Predictions are that the South African economy faces a recession, which would have a negative impact on Namibia’s state revenue.
This is according to Minister of Finance Calle Schlettwein, who said a recession in the country’s southern neighbour is an unavoidable reality and this means that a weaker South Africa will translate to weaker government revenue in Namibia.
Schlettwein, who was speaking at the official opening of the 39th annual conference of the Organisation of Eastern and Southern African Insurers in Swakopmund yesterday, took some time to address Namibia’s sovereign credit rating in light of the revised Fitch rating of Namibia released on Friday.
Namibia’s growing 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.”
Schlettwein yesterday said government revenue has already been constrained by persistently low global commodity prices, particularly in the diamond and uranium industries.
He added that the country is also not spared from the spillovers from the slowing Angolan economy, which curtails consumer demand in Namibia.
“In this more challenging environment, one can simply not expect to see the strong revenue growth of the 2012-2014 period repeated in the coming few years,” the finance minister further explained.
According to the minister, some comments made in reaction to the release of the ratings portrayed a clear lack of understanding of the Fitch verdict.
“First and foremost, Fitch Ratings affirmed Namibia’s sovereign credit rating at the investment grade notch of BBB-. In this sense the word ‘downgrade’ has been misused as this was not a ratings downgrade, as some have implied, but a change in the outlook,” he explained.
He added that the outlook for Namibia’s rating has been revised by Fitch from stable to negative and that this was based on a number of factors.
“It is important to remember that Namibia does not exist in a vacuum. The current challenging global growth outlook depressed commodity prices and in particular the weak economic performance of our neighbours in the region have most certainly led to lower growth in Namibia than it was,” Schlettwein said.
He then pointed out that one of the major factors in the latest ratings was the elevated level of government deficit in relation to Gross Domestic Product, as observed in the 2015/2016 financial year.
“This was chiefly the result of actual government revenue coming in below its target. I agree with Fitch when they identify a secular decline in SACU revenues as one of the key challenges to Namibia’s public finances, as it constituted a large part of government revenue,” the minister said.
He added that the 2016/2017 budget, which was tabled in parliament as a means of pro-growth fiscal consolidation, reflects a continuing commitment to make public service delivery more efficient by reducing wasteful expenditure and achieving better value for taxpayers’ money.
“Allocations to areas, such as travel allowance and overtime, have been lowered significantly, while purchases of vehicles and furniture have been postponed in many cases and Fitch has welcomed this approach in its statement,” Schlettwein said.
Government, he said, would continue to address these challenges head-on and the ministry of finance would not renege on its duty to maintain the macro-economic and fiscal sustainability that is crucial to the country’s development.