tom k alweendo : accelerated economic growth and job creation – the need for a paradigm shift annual address of mr tom k alweendo, governor of bank of namibia, windhoek, 5 november 2009. * * * ladies and gentlemen, thank you for attending our regular annual address. i know that we are competing for your time with many other events. the theme of my annual address this year is on the need for a paradigm shift, in order to accelerate economic growth and job creation. before doing that, i would like to give you a brief update on the state of the economy and the banking system. as we all know the global economy went through a period of extraordinary financial instability in 2008 and 2009. this was accompanied by the worst global economic down turn and a collapse in trade. no country escaped the reach of this economic storm, and we were no exception. our export oriented sectors, notably minerals and tourism, have been especially hard hit. consequently, the economy is expected to contract by about 1. 1 percent in 2009, while a moderate recovery is envisaged for 2010. in part, due to depressed international demand conditions, inflationary pressures have been largely under control. the annual rate of inflation has declined to 7. 1 percent in september. declining levels of inflation has allowed the bank of namibia to ease monetary conditions, but domestic demand is yet to show a sustained recovery. in line with the global economic recovery, there are encouraging signs of a recovery in the namibian economy, but it will take a while for economic activities to reach pre - crisis levels and become more sustainable. with respect to the financial system, our banks remain profitable. banks are adequately capitalized, sufficiently liquid, and non - performing loans as a ratio to total loans remain well below internationally acceptable standards. i am also certain that most of you have been following the recent debate on the appropriateness of the difference between the bank of namibia ’ s official interest rate and the commercial banks ’ average lending rates. at the heart of the debate is whether the interest rate differential is a correct reflection of the risk commercial banks undertake to intermediate between the savers and borrowers. we do agree that commercial banks, just like any other business, need to be rewarded for the risk they take in conducting banking business. we also believe that the reward must be commensurate with the risk being taken. as we all know, the banking system is the main transmission channel for our monetary policy actions. that means therefore that

it can hardly be characterised as a trend, some countries still adopt a pegging of their exchange rate and groups of countries are opting for cooperation in a currency area or monetary union. alternatives for namibia namibia is indirectly linked to what appears to be the present norm in exchange rate arrangements. this is because the namibia dollar is linked to the rand, which is floating and its fluctuations will in the future be influenced by a monetary policy based on inflation targeting. if for some unknown reasons the present arrangement should be terminated some time in the future, the most relevant alternative would be that namibia adopts a floating exchange rate of its own. it is the bank of namibia ’ s view that the benefits of the present membership of the cma outweigh the costs. a peg arrangement will also continue to remain the optimum as the country battles with an attempt to reduce fiscal deficit. for the foreseeable future, therefore, namibia should not take any initiatives to terminate its membership. but there is another alternative. the present arrangement should - to the extent possible - be managed in such a way that the stability is utilised in promoting the development of the national economy. in my opinion, namibia would benefit from evolution of the cma arrangement toward a full monetary union. as mentioned earlier, this would require a closer coordination of economic policy in the currency area. political structures would have to be established and made operational. the group of countries that comprise the cma could be extended to include countries in our region with similar economic structures and development priorities. i am fully aware that the realisation of this objective can only be achieved in a long - term perspective. in the meanwhile, namibia ’ s benefits from the cma arrangement could be increased by extended consultations between the member countries. for example, the adoption of the inflation targeting framework in south africa would be a good occasion for extending the discussion on the framework itself and, later, on the implementation of monetary policy in response to the monetary authorities ’ expectation of future inflation. such extended consultations should not be limited to monetary matters, but apply to other areas of economic policies as well. in the end, the achievement of monetary union will require that countries in the region commit themselves to confront the process of solving conflicting national interests in a fair and democratic manner. in order to reach a common objective of monetary stability and economic prosperity, a regional solution may also be the route to take for us here in southern africa. conclusion in conclusion, i hope that my explanation of this