Foreign reserves suffer decline

By Hilary Mare

THE stock of international reserves decreased in 2019 due to higher outflows through commercial banks, the latest 2019 annual financial report of the Bank of Namibia reveals.

According to the report, foreign reserves declined by 6.7 percent year-on-year, closing off 2019 at a level of N$28.9 billion.

“The decline in foreign reserves is partly attributed to higher commercial bank outflows, on the back of higher imports from the South African market. Another notable driver of the decline in reserves is higher foreign payments on behalf of the Government, which were recorded at N$4.8 billion in 2019 compared to N$4.3 billion in 2018,” the report highlights adding that the 2.13 percent year-on-year appreciation of the Namibia Dollar against the United States Dollar (USD) also contributed to the decline in foreign reserves when expressed in Namibia Dollar terms.

“The impact of these outflows was somewhat cushioned by the relatively higher SACU revenue, which was recorded at N$18.5 billion in 2019 compared to N$17.9 billion the previous year.”

However, the central bank maintained that in terms of reserve adequacy, foreign reserves remained adequate when measured in terms of import coverage as well as currency in circulation (CIC) plus a buffer of three times the monthly commercial bank outflows.

“Despite reporting a weaker estimated import coverage ratio of 4.1 months at the end of 2019 (2018: 4.5 months) due to the lower reserve level, the ratio remains above the international benchmark of 3 months. The second measure sufficiently covered the CIC plus the buffer by a ratio of 3.7 times,” the central bank says in the report.

The USD and ZAR currencies continued to constitute the biggest share of the Bank’s overall foreign exchange reserves. As at 31st December 2019, the USD and ZAR currencies accounted for 54.0 percent and 40.2 percent of overall foreign exchange reserves, respectively (2018: 44.7 percent and 50.0 percent, respectively). The aforementioned can be ascribed to relatively higher ZAR cross-border outflows during 2019 and a 2 percent switch in allocation of ZAR assets towards USD assets.

The remaining portion of 5.8 percent foreign reserves was made up of the Special Drawing Rights basket of currencies, namely  the Euro (EUR), British Pound Sterling (GBP), Japanese Yen (JPY) and Chinese Yuan/Renminbi (CNY), up from 5.3 percent in 2018.

“To uphold the purposes of holding foreign reserves, the Bank needs to ensure that the primary objectives of capital preservation and liquidity management are met. Subject to meeting the former objectives, excess reserves shall be managed to pursue and maximise investment returns. These objectives are achieved through exposure to a range of eligible foreign assets set within limits which are informed by the Bank’s annual strategic asset allocation exercise and Investment Policy and Guidelines,” further stated the report.

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