Fitch affirms Namibia’s BBB- investment grade rating

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Desie Heita

Windhoek-Fitch Ratings agency has affirmed Namibia’s Long-Term Foreign- and Local-Currency Issuer Default Ratings at ‘BBB-’ with a negative outlook, in a statement that recognised government’s fiscal management during these trying times.

In a statement issued yesterday Fitch Rating said: “The ‘BBB-’ rating reflects Namibia’s strong growth potential and record of political stability, balanced by high fiscal and external deficits.

“The Namibian authorities have committed to a significant front-loaded adjustment that will likely narrow the fiscal deficit in the coming two years,” the agency further noted.
Fitch Rating however commented that the ‘negative’ forecast reflects uncertainties about the growth outlook and the ability of the government to reverse the rising debt.

Local research analyst Ngoni Bopoto said Fitch’s affirmation “portrays confidence in GRN’s fiscal consolidation agenda and to a certain extent Namibia’s sovereignty as the issue of contagion from South Africa does not receive noteworthy mention. This is consistent with our expectations.”

Bopoto further said the government’s commitment to addressing the fiscal deficit over the next two years “is noted, which we believe implies Fitch’s relative confidence in government ability to narrow the deficit albeit in a more conservative manner.”

This, coupled with Fitch’s expectations of 2 percent growth this year underpins the investment grade ratings affirmation, says Bopoto: “A sustainable narrowing of the current account deficit will in our opinion require more focused effort to address structural challenges facing Namibia’s balance of trade.”

The Namibian economy narrowly avoided a contraction in 2016 and Fitch forecasts a recovery in growth in 2017, to 2 percent, notwithstanding slow growth in the South African economy.

Over the medium term, Fitch expects growth to return to around 5 percent or higher.
The government’s fiscal tightening will be aided by an expected once-off increase in Southern Africa Customs Union (SACU) revenues in the current financial year.

Further, Namibia’s mounting deficits have in recent years substantially increased the public debt burden to 42 percent at end of 2016 from 26 percent at end of 2012 financial year, against a ‘BBB’ median of 41 percent of GDP.

Fitch says it “believes that debt levels have likely plateaued”.
“Over the medium term, we expect growth to return to around 5 percent or higher, similar to the 2010-2015 levels. The recovery will be supported by an end to drought conditions and associated increase in agricultural output, as well as an expected increase in uranium and gold mining.

“However, tight fiscal policy and low global commodity prices have put downward pressure on growth and will continue to present downside risks,” the agency said.

“We expect the Bank of Namibia to hold the policy rate at its current level through the year to support the currency peg to the South African rand. Better performance in the mining sector will narrow the current account deficit to 8.3 percent of GDP, from 10.5 percent in 2016, but the external deficit remains a weakness to the sovereign ratings,” the rating agency further said.

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