The Bank of Namibia (BoN) is expected to announce its monetary policy on 16 February 2022 and economists & analysts are predicting that the central bank will increase the repo just like how the South African Reserve Bank (SARB) did.
This Op-ED was provoked by Aluteni Kamati on Twitter, and the comments on The Namibian’s Facebook page on the article titled “SA raises repo, Namibia might jump big”.
The two comments that stood out read, “Is Bank of Namibia married to South Africa anoh?” followed by a laughing emoji and another one, “What else don’t we import from SA? Even [monetary policy] decisions are copied”. Over the years, BoN has kept the repo rate close if not on par with that of SARB. The Facebook comments were right to ask, why our Central Bank “copies” what SARB does and this is explained by the Common Monetary Area (CMA) agreement that Namibia is a member of.
The Common Monetary Area (CMA)
The CMA is a currency union, in which there is an agreement among members of that union (countries or other jurisdictions) to share a common currency, and a single monetary and foreign exchange policy. George Tavlas, in greater detail, explained that the CMA is a fixed-exchange-rate arrangement that groups four countries; South Africa, Lesotho, Namibia, and The Kingdom of Eswatini and under the terms of the CMA Agreement, Lesotho, Namibia, and Eswatini issue national currencies, thusly the Loti, the Namibian Dollar, and the Lilangeni.
Respectively, those currencies are pegged at par to the South African Rand since they have been introduced. In addition, the Rand is a legal tender in each of the three countries and this explains why the Rand can be used to purchase in Namibia.
BoN’s economist Postrick Mushendami, adds that CMA arrangement includes monetary & exchange rate agreements and it was formalised by the accession of Namibia, Lesotho, Eswatini, and South Africa to a multilateral trade agreement in 1990. He further submits that the CMA operates on the major principles of a currency board arrangement (CBA), which stipulates that in a CBA, exchange rates vis-à-vis other member states are fixed, capital flows are unimpeded, a pegged country can issue its own currency and repo rates and the money supply cannot be fully influenced except by South Africa i.e South African monetary policy is adopted.
Generally, Namibia’s monetary policy aims to ensure price stability that leans toward the economic growth that is sustainable and Namibia’s monetary policy framework i.e repo rate is underpinned by the exchange rate system linked to the South African Rand.
Bank of Namibia defended that this link, which requires that Namibia’s currency in circulation is backed by international reserves, ensures that Namibia imports price stability from the anchor country (South Africa) and under a fixed exchange rate regime, monetary policy remains submissive to the fixed peg.
CMA benefits to Namibia
Economists Nchake, Edwards & Rankin in their paper, agree that the monetary policy credibility of the South African Reserve Bank (SARB) has proven positive spill overs, by dropping inflation expectations in Lesotho, Namibia, Eswatini (LNE states) and thus a credible link of the LNE states’ currencies to that of the South African Rand consequently serves as a bedrock for them.
The CMA provides far greater benefits to Namibia and this explains why BoN, is submissive to SARB’s monetary policy decisions. Furthermore, the CMA arrangement has resulted in lower prices/price stabilisations/reduced inflations, reduced trading costs, an upward trajectory in trade volume and cross-border financial transactions and wider access to the South African financial markets.
Before I sign out, with Namibia’s ratifications of the African Continental Free Trade Area (AFCFTA), as a country we should welcome regional economic integration and lean in the direction of an African Monetary Union or SADC/SACU Monetary Area with one currency.
*Enos Kamutukwata is an Economist, and a Fintech & Agritech researcher.. This views are his own and not those of his employer.
