After strong growth averaging 5.6% between 2010 and 2016, driven by high public spending, construction of new mines, and favorable commodity prices, the economy has entered a recession. Real GDP growth contracted by 0.9% in 2017 and an estimated 0.1% in 2018, thanks to domestic and external factors, including a sharp reduction in public spending necessitated by falling revenues and weak growth in trading partner economies and subdued household demand.
High public spending amid falling revenue led to a widening of the fiscal deficit from 6.3% of GDP in 2015 to 8.1% in 2016. With increased deficit financing requirements, public debt stock rose from 29.5% of GDP to 42% in 2018, 64% of which is domestic. The surge in domestic borrowing has exerted pressure on the small domestic debt market, with the risk of crowding out private credit. To ensure fiscal and debt sustainability, the government is implementing a fiscal consolidation plan that aims to lower the fiscal deficit to 2.7% of GDP by 2022 and limit public debt to 48% of GDP. The plan also aims to improve spending efficiency and boost growth by creating fiscal space for public investment and promoting private participation in infrastructure through public–private partnerships.
Monetary policy has remained largely accommodative since 2017. The repo rate has been maintained at 6.75% to support growth while keeping inflation low and maintaining parity between the Namibian dollar and the South African rand. Inflation declined from 6.2% in 2017 to an estimated 4.2% in 2018, driven by falling food prices and subdued demand in the economy.
Reliance on primary commodity exports coupled with the high import content in consumption and investment has rendered the economy vulnerable to exogenous shocks. The current account deficit widened to 14% of GDP in 2016, as the terms of trade deteriorated and receipts from the Southern African Customs Union (SACU) fell, but improved to 3.4% in 2017, due to slow growth in imports and higher receipts from SACU. The current account deficit is financed largely through foreign direct investment and other nonportfolio investments.
International reserves surged from 3.7 months of imports at the end of 2016 to 4.4 months at the end of September 2018. The highly volatile real effective exchange rate depreciated in 2018, improving the competitiveness of exports.
Tailwinds and headwinds
The medium-term outlook is mixed. Aggregate demand is expected to recover steadily as private activity picks up and new infrastructure projects are implemented as part of the stimulus package. Growth will also be boosted by increased capacity utilization in a new uranium mine as well as improved business confidence as reforms are accelerated.
But growth could remain weak if growth in key trading partners, notably South Africa and Angola, continues to be slow or if international prices of Namibia’s commodity exports fall. Uncertainty over land reform and the economic empowerment agenda could also weigh on the growth outlook. The government’s assurance that land will not be expropriated without compensation should help ease such concerns.
Going forward, structural reforms to improve competitiveness and spur economic diversification will be crucial in fostering sustainable and job-creating growth. With public debt at a sustainable level, key policy priorities could focus on enhancing domestic revenue mobilization to strengthen the government’s fiscal position, providing incentives to shift the economy’s structure toward higher value added industries, and advancing the wealth redistribution agenda to address long-standing inequities.
- The government securities yield curve extended to 30 years with 14 (3m-6m-1-2-3-4-5-7-10-12-15-20-25-30 Years) benchmark points along the curve.
- The issuance strategy is to fund the budget deficit. Namibia is 4th in the ABMDI 2017 Ranking Report.
The government debt security issuance strategy details the funding plan, in terms of volumes, securities, markets and tenors that will be tapped to finance the budget deficit over the Medium-Term Expenditure
Financing period of three years. The plan outlines the allocations across various instruments and the markets in which these instruments will be issued, based on cost and risk considerations, as well as the prevalence of market demand.
There are fourteen (3m-6m- 1-2-3-4-5-7-10-12-15-20-25-30 years) fixed-rate benchmark maturities and two inflation-linked maturities for government securities in local currency.
Yield curve calculation models
As the main issuer in the domestic market, the Namibian government is committed to develop the market and create benchmarks for the private and public sectors.
Notwithstanding the function of developing the domestic market, the government employs a cost-effective issuance strategy. As such, both new lines and taps on the old securities are used. The benchmark yield curve in Namibia is a market curve.
The yield curve is constructed from the average of the rates quoted by the main market participants, which consist of commercial banks and brokers.
Where there is no traded yield for a certain point along the yield curve, interpolation is used to generate an appropriate yield. Cubic spline interpolation is used in the case of Namibia.
Yield curve managed by
The Bank of Namibia is the official body in charge of calculating the yield curve on a daily basis.
Namibia’s benchmark yield curve is available on Bloomberg.
Challenges in building an efficient yield curve
Illiquid Bonds and limited secondary market: there is a lack of trading in the secondary market, which makes effective market pricing difficult as most investors buy and hold bonds to maturity.
Guide to Buying Bonds
Procedure for market participation
Minimum bid for T-bills is N$10,000 and any subsequent bids must be in multiples in N$10,000. Minimum bid amount for T-bonds is N$50,000 and any subsequent bids must be in multiples of N$10,000. Auctions of T-bonds are placed one week in advance, on the Central Bank website and via emails. Tender forms are to be submitted to the Central Bank no later than 10:00 AM on the auction date.
Bond and Treasury bills settlement is T+1 and is done via the Bank of Namibia (BoN).
All government securities are tax-free.
Capital gains are not taxable, unless the individual is a professional trader.
Openness to international investors
Sections 3(2) and 3(3) of the Foreign Investment Act of 1990 proclaim the equality of treatment between a foreign investor and a local investor. There is no obligation on foreigners to partner with nationals before forming a business. However, the government reserves the right to impose restrictions investment in land and natural resources.
The Namibia is part of the Common Monetary Area, a monetary union that comprises three other countries: Lesotho, South Africa and Swaziland. Exchange controls are not imposed within the Common Monetary Area and there is unrestricted flow of both the Rand and the Namibian Dollar between South Africa and Namibia (subject to clearance from the BoN. It is to be noted that a 10% fee is payable before the funds can be repatriated. With the exception of companies benefiting from local loans, remittance of dividends to non-resident shareholders is allowed without Bank of Namibia's approval.
For any flows of funds outside the Common Monetary Area, the Ministry of Finance (MoF) has relegated this function to the Central Bank which is itself assisted by Authorized Dealers with Limited Authority (ADLA). The list of these authorized dealers is available on the BoN's website.
Restrictions on foreign exchange and profit repatriation
Foreign and local investors are protected by the Foreign Investment Act which guarantees equal treatment of both categories of investors. This includes the rights to international arbitration of disputes between investors and the government, the right to remit profits, rights to access foreign exchange without restriction and fair compensation to affected parties in the event of expropriation.
Fitch also assigned a “AA-”(zaf) national (South Africa) scale rating for Namibia in June 2012 Namibia’s national scale is supported by investment grade foreign currency ratings. The Zaf rating is designed to allow Namibia's credit quality to be assessed alongside South African issuers. NamPower, a Namibian state owned entity with listed bonds was also assigned a AA- (zaf) rating by Fitch in 2007.
Documents & Resources
Documents - Ministry of Finance
- Income Tax Act of 2011 - Namibia (182 kB)
- Medium Term Expenditure Framework (MTEF) of Namibia (1.40 MB)
- Foreign Investment Act 1990-Namibia (164 kB)
- Namibia_Budget-2014-15.pdf (1.19 MB)
- Namibia_Min_Fin_Qrtely_Eco_Update-Apr_2015.pdf (589 kB)
Documents - Debt Management Office
Documents - Central Bank
- MTEF Funding Strategy (2013-14 ; 2015-16) (124 kB)
- BoN-AR_2014.pdf (5.86 MB)
- BoN-Mid-year_Review-2014-15.pdf (2.22 MB)
- Namibia_Fin_Stab_Report-2014.pdf (407 kB)
- Namibia_Fin_Sector_Strat-2011-21.pdf (692 kB)
- Namib-Auction_Calendar-Oct_2015-Mar_2016.pdf (275 kB)