Harsh economic decline expected

By Hilary Mare

REAL Gross Domestic Product is expected to contract by an astounding 6.9 percent in 2020 due to the impact of the COVID-19 pandemic, the Bank of Namibia and NAMFISA’s Financial Stability Report 2020 reveals.

This is at the backdrop of the fact that Namibia contracted by 1.1 percent in 2019 compared to a marginal growth rate of 0.7 percent in 2018.

“On 1 April 2020, the Minister of Finance announced the implementation of a N$8.1 billion stimulus package to support corporates and households during the COVID-19 crisis. The stimulus package is expected to help mitigate the negative impact of the pandemic on the economy. The domestic Namibia Financial Stability Report - April 2020 outlook remains bleak, hence the extend and spread of the pandemic remains uncertain.

“Going forward, risks to domestic growth and outlook are the on-going restrictions and lockdowns in many countries including Namibia which are restricting business activities and costing disruption to supply. Moreover the volatile and persistently low international prices of some of Namibia’s export commodities also pose a risk,” the report notes.

However the report also highlights that the financial system remained sound and resilient in 2019, despite unfavourable domestic and global economic conditions. Specifically, the banking as well as non-bank financial sectors continued to be liquid, profitable and well capitalised.

Furthermore, the banking sector maintained liquidity levels well above the prudential requirement.

“Asset quality as measured by the incidence of non-performing loans deteriorated further in 2019, partly ascribed to unfavourable economic conditions and their concomitant impact on household disposable income and business performance but remained within acceptable limits.

“This deterioration in the asset quality however does not pose any immediate risk to banks as they are adequately capitalised to offset this risk. Both household and corporate debt increased moderately, however risks to the financial system remained modest. Despite the recessionary conditions, the NBFI sector remained financially stable and sound, but the positive performance of NBFIs could be dampened by the outbreak of the COVID-19 pandemic. Similarly, the payments system and infrastructure remained stable, while efficiently contributing towards safety and reliability in payments in order to facilitate financial stability in the country,” extended the report.

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