Namibia Faces Tight Growth Outlook on Weak Diamond Demand
Namibia’s growth is projected to remain relatively unchanged in 2026, on the back of weak diamond demand and the expectation that debt will surge.
The country’s growth slowed in 2025 and is expected to remain broadly unchanged in 2026, the International Monetary Fund (IMF) said after a visit.
The fund highlighted that Namibia’s growth was constrained by weak diamond demand and continued livestock rebuilding, adding that structural reform to improve the business environment is critical to raise growth potential.
Public debt is projected to rise on the current trend over the medium term, underscoring the need for strong fiscal consolidation. Ongoing conflict in the Middle East could further weigh on growth and inflation through weaker than expected global demand and heightened commodity price volatility.
IMF team led by Ms. Xiangming Li said at the conclusion of the mission, said, “Namibia’s real GDP growth slowed to 1.7 percent in 2025, reflecting weak diamond demand and continued livestock rebuilding following the 2024 drought.
“It is expected to remain subdued in 2026, partly reflecting the impact of the ongoing conflicts in the Middle East through higher fuel costs and weaker global demand.
“While inflation moderated in 2025 and has continued its decline so far this year, reaching 2.4 percent year on year in February 2026, the rising fuel prices are projected to raise inflation for the year.
“The external position improved modestly in 2025, with the current account deficit narrowing from 15.2 percent of GDP in 2024 to 13.2 percent of GDP, supported by stronger uranium and gold exports that more than offset lower Southern African Customs Union (SACU) revenues and the continued downturn in the diamond sector.
“The current account deficit is expected to remain sizable due to FDI related imports for oil exploration and mineral mining. Gross foreign reserves declined following the redemption of Namibia’s US$750 million Eurobond in October 2025, with reserve coverage standing at 3.5 months of imports at end 2025.
“The Middle East conflict entails a major downside risk to the outlook, including a further weakening of global demand, heightened commodity price volatility, particularly for fuels and fertilizers, and tighter global financing conditions. In addition, a continued slump in demand for natural diamonds would impede growth recovery, while tighter domestic financial conditions could further weigh on activity. On the upside, any final investment decision by oil exploration companies or faster implementation of reforms to enhance public investment could boost growth.
“The fiscal deficit is estimated to have widened markedly in FY25/26, driven primarily by a sharp decline in SACU revenues, which more than offsets ongoing efforts to contain the wage bill, strengthen tax collection, and reduce subsidies and transfers.
“The FY26/27 budget appropriately envisages further fiscal consolidation, primarily through reforming the Public Service Employees Medical Aid Scheme (PSEMAS), reducing transfers to public enterprises, and controlling spending on goods and services to contain further debt increases.
“Looking ahead, further fiscal adjustment is critical to put debt firmly on a downward path. This will require concrete measures to ensure that the envisaged primary surpluses under the medium-term expenditure framework are achievable.
“Strong expenditure restraint, particularly to contain recurrent spending, and improved revenue administration, will be critical. Priority should be given to containing the public wage bill through civil service reforms, for which the ongoing review to align staff size, skills, and deployment is an essential step.
“In addition, full implementation of the planned PSEMAS reform can generate significant savings. To ensure that the planned reduction in transfers to public enterprises (PEs) is sustainable, it is essential to implement the public sector management framework, including preparing and publishing the PE risk report.
“These efforts should be supported by broader public financial management, including procurement reform.
“The Bank of Namibia (BoN) has maintained its policy rate at 6.5 percent in February 2026, with the policy rate gap with the South African Reserve Bank (SARB) maintained at 25 basis points. Credit growth to the economy picked up slightly to 4.4 percent in 2025, from 4.0 percent in 2024, mainly driven by stronger credit uptake by businesses. The banking system remains liquid and well capitalised, with non-performing loans moderating to 4.3 percent.
“Given heightened global uncertainty and upside pressures on commodity prices, the BoN should closely monitor developments. It should carefully calibrate policy rate alignment with the SARB and stand ready to take measures as needed to safeguard the currency peg and ensure adequate reserve coverage.
“As the SARB transitions to a new 3-percent inflation target in a volatile global environment, the BoN should manage its policy with agility.
“The authorities will continue to enhance financial sector oversight to monitor macro-financial risks and safeguard financial stability. Regulations implementing the Financial Institutions and Markets Act are nearing completion, supporting full implementation of the law by mid-2026.
“Significant progress has been made in strengthening Anti-Money Laundering / Countering the Financing of Terrorism frameworks to secure Namibia’s timely exit from the Financial Action Task Force grey list this year.
“Structural reforms are essential to support diversification and job creation. Improving the business environment, including expediting permitting processes and implementing a practical local content policy, would help unlock private sector-led growth.
“This could be supported by the timely implementation of the authorities’ plans to advance digitalisation and e-government reforms, which would improve government efficiency.
“At the same time, aligning education and training programs with labour market needs is critical to address skills mismatches and ensure that growth translates into employment gains.
“The mission thanks the authorities for their excellent collaboration and warm hospitality.” Fitch Affirms Tanzania at ‘B+’ with Stable Outlook
