Category Archives: Economic Research

Economic Research

PSCE – September 2020

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Overall

Total credit extended to the private sector (PSCE) decreased by N$106.9 million or 0.1% m/m in September, bringing the cumulative credit outstanding to N$102.88 billion. On a year-on-year basis private sector credit extension increased by only 1.5% y/y in September, compared to 2.2% growth recorded in August. This represents the lowest level of annual growth on our records dating back to 2002. N$2.80 billion worth of credit has been extended to individuals on a 12-month cumulative basis, while corporates and the non-resident private sector decreased their borrowings by N$943.7 million and N$372.3 million, respectively.

Credit Extension to Individuals

Credit extended to individuals increased by 0.5% m/m and 5.0% y/y in September. The month-on-month growth has mostly been driven by an increase in ‘other loans and advances’ (or OLA, which is made up of credit card debt, personal and term loans) which grew by 1.4% m/m and 14.0% y/y in August, indicating continued reliance on short-term credit by individuals. Overdraft facilities extended to individuals increased by 0.7% m/m and 4.2% y/y. Instalment credit and leasing transactions remained steady m/m, but contracted by 5.2% y/y. The value of mortgage loans extended to individuals grew by 0.3% m/m and 4.8% y/y.

Credit Extension to Corporates

Credit extended to corporates contracted by 0.8% m/m and 2.2% y/y in September, following the low growth of 1.8% m/m and 0.4% y/y in August. Bar overdrafts, all categories recorded declines on a month-on-month basis. Mortgage loans to corporates declined by 1.0% m/m and 8.9% y/y. Instalment credit extended to corporates, which has been contracting since February 2017 on an annual basis, remained depressed, contracting by 2.5% m/m and 15.6% y/y in September. Overdrafts to corporates remained steady m/m, but increased by 3.7% y/y.

Banking Sector Liquidity

The overall liquidity position of commercial banks remained relatively unchanged, declining by only N$10.1 million to reach an average of N$2.22 billion. The Bank of Namibia states that this is due to two opposing effects of higher Government payments which were partially offset by an increase in South African Rand currency outflows during the month. The outstanding balance of repo’s fell from N$882.8 million at the start of September to N$116.0 million by month end.

Reserves and Money Supply

Broad money supply rose by N$12.7 billion or 11.2% y/y in September, as per the BoN’s latest monetary statistics release. Foreign reserve balances declined by N$2.01 billion or 2.2% m/m to N$32.7 billion in September. The BoN attributes the decrease to higher government foreign payments, as well as an increase in commercial bank outflows during the month.

Outlook

Private sector credit extension growth remains subdued at the end of September, slowing from 2.2% y/y to 1.5% y/y in September. Rolling 12-month issuance fell to N$1.48 billion and is down a rather staggering 75.1% from the N$5.95 billion figure as at September 2019.

The data clearly shows that while the various rate cuts by the BoN would have provided relief to those who are heavily indebted, it did not spur on additional credit uptake, as we predicted. The heightened uptake of short-term personal debt and overdrafts is a sign of a stretched consumer, many of whom will have been negatively impacted by the effect of the pandemic and resultant lockdowns. As economic activity is expected to remain depressed for quite some time, we do not expect to see a recovery in credit extension in the short term. Corporates continue to delever, indicating that they are not preparing to invest in capital expansion projects anytime soon, which makes sense given the current economic climate.

NCPI – September 2020

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The Namibian annual inflation rate remained at 2.4% y/y in September, with prices in the overall NCPI basket increasing by 0.3% m/m. On a year-on-year basis, overall prices in six of the twelve basket categories rose at a quicker rate in September than in August, with five categories recording slower rates of inflation and one category recording an increase consistent with the prior month. Prices for goods increased by 3.1% y/y while prices for services rose 1.5% y/y.

The food & non-alcoholic beverages category remained the largest contributor to annual inflation in September, accounting for 1.2 percentage points of the total 2.4% annual inflation rate. The category recorded price increases of 1.2% m/m and 6.6% y/y. Prices in all thirteen sub-categories recorded increases on a year-on-year basis with the largest increases being observed in the prices of fruits which increased by 17.9% y/y and vegetables which increased by 12.2% y/y. Price increases in meat products and fish also remained elevated at 9.4% y/y and 9.0% y/y respectively.

Alcoholic beverages and tobacco prices, making up approximately 12.6 of the overall inflation basket, was the second largest contributor to the annual inflation rate in September, with prices of the basket item increasing by 3.8% y/y. On a month-on-month basis prices of the basket item rose by 0.4% m/m. Prices for alcoholic beverages rose by 0.2% m/m and 3.4% y/y, while tobacco prices increased by 1.2% m/m and 5.6% y/y.

Transport, one of the largest inflation basket categories, continues to experience relatively low inflation at 1.3% y/y. This is largely as a result of low oil prices, which remain down in Rand terms when compared to a year ago. A notable exception however is the 13.4% y/y inflation on public transportation services as a result in the increase in bus and taxi fares due to campaigning by the Namibia Transport and Taxi Union (NTTU) in light of government’s restriction on the number of passengers allowed per vehicle. This highlights just one of the ways in which lockdown measures have increased costs on the public, and often specifically on the more vulnerable members of society.

Global growth remains under pressure and monetary policy remains very accommodative, pointing to low global inflation expectations. Monetary easing by developed markets has reached previously unknown levels and to a large extent enabled developing markets and emerging economies to follow suit, albeit to a lesser extent. The BoN noted in its August Monetary Policy Statement that most developing markets and emerging economies have cut interest rates at their most recent monetary policy meetings, with the notable exception of China which kept rates steady. The inflation environment is expected to remain benign in most markets which should underpin a global economic recovery.

Inflationary pressure in Namibia remains weak and continues to trend below South African inflation. IJG’s inflation model forecasts an average inflation rate of 2.3% y/y in 2020 and 3.7% y/y in 2021. While risks remain to the upside we see these as muted in the short term in what is currently a very accommodative global monetary environment. Oil prices and a further escalation of the US-China trade war remain the largest risks in the short-term, while domestic and South African fiscal deterioration pose medium-term risks as debt levels increase unchecked, eating into the already limited productive portion of expenditure.