By Emma Kakololo
An international rating agency, Fitch, has affirmed Namibia’s rating of a stable outlook, saying the ratings are supported by sustained GDP growth and solid public finances, as well as the structural reform undertaken to address poverty.
Fitch, however, cautioned that there is need for public sector reforms to address the prospective decline in Southern African Customs Union (SACU) revenues, re-orient spending from recurrent towards development spending and improve the efficiency of social and capital spending.
Because of exceptional revenues from SACU as well as fiscal discipline, the country achieved its first budget surplus since independence in FY06 (the fiscal year to end-March 2007) and public debt is expected to decline below the Government’s fiscal target of 25 percent in FY07 and below the ‘BBB’ rating median of 29 percent.
Government cash balances with the central bank have also risen rapidly due to SACU revenues; on a net basis, public debt is 20 percent of GDP.
The country also achieved a very large balance-of-payments surplus in 2006 and reserves rose to their highest level since independence.
The Minister of Finance, Saara Kuugongelwa-Amadhila, in her budget speech earlier this year confirmed that the SACU situation was opportune and might not last for long.
Fitch noted that despite that the country’s growth outlook has improved, it is still weaker than its peers. The country’s GDP per capita is at less than half of the ‘BBB’ median.
“Namibia’s ‘BBB-‘ (BBB minus) rating balances its fundamental rating strengths of strong public and external balance sheet numbers, which are better than the ‘BBB’ rating medians, and a good growth record against the structural reform agenda needed to raise growth potential, ease pressure on the financial and capital account, and address income inequality and other development challenges,” said Veronica Kalema, Director in Fitch’s Sovereigns Group in a statement on Tuesday.
“Namibia has to consistently implement a structural reform agenda and raise growth potential or else risk falling further back on this measure relative to its peers,” she warned.
Fitch has long-term foreign currency issuer default rating at ‘BBB’ and long-term local currency IDR at ‘BBB-‘, country ceiling at ‘A-‘ and short-term IDR at ‘F3′ on the nation.
The company expects reserves to end the year at around US$850 million, double their 2006 level. This rise in reserves, she said, will help mitigate concerns about weak international liquidity within the context of very large capital outflows by Namibian pension and insurance funds to South Africa’s capital markets. Namibia’s strong 2006 net foreign assets position of US$1.5 billion (22 percent of GDP), representing large portfolio assets abroad, is credit strength.
In addition, the agency expressed its concern over the slow progress on the negotiation of the new Economic Partnership Agreement with the European Union, which it said would mainly affect meat exports and represents a potential short-term threat, with adverse implications for growth, exports and poverty reduction.
“Negotiations on the US Millennium Challenge Account grant, which would help raise competitiveness, have been slowed by technical aspects of the contract. Partial listings of public enterprises on the Namibia Stock Exchange as a way of increasing domestic investment opportunities and introducing market discipline are off the agenda.”
“On the other hand, progress has been made on major infrastructure projects, such as the Walvis Bay port expansion, by NamPower, parastatals’ bond listings and the conclusion of a new sales agreement with DeBeers that will help stimulate the local diamond polishing industry,” said Fitch.
Fitch has offices in over 75 countries.