Oil production key to Rand exit
Namibia's ability to eventually break its one-to-one currency peg with the South African rand could depend on the country's emerging oil industry, with Bank of Namibia (BoN) governor Ebson Uanguta saying much larger foreign-reserve buffers would be needed before such a move could be considered.
Namibia currently does not have sufficient international reserves to adopt a floating exchange rate regime that would allow it to effectively de-peg from the rand, Uanguta said. Until sufficient buffers have been built, the country will have to continue aligning its monetary policy decisions with those taken in Pretoria.
Uanguta made the remarks at the central bank's monetary policy dialogue this week when asked what price Namibia was paying to maintain the one-to-one peg between the Namibia dollar and the South African rand.
The arrangement means that one Namibia dollar is always equal to one South African rand, while the rand is also accepted as legal tender for everyday transactions in Namibia.
The central bank maintains that the stability provided by the peg outweighs the policy sacrifices, requiring Namibia to align its interest rates with those of South Africa to defend the exchange rate until sufficient foreign reserves have been built.
“Essentially, looking at where we are, looking at the trade structure, we still feel like the current peg is still the most appropriate exchange arrangement. If we build our reserves, maybe after oil discovery and after we start producing oil, and then we have got at least 20 months of import cover, that's a different discussion,” Uanguta said.
Exchange rate vulnerabilities
Uanguta said abandoning the peg in favour of a floating exchange rate could expose Namibia to significant exchange rate fluctuations.
“On the cost of the peg, it is true. It is very difficult sometimes to express the counterfactual because something that you do not have at that point in time, you will not really be able to see. The question is that if you were not part of the peg, what could have been the better arrangement? And what could have been the cost of that arrangement?” Uanguta questioned.
According to Uanguta, a floating exchange rate could expose Namibians to erratic strengthening and weakening of the Namibia dollar.
“Now, suppose we leave the peg today, the alternative is to float the currency, make it flexible. Now, when you make the currency flexible, what is going to happen to the exchange rate? The exchange rate on a daily basis, you will start seeing that the Namibian dollar today is at this percent or is at this level tomorrow. So you will start seeing zigzagging, yeah? Now, how do you remove those zigzags when you have got a flexible exchange rate?” he said.
Don’t break what’s not broken
The central bank has over the years defended its decision to remain pegged to the rand. Former central bank governor Johannes !Gawaxab said the arrangement has served Namibia well since its adoption.
“We would not even want to tolerate or engage in a debate that we are thinking of delinking the currency. Anyone else is free to think about that. But as BoN, our position is that the current arrangement serves the country quite well. With a small open economy, we can hardly influence anything. And we don’t even think about the conditions of a possible exit,” !Gawaxab said.
Oil could change the equation
Namibia's emerging oil industry could provide the foreign-currency inflows needed to build the reserves Uanguta says would be required before the country could consider changing its exchange-rate regime.
The country has made several major offshore discoveries in the Orange Basin since 2022, putting it on the cusp of becoming an oil producer.
International oil companies including TotalEnergies and Shell are advancing developments in the basin, with production potentially beginning towards the end of the decade if projects proceed as planned.
For the BoN, the significance of oil is therefore not simply the discovery of hydrocarbons, but whether future oil revenues and related foreign-currency inflows can build international reserves to levels that would give Namibia greater flexibility over its exchange-rate regime.
Uanguta said the discussion around the peg could be different once Namibia has built sufficient reserves, including at least 20 months of import cover.
Namibia’s international reserves rose to a preliminary N$57.1 billion at the end of July 2026 from N$55.4 billion two months earlier, boosted by Southern African Customs Union receipts and foreign currency placements, providing 3.5 months of import cover, sufficient to support the currency peg and meet the country’s international obligations.
