Namibia’s economy has begun recovering from the shock caused by the COVID-19 pandemic. Real GDP growth is projected to improve from an annual average of -2.8% for 2019 to 2021, to 2.8% in 2022. Inflation is projected to increase from an annual average of 3.2% for 2019 to 2021, to 5.5% in 2022. The elevated inflation is caused by the recovery in aggregate demand; and sanctions against Russia which have increased the price of crucial imports. In the medium-term period from 2023 to 2025, real GDP growth is projected to increase to an annual average of 2.9%. Meanwhile, inflation is projected to decrease to an average of 4.5% over the medium-term from 2023 to 2025.
The Government of Namibia’s debt has begun moderating after increasing in 2020. Namibia’s gross public debt is projected to increase from an annual average of 65.5% of GDP for 2019 to 2021, to 69.6% of GDP in 2022. The increase in public debt is largely due to the Government of Namibia implementing procyclical fiscal expansion to support the economic recovery from the shock caused by the global lockdown response to the COVID-19 pandemic. The fiscal deficit is projected to widen from an annual average of -7.5% of GDP for 2019 to 2021, to -7.8% in 2022. This shows the procyclical fiscal stance taken by the government as spending and further borrowing outpace revenue growth. In the medium-term period from 2023 to 2025, the fiscal deficit is projected to narrow to an annual average of -4.2% of GDP. Therefore, public debt is projected to decrease to an average of 67.6% of GDP over the medium-term from 2023 to 2025.
Namibia’s external sector was not negatively affected by the COVID-19 pandemic in 2020 but the sector has deteriorated despite the rebound in commodity prices, which should improve export earnings. Namibia’s current account deficit is projected to widen from an annual average of -USD 268.3 million (approx. -2.0% of GDP) for 2019 to 2021, to -USD 894.0 million (approx. -6.9% of GDP) in 2022. In the medium-term period from 2023 to 2025, the current account deficit is projected to narrow to an annual average of -USD 515.3 million (approx. -3.5% of GDP). This illustrates a slight improvement from the deteriorated current account balance due to the current rebound in commodity prices which is primarily driven by the impact of sanctions against Russia on global oil prices. Therefore, Namibian authorities have little room to take advantage of the current reprieve and invest in further diversification of the country’s exports away from the continued reliance on raw mineral exports. Namibian authorities also have limited policy tools to respond to the current deterioration in the external sector as a member of the Common Monetary Area which maintains a fixed exchange rate to the ZAR.
Namibia is scheduled to hold its presidential elections in 2024 and the election campaigning cycle is still a long way ahead. Incumbent President H.E. Hage Gottfried Geingob is not eligible for re-election given that he is serving a second term in office. The current political climate remains relatively calm despite pressures caused by the slow economic recovery. President H.E. Hage Gottfried Geingob will seek to further Namibia’s economic recovery before the end of his term. Namibia will continue relying on its economic diplomacy and strong bilateral cooperation to ease the economic pressures while also playing a crucial role in regional cooperation as the host of SACU.