Foreign reserve drops indicate slow growth

09 January 2019 | Economics

PSG Namibia research analyst Shelly Arnold says real Gross Domestic Product growth remains sluggish.

Looking at the stock of foreign reserves (forex) which declined on a monthly basis during November 2018, according to the Bank of Namibia’s latest Money and Banking Statistics report, Shelly warned of an expected drop in SACU income this year.

The level of international reserves decreased to N$29.5 billion at the end of November from N$31.1 billion recorded in the previous month.

The decrease in the level of reserves is mainly due to “net capital outflows from the commercial banks as a result of increased foreign currency purchases coupled with net government payments and the exchange rate appreciation,” the central bank said.

Growth in private sector credit extension (PSCE) ticked higher in November. The PSCE growth rate was recorded at 7.3% y-o-y in November, slightly higher than October’s growth rate of 7.1% y-o-y.

Growth in total credit extended to the corporate sector increased to 7.6% y-o-y in November, up somewhat from 7.1% y-o-y recorded in the previous month.

The BoN attributes this growth to “the uptake of short-term credit facilities by businesses in the financial services and mining sectors during the period under review.”

Meanwhile, growth in credit extended to households was stable at 7% y-o-y in November, an unchanged rate compared to October.

Regarding money supply, broad money supply growth slowed to 7.5% y-o-y in November 2018 from 9,6% y-o-y in the previous month.

According to the central bank, this decrease in growth was underpinned by “continued contraction in the growth of the net foreign assets of the depository corporations, coupled with a decline in domestic claims”.

“Why do we care? Looking ahead, inflows from SACU are expected to be weaker than in recent years due to the lacklustre performance of the South African economy, which shrinks the SACU revenue pool.

“On the bright side, inflows from the African Development Bank loan agreement will continue to boost foreign reserves this year. In general, the growth in monetary aggregates is well below levels seen during the economic boom years of 2010-15 and suggests that real GDP growth remains sluggish,” said Shelly.

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