The Effect Of Fiscal Policy On Capital Flight In Namibia

ABSTRACT

Capital flight continues to be of great concern in many developing countries and Namibia is not an exception. The purpose of this study is to examine the effects of fiscal policy on capital flight in Namibia for the period, 1993-2014. To assess this effect, the ARDL bounds test to cointegration technique was employed. The finding not only reveals fiscal policy to affect capital flight but also that there is a long-run relationship between capital flight and the selected macroeconomic variables. In the short-run, past capital flight and external debt positively affect capital flight. Estimates of capital flight, using the residual approach, shows that Namibia lost about US$35 billion in 21 years through capital flight. The empirical findings from this study raises a number of serious policy concerns that needs to be addressed urgently. Firstly, the government needs to pay attention on its external debt management and take decisive steps to minimise it. Secondly, there is a need for concerted effort by the government to engage countries believed to have been benefiting from Namibia’s capital. Thirdly, it is imperative for government ensure that there a dynamic financial sector development coupled with a conducive business environment in order to keep the funds from fleeing elsewhere. Lastly, the government should consider enforcing tighter controls on capital. In so doing, capital flight from the country can be minimised and contained.