Namibia Country Risk Report Q1 2020
Following two years of recession in 2017 and 2018, we forecast that real GDP growth will slide further into negative territory in 2019, to -2.2%, before picking up modestly to 0.8% in 2020. The outlook for the economy remains bleak, with fiscal consolidation constraining the government's ability to significantly stimulate the economy, particularly in years of drought, and boost job opportunities.
We forecast the Bank of Namibia (BoN) will keep its Repo Rate on hold at 6.50% in 2019-20. Continued weakness in Namibia's economy will increase the impe-tus for monetary stimulus. That said, the one-to-one peg between the Namibian dollar and the South African rand typically leads the BoN to follow the policy trajectory of the South African Reserve Bank, which we also expect to hold rates.
An increase in operational expenditure and a dim outlook for revenues will lead to a temporary pause in fiscal consolidation in 2019. Namibia will resume a gradual reduction in its budget deficit from 2020 on, mainly on the back of rising Southern African Customs Union revenues and as spending pressures, after the November 2019 elections, ease. That said, rising interest payments on national debt and a high public-sector wage bill will continue to weigh on the fiscal balance over the coming years.
Namibia's current account deficit will narrow in 2019 due to subdued demand for imports and an uptick in uranium exports. However, we forecast the deficit will widen over 2020-2021 as demand for imports picks up and diamond exports continue to disappoint.
We expect incumbent President Hage Geingob and The South West Africa People’s Organisation (SWAPO) to remain in control of policy following the November 2019 general elections, ensuring a largely business-friendly agenda. That said, though not our core view, the potential for SWAPO's parliamentary majority falling below two-thirds could prolong policy uncertainty over land reform.
Namibia's small, open economy is highly exposed to events on the world stage. A greater than anticipated weakening of global demand could weigh more on the country's mineral exports, including diamonds and uranium.
Much of the economy remains closely tied to agriculture, and weather poses substantial risks, as illustrated by drought over the past two years. Changing weather conditions will affect growth and inflation.
Namibia's statistics have been subject to multiple revisions and this weighs on the reliability of data for the country.
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