By Josef Kefas Sheehama
The Bank of Namibia convened its Macroprudential Oversight Committee (MOC) on the 10th of July 2023 to evaluate the risks and vulnerabilities faced by the Namibian Financial System. The Committee emphasized the importance of monitoring inflationary pressures and geopolitical tensions, which could potentially hinder economic recovery and adversely impact the financial system.
The primary objective of macroprudential policy is to safeguard financial stability. This involves ensuring that the financial system can absorb adverse shocks rather than amplifying them. To achieve this, the Bank of Namibia adopts a forward-looking approach, aiming to build resilience in the financial system during prosperous times so that it can be utilized during economic downturns. Measures are designed to prevent the accumulation of imbalances that may lead to financial distress.
However, the macroprudential policy remains a work in progress, and its interactions with monetary and fiscal policies, as well as its links with micro-prudential regulation and external shocks, require careful consideration. Despite its challenges, the implementation of effective macroprudential policies can lead to smoother economic and financial cycles, ensuring price stability and supporting specific industrial policies.
Namibia’s real Gross Domestic Product (GDP) growth is expected to decline in 2023 and 2024 due to weaker global demand. Despite registering a growth of 4.6 percent in 2022, the domestic real GDP growth is anticipated to moderate to 3.0 percent in 2023 and further slow down to 2.9 percent in 2024. The tight monetary policy stance is projected to keep inflation below the central bank’s target of 6.0% in the medium term.
The International Monetary Fund (IMF) has revised its global economic growth outlook, indicating a decline to 2.8 percent in 2023 from 3.4 percent in 2022, with an expected recovery to 3.4 percent in 2024. The global economic outlook faces downside risks, such as debt distress in emerging markets and the implementation of stringent monetary policies to combat inflation and geopolitical tensions.
Macroprudential policy in Namibia has a positive impact on economic growth, especially in maintaining financial system stability and promoting investments. However, its direct impact on both financial and real economies should be carefully assessed, as it may entail economic costs while stabilizing growth.
To improve our understanding of macroprudential policies and their interactions with other policies, effective communication from the Macroprudential Oversight Committee is crucial. Policymakers must ensure transparent communication with the public and professionals throughout the macroprudential cycle, providing timely warnings of systemic risks and explaining the rationale behind introducing and implementing macroprudential measures.
The implementation of macroprudential policy also raises questions about refining existing frameworks and governance. Addressing the appropriateness of instruments, their interactions, and calibration are essential to enhance the effectiveness of macroprudential actions. Additionally, there is a need to improve the quantitative approach to macroprudential policy measurement, including the measurement of the macroprudential stance, and to consider extending the scope of macroprudential regulation to non-bank institutions.
In conclusion, well-calibrated macroprudential policies are essential for maximizing economic growth and preventing economic crises. The Bank of Namibia’s collaboration with NAMFISA, the non-banking institutions regulator, demonstrates a comprehensive effort to monitor risks and take necessary interventions. By navigating the challenges and refining their approach, the Bank of Namibia sets a new standard for promoting financial stability and prudent decision-making.