Slow economic activity hinders borrowing - Uanguta

Namibian businesses are holding back on new loans because the economy is not generating enough activity to encourage investment and expansion, Bank of Namibia governor Ebson Uanguta says.

Private-sector credit extension growth slowed to 4.5% in June from 4.8% in April, with the bank recording lower borrowing and net repayments by businesses, particularly in instalment sale and leasing credit, overdrafts and other loans and advances.

Speaking at the bank's annual monetary policy dialogue in Windhoek this week, Uanguta said the current level of interest rates was not high enough to deter businesses from taking on credit.

“What affects the uptake of private sector credit by both businesses and households is not the cost of capital. We don't think that at this point our interest rate is at the level or it is [too] high to be a hindrance to businesses taking up capital," he said.

“I think what is a hindrance at this point is the level of economic activities that are very slow,” Uanguta said.

The slowdown in business borrowing comes as the central bank expects Namibia's economy to grow by 2.1% in 2026 and 2.8% in 2027, with climatic shocks and weak diamond prices weighing on the outlook.

Uanguta said uranium mining was emerging as an important source of growth, while financial services, wholesale and retail trade, construction, electricity and water were expected to perform strongly this year.

“Oil and gas prospects remain the principal green shoots on the horizon,” Uanguta said.

He said the decision to keep the repo rate unchanged at 6.75% was intended primarily to safeguard the Namibia dollar's one-to-one link with the South African rand.

“When you are not considering growth in your monetary policy decision, then you will be losing sight of what we are supposed to do,” Uanguta said.

He said monetary and fiscal policy needed to work together to address the country's growth challenges effectively.

Uanguta said a wider interest-rate gap with South Africa could encourage funds to leave Namibia and put pressure on the reserves supporting the currency peg.

He said Namibia could see its foreign reserves, which stood at N$57.1 billion at the end of July, equivalent to about 3.5 months of import cover, fall below three months of import cover if lower interest rates were accommodated in the hope that private credit would take off.

More cautious

The bank's director of research and financial sector development and chief economist, Dr Emma Haiyambo, said businesses were choosing to repay existing loans rather than take on additional debt.

Haiyambo said repeated international shocks could be making businesses more cautious about taking on new debt, as companies weighed whether they could service loans if economic conditions deteriorated.

"Yes, there are not enough economic activities going on; we have a growth problem, but that is because people are not investing more in economic activities,” Haiyambo said.

The bank's economic advisor, Helvi Fillipus, said weak credit growth reflected a deeper problem in the economy's structure.

Fillipus said it was difficult to achieve significant credit growth when the economy itself was not generating enough activity.

Fillipus said Namibia’s existing economic structure had probably reached its limits and that the country needed new engines of growth, including emerging activities in the oil and gas sector.

She said Namibia could achieve stronger growth when there was no drought and commodity prices were favourable, but without those conditions, the economy struggled to sustain growth.

She said the country needed additional sources of economic activity, arguing that the traditional drivers currently offered limited room for stronger growth.

Government has limited fiscal space to drive growth, she said, adding that households were already under pressure from indebtedness and the net-export side of the economy was also constrained.

“The only potential lever we have for growth is really to stimulate investments, both domestic and foreign investment, and I think that's where the conversation should go,” Fillipus said.

Legislative uncertainty

Fillipus referred to a committee appointed by President Netumbo Nandi-Ndaitwah to examine economic recovery, noting that some of its recommendations focused on improving the business climate.

She said regulations, administrative requirements and other rules make it difficult for businesses to operate, while uncertainty surrounding legislation that had remained pending for lengthy periods was also holding back investment.

According to her, oil and gas offered one possible new source of activity, with a final investment decision potentially generating multiplier and spillover effects across the wider economy.

The World Bank's current strategy for Namibia for 2025 to 2029 emphasises creating a more conducive environment for private-sector investment to drive inclusive economic growth and create jobs.