Luxuries drain reserves Augetto Graig Thursday, October 23, 2014 - 08:00 Business Namibia’s ballooning import bill, fuelled by the rampant import of unproductive luxury items like motor vehicles, threatens a fragile economic recovery and may hamper the country’s ability to import necessities such as food. Yesterday the governor of the Bank of Namibia, Ipumbu Shiimi announced that the Monetary Policy Committee has decided to leave the repo rate unchanged at 6%, although the central bank will keep a close eye on credit growth which is on an upward trend now reaching 15,3%. He explained that despite good credit which helps businesses expand and creates more employment, too much of the credit held in Namibia is a burden on households, particularly in the forms of overdrafts, installment credit and personal loans. He explained that the trade balance between money-generating exports, and foreign reserve-draining imports continues to widen. Over the last eight months, Namibia’s import bill has climbed a staggering 32,9% to N$57,5 billion compared to the same period last year, and almost N$20 billion more than the export bill which grew only by 13,3% to N$37,8 billion. Most disconcerting is that as much as N$7,4 billion of that import bill is for vehicles, of which roughly half are passenger vehicles. Apart from Bank of Namibia’s main regulatory instruments; the adjustment of the repo rate and its effect of raising and lowering the cost of borrowing, Shiimi said that if the situation warrants it, the central bank may also look at other measures in collaboration with other policy makers like the Ministry of Trade and Industry. “If credit continues to be high we would have to increase rates to contain it,” he said, calling escalating household credit, “self-inflicted pains,” which risks worsening the credit situations of Namibian households. Already, total household debt stands as a mind-numbing N$39 billion, of which probably 80% is owed to local commercial banks, he said. The latest national financial stability report shows that Namibian households are on average in- debted up to 87% of their monthly income. “As they get more and more indebted, many may struggle to service that debt and are left with no money for things like school fees or medical aid,” he said. With a national debt service ratio of about 75%, most households spend about N$75 out of every N$100 repaying debts, which is sometimes even not enough. “The Bank of Namibia remains concerned about the importation of unproductive goods, especially passenger vehicles and other luxury goods, which continue to exert pressure on the international reserves of the country. Despite this pressure, the international reserves remain sufficient to meet the country’s foreign obligations,” he said, adding that currently the country has enough in the kitty to ensure about 2,4 months of import cover.
Posted on: Sat, 25 Oct 2014 10:00:01 +0000
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