prioritisation of the peg is also coming at the cost of the local economy in terms of making the cost of capital affordable through the repo rate.
According to Uanguta the private sector or businesses not borrowing is not because of the cost of capital or repo rate being high but rather due to low economic activities.
“We don’t think at this point in time our interest rate is at the level to be a hindrance to business taking up capital. The hindrance at this point is the level of economic activities,” he stated.
He added that the Bank of Namibia is not necessarily worried about capital flight in their monetary decisions but they have to ensure the country’s reserves are not depleted due to a wide gap in interest differential.
“We should not take the issue of capital flight lightly. For money to leave here going to a different jurisdiction, you are basically exporting your reserves,” Uanguta explained.
He said if the country is to maintain lower rates below South Africa’s repo rate in anticipation that businesses borrow more to fund more economic activities, the reserves level will fall below 3 months of coverage for imports.
If that happens the peg arrangement will come under threat.
Economic advisor in the Office of the Governor, Helvi Filipus, also supported the governor’s insights that it is not possible to have significant capital uptake/borrowing from the business community when there are minimal changes in economic activities in the country.
She said there is a significant binding constraint to growth in the economy currently.
Adding that the current economic structure has carried the country enough but new avenues of growth are required to carry it forward.
“We need to have that conversation from a policy point of view and identify what are those economic activities that can support additional growth,” she stated.
She also indicated that more needs to be done on understanding what the private sector is going through in order for the policy makers to support and stimulate investment.
The economic advisor also acknowledged currently and in the medium term that the fiscal space is quite constrained to drive economic growth while household consumption is also limited due to indebtedness.
She stated that the only option at this point is to stimulate investment on both domestic and foreign fronts as a new potential avenue for growth.
Filipus also noted that it is not helpful to keep pushing the monetary policy to a point where the effectiveness of the repo rate as a tool is limited.
The Namibian economy remains on a positive but moderate growth according to the central bank’s insights.
Uranium mining is emerging as a key source of growth while strong growth in financial services, wholesale & retail, construction, electricity & water provided some growth.
Moderate economic growth prospects are expected with oil and gas prospects emerging on the horizon.
To date, the country has exported N$50.3 billion worth of goods while importing N$69.7 billion worth of goods.
The economy is projected to grow by 2.1% this year, and by 2.8% next year.
erastus@thevillager.com.na
