Windhoek - Namibia’s domestic economy, which contracted in 2019, is facing yet another bleak prospect for the year 2020 due to the coronavirus (Covid-19) but it is expected to improve in 2021.
This is according to a report jointly released on Tuesday by the Bank of Namibia (BoN) and Namibia Financial Institutions Supervisory Authority (NAMFISA).
The report states that Gross Domestic Product (GDP) in Namibia contracted 1.1% in 2019 compared to marginally positive growth rate of 0.7% in 2018. GDP is expected to contract further by 6.9% in 2020 due to the impact of the Covid-19 pandemic before the expected recovery in 2021.
Although the domestic outlook remains uncertain, the government stimulus package, coupled with other relief measures, as well as the Bank of Namibia’s policy relief measures are expected to mitigate the negative impact of the pandemic on the economy to a certain extent.
The report also show that household and corporate debt increased moderately in 2019 underpinned by short-term credit facilities. Household debt grew by 7.3% during 2019 when compared to 7% in 2018, driven largely by demand for short-term credit facilities. Household debt relative to disposable income rose from 92.9% in 2018 to 97.7% in 2019 as credit extended to individuals continued to increase, while disposable income moderated in 2019. The total corporate debt stock rose marginally by 0.6% to R127.2 billion in 2019, owing to an increase in domestic debt.
“Going forward, policy responses to Covid-19 may support the cash flows of households and corporates in the short to medium term with probable softening of the threat to financial stability. Nonetheless, if the risks to financial stability stemming from the Covid-19 pandemic materialise, the impact on the financial system could be adverse,” the report states.
The country’s economic growth is also being affected by the global economy, which slowed in 2019. Global GDP is projected to contract in 2020 before recovering significantly in 2021. Global growth decelerated to 2.9% in 2019, from 3.6% in 2018 on the back of trade wars and geopolitical tensions. According to the April 2020 International Monetary Fund (IMF) World Economic Outlook (WEO), global GDP is projected to contract by 3% in 2020 before expanding by 5% in 2021.
These forecasts assume that the Covid-19 pandemic would be under control by the second half of 2020. However, in the event that the pandemic is not controlled, the IMF predicts a further 8% point reduction in growth over and above the baseline scenario. Going forward, risks to financial stability remain as they are largely dependent on the world’s ability to effectively contain and recover from Covid-19.