Volatile Rand Has Namibia Mulling an End to 25-Year Currency Peg

(Bloomberg) -- Namibia is growing tired of the economic pain caused by the volatile South African rand and is considering ending a 25-year-old peg to the currency of its larger neighbor.

The government in Windhoek is weighing options to amend the currency arrangement or forge a new path for the Namibian dollar, Finance Minister Calle Schlettwein said in an interview in New York. A change isn’t imminent as the nation seeks to emerge from its first recession in 14 years, but as the economy recovers integration with South Africa, including customs agreements, has to be reassessed. “The whole basket has to be re-evaluated,” he said.

Namibia, a country bigger than France by land area, but with a population of just 2.6 million people, introduced its own currency in 1993, pegged at parity to the rand, three years after gaining independence from South Africa. Regional neighbors Lesotho and Eswatini, formerly known as Swaziland, have a similar arrangement. The three nations, together with Botswana, also operate a customs-sharing pool with South Africa.

The rand is the fifth-worst performing emerging-market currency against the dollar this year, weakening more than 14 percent as it is buffeted by trade tensions between the U.S. and China, South Africa’s biggest trading partner. The currency posted a low of 15.6958 and a high of 11.5078 against the greenback in 2018.

More volatility appears in store for 2019, with a South African election in May adding to local risks. The cost of hedging in the options market against price swings in the currency over the next year has climbed almost 500 basis points since April, well above the five-year average. The rand was at 14.4342 to the dollar on Friday afternoon, with Bloomberg-compiled forecasts for its end-2019 level ranging from 12.60 to 16.50.

Here are some other views from the interview with Namibia’s Schlettwein:

  • Economy of world’s largest producer of marine diamonds will probably return to positive growth next year, following 10 straight quarters of contractions. “I think we’ve bottomed out.”
Volatile Rand Has Namibia Mulling an End to 25-Year Currency Peg
  • Namibia is unlikely to sell debt next year as the nation has financing to cover its bond maturing in 2021 through an African Development Bank loan.
  • Namibia won’t follow the South African approach to land reform and instead favors “expropriation with just compensation.”

To read more on how Namibia’s economy is intertwined with that of South Africa:
South African Slump Hurts Smaller Neighbors Protecting Rand Peg
Ten Quarters of Contraction Bedevils Namibian Central Bank’s Job
Bank of Namibia Wants Growth But Asks Citizens to Be Thrifty

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