Category: News Blog
Published on Tuesday, 26 January 2016 12:00
Taken from The Namibian - Chamwe Kaira
Delinking from the South African rand will not be in Namibia's best interest, central bank governor Ipumpu Shiimi has said.
Speaking in an interview, he said Namibia continues to benefit from this arrangement and breaking the link between the two currencies will not be in the best interest of the country.
Shiimi said the developments affecting the rand would have affected the Namibia dollar more or less in the same way, if the Namibia dollar was delinked. Namibia is paid over N$200 million per annum by South Africa as part of the currency arrangement.
The rand was trading at 16,44 versus the US dollar early yesterday, according to Reuters data. Previously, the rand had hit a new low against the US dollar, to almost R18. Namibia imports the majority of its goods from South Africa.
“We understand the concerns about the weakening of the rand. What is however important to note is that the main driving force behind the weakening of the rand is the strengthening of the US dollar on account of improvements in the US economy,” said Shiimi.
He said all emerging market currencies are affected by this development, and as such the rand is not alone.
“Of late some political developments in SA contributed to the weakening of the rand, but we believe these will start to fade away in the foreseeable future.”
He emphasised that Namibia will only leave the Common Monetary Area (CMA) if the arrangement is no longer beneficial to the country.
“We have not seen a situation that warrants such a decision. In fact, the direction in the Southern African Development Community is to pursue a deeper regional integration. Of course it will be irresponsible of Namibia not to have plan B which could be rolled out if Plan A is not longer effective,” he said.
On the other hand, he said a weak rand means exporters are earning more money in the domestic currency. “This could mean more foreign exchange and also more government revenue from exporters.”
The central bank is projecting the economy to grow at a slow pace of 4,3% in 2016 compared to 5,4% in 2015. In 2014, the GDP growth was 6,3%. Shiimi believes despite the slowdown, the growth is respectable.
The main risks include a reversal of growth in advanced countries, a more-than expected decline in China's economy, worsening conditions in other emerging market countries, weaker growth in South Africa and Angola and drought at home.
“This means revenue for the private sector and government as well as domestic economic activities will still increase, although at a slower pace compared to 2014. It also means some additional employment opportunities will still be created, but the number of new jobs could be fewer compared to the new opportunities created in 2014. Overall, it means we should remain positive because the Namibian economy is still growing, but we need to work harder to increase the growth of the economy to the level of 7% envisaged in NDP4 for us to reduce unemployment and poverty in line with the national agenda,” he said.
Shiimi said although prices of some basic goods and services will increase because of the drought Inflation is projected to remain far below 10% in the foreseeable future. Inflation averaged 3,4% in 2015.
“Namibians are however advised not to load themselves with debt which they cannot afford.”
The central bank will make a monetary policy decision next month. The repo rate currently stands at 6,5%.
“The decision on interest rates will be data dependent. If Namibians continue to take up too much debt and use it to buy unproductive luxury imports, the monetary policy committee may not have a choice but to raise interest rates,” he said.
He said the mining output is still expected to increase, despite a weaker diamond sector because of additional output coming from Husab and B2Gold.
The expected rise in growth next year is on account of these two mines ramping up their production to reach full capacity. At full production, Husab output will increase Namibia's total uranium product, such that the country will be the third-largest producer globally and B2Gold production will more than double the current gold production, he added.