Economic advisor in the presidency Dr John Steytler yesterday said the negative outlook on Namibia issued on Friday by Fitch Ratings Agency was expected, given the slowdown of the global economy.
Namibia’s high deficit, the projections of national debt growing above and beyond the accepted threshold, as well as the high likelihood of government not being able to narrow the deficit in the coming financial years, are said to be the main reasons Fitch revised Namibia’s economic outlook from stable to negative.Other reasons given are weak economic growth and the likely impact of the recently announced New Equitable Economic Empowerment Framework (NEEEF),which Fitch says, “could slow down foreign investment in manufacturing and services.”
Steytler noted that global economic growth prospects have already been revised downward twice this year by his former employers at the International Monetary Fund (IMF), as well as the World Bank – both of which gave a not-so-positive picture of growth prospects.
The president’s economic advisor was, however, happy that Fitch reaffirmed Namibia’s international credit rating of ‘BBB-’ as well as an ‘AA’ in the South African market, which means the country remains creditworthy and is able to borrow at favourable rates.
Countries rated at ‘junk status’ are considered a risk to major lenders, as such countries often struggle to pay back loans.
“We’re not entirely surprised that this happened, knowing that globally there have been a lot of headwinds. Some countries have lost their credit ratings, so we’re glad that we remain creditworthy and able to borrow at good rates,” Steytler told New Era.
He said Namibia’s economy is expected to grow by four percent this year, which is better than major trading partner South Africa, which expects zero growth in the current financial year. Neighbouring Angola expects growth of less than three percent, Steytler said.
“We, therefore, don’t need to be despondent. These are normal cycles that the entire world is going through. It would’ve been worrying if the global economy was positive, while ours is negative. What is happening here is a trend of the global economy outlook.”
Steytler yesterday described Fitch’s views on NEEEF as “premature”, given that there are consultative processes yet to take place, which could produce a very different policy product.
Fitch set the Long-Term Foreign and Local Currency Issuer Default Ratings (IDR) at ‘BBB-’. The issuer ratings on Namibia’s senior unsecured foreign and local currency bonds are also set at ‘BBB-’ and the Country Ceiling is affirmed at ‘BBB’, while the Short-Term Foreign and Local Currency IDRs at ‘F3’.
The New York-based rating agency is particularly concerned that despite strengthening its tax collection mechanisms, Namibia would not be able to collect enough money to pay off government debts – calculated at 38,2 percent of Gross Domestic Product at the end of 2015.
Government debt has thus taken a huge leap from the 23,2 percent recorded at the end of 2014 and Fitch forecasts that government debt is set “to rise further to 39 percent of GDP by the end of 2016.” The forecast inflicted a huge dent on rating assumptions, as Namibia’s well-controlled government debt had always been a positive rating strength.
Further, Fitch factored in declining revenues from the Southern African Customs Union and considered the effects of currency exchange depreciation on the 10-year US$750 million Eurobond (valued at about N$10,5 billion at current exchange rate), that Namibia floated on international markets in October 2015.
Fitch notes though that the government is working to narrow the deficit to 4.3 percent of GDP in the current financial year and indications for the first few months of the current fiscal year are that revenue has grown significantly. However, the ratings agency says even though the finance ministry “is exerting greater control over expenditure at all ministries and is cutting travel and capital spending… meeting deficit targets will prove challenging.”
The negative (‘BBB-’) rating took into account economic growth projections from the 5,7 percent recorded in 2015, but Fitch expects this to grow by only 4,4 percent this year. The ratings agency also considered the weak economic performance in Namibia’s key trading partners of South Africa and Angola.
“The rapid growth in house prices in recent years has created certain risks for the banking sector. However, given the introduction of macro-prudential measures and falling demand from Angola, it is likely that the housing market will cool from here, with a slowdown at the top end of the market already visible,” it noted.
Regarding NEEEF, Fitch said: “While lacking in details, it is likely that the law will be approved by parliament (although the Supreme Court might end up blocking it). This has caused some unease in the business community and could slow down foreign investment in manufacturing and services.”
Fitch singled out Husab Uranium Mine’s projected contribution of five percent to the overall GDP when it comes on-stream by the end of 2016 as noteworthy and said the country’s continued strong growth performance is impressive, given the continued drought, weak performance in key trading partners and higher interest rates.
New Era understands that the Ministry of Finance will host a press conference tomorrow to respond in detail to the latest Fitch rating.