Namibia: 2013 Article IV Consultation-Staff Report; Press Release

KEY ISSUESSetting: Namibia's positive growth record over the years has raised overall incomes and led to positive economic outcomes. However, growth has not translated into sufficient job creation contributing to persistently high unemployment and income inequality.Outlook and risks: Real GDP growth is expected to moderate to 4 percent in 2013 from 5 percent in 2012 reflecting weak global demand for exports partially offset by solid growth in domestic demand. The uncertain global environment and a possible delay in finalizing negotiations for the Economic Partnership Agreement (EPA) with the European Union are key risks.Policy mix: Given the peg to the South African rand, staff urges the authorities to return to fiscal prudence through greater expenditure control. In case of more adverse shifts in the global economic environment than currently anticipated, staff advocates for allowing the automatic stabilizers to operate on the revenue side.Medium-term: With an uncertain external environment, staff recommends the authorities pursue a "growth-friendly" fiscal consolidation reining in unproductive current spending, while protecting growth-promoting capital spending. Staff welcomes efforts by the government to look into ways to steer a gradual reduction of the wage bill which would improve labor market outcomes. Measures to enhance domestic revenue mobilization would help balance the fiscal consolidation strategy.Financial stability and inclusion: The government's emphasis on enhancing financial inclusion, while preserving the stability of the financial system, is appropriate. Although the level of household indebtedness has stabilized, it remains elevated. Thus, staff commends the authorities for initiatives taken to strengthen their surveillance of the financial sector and thereby help minimize the associated vulnerabilities.Growth and diversification: Achieving higher growth would require a set of efficiency-driven reforms to reinvigorate productivity drivers. Delivering good outcomes on policies for greater diversification would require supportive measures to liberalize the service sectors and reduce the domestic regulatory burden for firms.Past advice: There is broad agreement between the Fund and the authorities on macroeconomic policy and structural reform priorities. The authorities also view the Fund as a valuable partner for their capacity building efforts.