Trade deficit handicap GDP and employment

Economic research has shown that when countries trade with each other, global wealth grows, and all countries gain. No doubt, trade is an engine of economic growth. So, development of competitive ability and enhance education system and market diversification, formulation of strong legal framework and trade policy, incentives for the promotion of export and priority in the agricultural and hydropower sectors.

The conservative wisdom is that the trade balance reflects a country’s competitive strength. The lower the trade deficit, the greater a country’s competitive strength and the higher its economic growth. However, it also may reflect a low level of savings and make country more vulnerable to external economic shocks. Pursuant to the latest Namibia Statistics Agency (NSA) trade data, the country’s trade balance remained in a deficit of N$4.6 billion from N$4.1 billion recorded in April 2022 and N$2.6 billion observed in May 2021. Hence, Namibia’s trade deficit widens despite N$15.9bn trade growth. Trade deficit is acting as negative catalyst in the economic growth and GDP of a country. The tightening of the monetary policy, restructuring all government levels led to a reduction in government expenditure. While there was some reasonable level of success, the level of Implementation and future of the programme was uncertain as no official word came from the government regarding the fate of NDP’s and HPP’s. Furthermore, structural unemployment remains extremely high, poverty continues to afflict community, oppression of workers continues, and that the inequalities are now deeper than ever before. In this regard, the HPP’s were envisioned to accelerate growth in the Namibian economy, and to do so in ways that rapidly reduce poverty, unemployment and inequality.

Trade deficit and foreign debt have yet to reach critical levels. Government’s total debt as a percentage of GDP stood at 68.0 percent at the end of March 2022, accounting for a yearly increase of 10.1 percentage points. The yearly increase was driven by a rise in the issuance of both Treasury Bills (TBs) and Internal Registered Stock (IRS), according to Bank of Namibia. On a positive note, external debt, however, declined year-on-year owing to the redemption of one of the Eurobonds in November 2021. Total loan guarantees as a ratio of GDP declined on a yearly basis, mainly due to repayments of foreign loans, which were guaranteed by Government in sectors such as transport and energy coupled with the repayment of domestic loans to the finance, transport and energy sectors. Well done!

Effects

Moreover, the effects of a trade deficit can vary depending on a number of variables. Some of these may not occur due to policy decisions that have taken place to mitigate them. At the same time, there are also factors at play. In terms of how the market reacts will depend on the exchange rates. Nevertheless, it is likely that new employment opportunities will arise. As consumers benefit from lower-priced goods from abroad, they have more money to spend elsewhere. In turn, this opens up new opportunities for other domestic firms. As a result, a trade deficit isn't necessarily a bad sign for an economy.

To my mind, the Africa single currency will contribute positively to the necessary structural development process in the African countries. The single currency if properly implemented will improve trade by allowing specific countries to specialize at what they are good at, and exchange it for other goods that other countries in the alliance produce more efficiently. The implementation of the African Continental Free Trade Area Agreement (AfCFTA) viewed as catalysts for long-term continental prosperity and integration. The integrating single currency in Africa for economic development that include, enhancing currency stability, reduction of financial risks, reduction of transaction cost, reduction of exchange rate fluctuation, enhancing price transparency and reduction of inflation that impact on trade within the region. The foundations for achieving continental monetary policy harmonization leading to a single currency and the smooth implementation of the African Continental Free Trade Area.

Regime

Namibia has succeeded to reinsert its economy back into world trade in the 1995 following a long period of political difficulties and international reactions to the apartheid regime. Since the early 1995 successive Namibia government has faced major economic policy challenges to change the institutional structure of the economy and adapt the trade policy regime to the new agenda and structures.

Furthermore, A trade surplus can create employment and economic growth, but may also lead to higher prices and interest rates within an economy. Namibia recorded its first annual current account surplus since 2007, recording a surplus of N$207 million (N$3.4 billion) in 2020, from a deficit of N$217 million (N$3.1 billion) in 2019, according to the latest data from the Bank of Namibia. A country’s trade balance can also influence the value of its currency in the global markets, as it allows a country to have control of the majority of its currency through trade. In many cases, a trade surplus helps to strengthen a country’s currency relative to other currencies, affecting currency exchange rates, however, this is dependent on the proportion of goods and services of a country in comparison to other countries, as well as other market factors. When focusing solely on trade effects, a trade surplus means there is high demand for a country’s goods in the global market, which pushes the price of those goods higher and leads to a direct strengthening of the domestic currency.

To that end, trade surpluses are no guarantee of economic health, and trade deficits are no guarantee of economic weakness. Either trade deficits or trade surpluses can work out well or poorly, depending on whether the corresponding flows of financial capital are wisely invested.