Measuring Debt in Namibia Not Exact Science

THE challenges that surround determining the level of household indebtedness in Namibia are numerable but not insurmountable. This assertion is contained in the latest Bank of Namibia Financial Stability Report for the year ended 31 March.

The central bank said the primary challenge is overcoming data constraints, irregularities and inaccuracies.

“As a result of this, a large number of assumptions must be made, which may, or may not be correct. Some of these assumptions may have a dramatic impact on calculations and data, thus if incorrect, may yield inaccurate results,” the central bank assessed.

Currently there is limited information on the breakdown of credit to individuals whether banked or unbanked. The central banks says the assumption that is made is that all households share the same debt burden, which it says may not be the case.

“It is possible that 10% of the households hold all debt and 90% have none. This is unlikely but equally unlikely is that all households have equal debt. Given that Namibia is a very unequal society, it is likely that debt is similarly unevenly distributed,” the central bank notes.

The report says currently, there is no measure of the extent of informal sector debt and said it is unclear whether such debt is significant in comparison to incomes and formal sector debt.

The central bank says measuring informal sector debt is challenging, if not impossible particularly in cases when such debt is informal loans between family and friends.

“In a country with significant unbanked population, such as Namibia, it is likely that such informal sector debt will be relatively large when compared to more developed countries with higher percentage of the population banked,” the central bank said.

The report said household debt to disposable income does not analyse the full balance sheet of individual because many Namibians hold substantial assets like livestock and property and that their debt levels may be highly sustainable.

Source : The Namibian