Living on tomorrow’s money

NAMIBIANS are living on credit – a trend that cannot continue, FNB Namibia Group Economist Daniel Motinga, has warned.

Releasing his latest monthly economic review, Motinga said that the gap between credit demand and the supply of deposits has widened from 18 per cent to 19 per cent over the last two years.’This implies that household consumption expenditure is mainly financed with debt,’ he said.Households have been net ‘dissavers’ Motinga said, which means that they ‘have been funding current consumption out of future income’.Motinga had already warned in his previous review that unless the consumer can get back onto his feet, Namibia’s economic recovery will be merely ‘statistical’.The latest figures released by the Bank of Namibia show that individuals owed banks N$1,249 billion in overdrafts at the end of September, nearly four per cent more than in August. September’s figure is also higher than that of a year ago, when individual overdrafts totalled N$1,229 billion.Instalment credit increased to N$3,268 billion in September, up from N$3,239 billion a month earlier. It was also slightly more than the N$3,246 billion a year ago.Non-performing loans, according to the BoN’s report for the third quarter, has dropped from N$996 645 million in the second quarter. However, it still stands at a staggering 986 390 million.’Households are still experiencing liquidity strain,’ Motinga said.’Our view is that this trend cannot continue forever and therefore a de-leveraging process is overdue,’ he said.Perhaps this is why shopping malls are not as packed as they were during past festive seasons, he said.The inflation adjusted annualised growth rate in household credit demand is ‘barely positive’ – an indication that consumers are possibly becoming frugal.’This is certainly not good news for the economy now, but an important adjustment for the future.’So may it continue!’ Motinga said.Turning to last week’s fuel price increase, Motinga said it means that fuel prices went up three per cent month-on-month and about 10 per cent year-on-year.’Since fuel accounts for approximately 20 per cent of transport inflation, we forecast an increase in the annualised inflation rate for the month of December.’Motinga expects inflation to edge higher to 7,3 per cent, up from 6,7 per cent this month. This will bring the annual average inflation for 2009 to 8,9 per cent, slightly higher than FNB Namibia’s earlier forecast of 8,6 per cent.Motinga expects an average inflation rate of 6,6 per cent in 2010 and 7,3 per cent the following year.’Of course, this depends on what happens to the exchange rate and the crude price,’ he added.