THE International Monetary Fund (IMF) has advised the government to pursue a "growth-friendly" medium-term fiscal consolidation strategy. The Fund indicated in its latest assessment of the Namibian economy that the strategy should aim to rein in current spending -wages and transfers and subsidies to state owned enterprises, while preserving growth-promoting capital. The IMF has welcomed plans by the government to link civil servants' pay with performance. The IMF has also commended the measures being put in place by the government to improve domestic revenue generation, which bodes well for a balanced fiscal consolidation. BALANCED POSITION IMF also called for a broadly balanced fiscal position by 2016 to help rebuild the fiscal and reserve buffers, adding that the speedy implementation of state-owned enterprises performance agreements is needed to put them on a financially viable footing. The report notes that while the level of household indebtedness has stabilised, it remains elevated. However, this in itself, does not pose imminent risk to macroeconomic and financial stability. The IMF stated that achieving sustainable growth would require a set of reform-oriented innovative policies to reinvigorate productivity growth. "These include increasing the quality of public spending, improving the business environment, implementing supportive measures to liberalise the service sectors, reducing the domestic regulatory burden on firms and the skill mismatch in the labor market. The IMF commends the authorities' efforts to strengthen public financial management including bringing Namibia's procurement system in line with international standards," the report said. FISCAL OUT-TURN Namibia's real GDP grew by a healthy five percent in 2012. Preliminary data for the first half of 2013 suggest that growth has moderated; the slowdown reflects weak global demand for exports, which more than offset the solid growth in the non mineral sector, most notably in retail trade. The fiscal out-turn in the 2012/13 financial year was significantly better than targeted; the overall deficit was 0,3% compared to 3,9% projected in the original budget. The strong performance reflects revenue over performance and some under execution in capital spending, the Fund notes. The current account deficit narrowed to 2,6% of GDP in 2012 from 3,5% in 2011. This outcome was driven mainly by an increase in official transfers in the form of higher than projected Southern African Customs Union (SACU) revenues, and savings made in capital spending. NEAR TERM RISKS Namibia's main near term risks relate to the fragile and uncertain external environment, especially for emerging markets, which could constrain export demand. Further deterioration of the euro-area economies may generate significant negative spillovers through trade linkages as a large share of Namibia's total exports, mainly diamonds, uranium, beef, unrefined copper and fish are destined for Europe . In addition, a delay in finalising negotiation of Economic Partnership Agreement (EPA) with the European Union may bring additional risks to some non mineral exports. The IMF said the period ahead will require a delicate balancing act in the implementation of macroeconomic policies because of global spillovers and domestic policy developments. "The uncertain global environment especially for emerging markets and a possible delay in finalizing negotiations of the EPA with the EU are key risks. In a more adverse global scenario than anticipated, the authorities should allow the automatic stabilizers to work on the revenue side and avoid discretionary fiscal measures to support domestic demand," the IMF noted.
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