The weight of debt is bearing down on Namibians, as they find themselves trapped in a vicious cycle of borrowing due to a combination of monetary policies, inflation, and rising interest rates, according to economist Mally Likukela.
With the credit to income ratio hovering between 70% and 80%, many Namibians are forced to rely on debt to make ends meet.
“This means you only spend 20% of your earnings, which is not enough to sustain you, drawing you to the option of borrowing, which is terrible,” Likukela explained.
The situation is further compounded by the Bank of Namibia’s (BoN) mandate to control inflation and interest rates. When interest rates rise, borrowers are forced to take on even more debt, further entrenching them in the cycle of indebtedness. This affects not only individuals but also businesses, stifling economic growth.
Valme Kruger, an information and technology consultant, echoed Likukela’s concerns, noting that rising interest rates have taken a toll on everyone’s well-being and growth, especially in the aftermath of the economic downturn and the global COVID-19 pandemic.
“However, at this point in time, we appreciate the window period we have observed whereby the Bank of Namibia has not effected any repo rate increases,” Kruger said. “This is an opportunity for us to stabilise, rebuild, and recover while bracing for what is to come next.”
The burden of debt servicing is a significant challenge for many Namibians, as it reduces their ability to save and invest. With Namibia’s repo rate at 7.75%, inflation at 6.2%, and prime lending rate at 11.50%, the situation is unlikely to improve in the near future.
Kruger highlighted the impact of COVID-19 on businesses, noting that many were caught off guard by the pandemic, resulting in job losses and financial strain. “This situation still lingers on afterward as they try to recover,” she stated.
Likukela added that the COVID-19 pandemic forced governments and central banks around the world to cut interest rates and stimulate their economies. However, the subsequent economic recovery and supply chain disruptions led to rising inflation, which in turn prompted central banks to raise interest rates again.
Despite these challenges, Namibia has managed to achieve a 20% growth in investments over the past decade, according to Basson van Rooyen, Portfolio Manager at Sanlam Namibia Investments. He attributed this resilience to the country’s success in maintaining relative stability in prices and interest rates.
The financial sector, particularly the non-banking sector, has played a crucial role in shielding the Namibian economy by providing liquidity. However, the high cost of borrowing continues to be a constraint for businesses and individuals.
To break free from the cycle of debt, Namibians need to develop a better understanding of financial literacy and the importance of saving and investing. Financial education can empower individuals to make informed financial decisions and reduce their reliance on debt.
