No delinking from rand
27 December 2018 | Economics
This was confirmed by both finance minister Calle Schlettwein and the Bank of Namibia (BoN) in statements made over the Christmas weekend.
Schlettwein and Ebson Uanguta, the deputy president of the central bank, were reacting to an article published on Friday by Bloomberg which stated that Namibia is considering delinking the Namibian dollar from the rand after 25 years, due to the fickleness of the currency and the economic challenges it faces.
According to Bloomberg's article, following an interview with Schlettwein in New York, the government is considering its options to amend the currency peg agreement or plot a new way forward for the Namibian dollar.
However, such a change will not take place in the near future because Namibia is also grappling with its first recession in 14 years, Bloomberg reported.
Integration with South Africa, including customs agreements, are to be reassessed, Bloomberg said.
It quotes Schlettwein as saying that the entire basket must be reassessed, in the interest of economic recovery.
Schlettwein told Namibian Sun the journalist had probed him regarding Namibia's financial needs over the next decade.
“We are constantly weighing up the benefits and costs of the common monetary area agreement, including the 1:1 pegging of the two currencies. Delinking is not imminent,” Schlettwein said.
In a statement released on Monday, Uanguta said it is no secret that the BoN, from time to time, evaluates the sustainability of the currency pegging agreement. This forms part of the central bank's policy advice it provides to government, “as it relates to any future options that may be considered, if and when the peg becomes unmaintainable”.
“These assessments have concluded that the benefits from the current fixed exchange rate outweigh the costs.”
He added that delinking could negatively affect Namibia.
Namibia's average inflation rate is generally lower than that of sub-Saharan Africa due to the pegging agreement, which allows for lower inflation imports from South Africa. Delinking could compromise this benefit and lead to higher inflation.
Roughly 60% of all imported goods come from South Africa and 1:1 currency pegging agreement saves transaction costs. Imports are thus cheaper than they would be if the currencies were delinked.
Tourism, travel and trade between Namibia and South Africa is boosted in both directions due to the absence of an exchange rate risk, Uanguta added.
“The central bank is of the firm view that the peg remains in the best interest of Namibia. The bank and the finance ministry both believe that no other arrangement will deliver better,” he added.