2016 to be tough – IJG
Releasing its economic outlook for the year 2016, stock-broking firm IJG are expecting a frosty 2016 building its argument on the limited policy space Treasury will have to contend with as well as rating risks, infrastructure challenges, and current account weaknesses IJG expected would spell doom.
“Limited policy space, infrastructure challenges, rating risks, and current account weakness spell doom and gloom for the Namibian economy, but perhaps unlike our southern neighbour, the pain may be short-felt, if handled correctly,” IJG said in its analysis.
With our hand forced on interest rates, and a probable credit rating downgrade, cautious management of the fiscus will be required to ensure that the downturn it temporary. Efforts to keep the spending party going may well spell long term doom for the country, as the deficit will blow out, taking with it the cost of funding, and the debt stock, and making longer term recovery a sizable challenge.
On the other hand, fiscal tightening will add fuel to an already slowing economy, making the fiscal tightrope a challenging one to traverse.
Said IJG, “the downturn will likely leave the pockets of consumers somewhat less padded, and with expected tax increases, and higher debt servicing costs, little growth is expected in the areas of consumer discretionary goods, particularly those considered most luxurious.”
The year 2017 IJG said would offer some respite. “All things being equal, as the vast Husab mine ramps up towards full production, adding extensively to mineral output and exports. In addition, our base case scenario sees the end of the current drought in 2016/17, and a slow recovery in agricultural activity, off the low, drought-level, base.”
According to IJG, energy and water are expected to remain key concerns. “With limited major increases expected in demand for the former, coupled with the relatively small consumption figures for the country and ongoing efforts to expand production, we expect to see energy issues resolved without a major hiccup. Water, however, remains of great concerns, as the security of supply, particularly for the mines at the coast and the central area, remains in the hands and the wills of the gods at present,” said IJG.
Added IJG, “The good news for Namibia, however, is that much space still exists to improve the bang-for-buck spending of the national budget, while at the same time, certain state owned enterprises can be wholly or partially privatized, in order to free up some liquid capital for the state. In addition, the funds raised in Namibia’s last Eurobond issue remain available to the country to ward off the unwelcome advances of recession, and to protect the external position from further degradation. Finally, Namibia remains a net creditor to the rest of the world, with a fairly sizeable stock of international investments.”
“In all, Namibia is likely to experience a tough year in 2016, but if handled carefully, will likely be fairly short lived. The continued twin deficits situation will hopefully unwind come 2017, all things being equal. While unpleasant, weathering the storm is necessary, and part of the normal economic cycles. All, most certainly, is not lost,” IJG concluded.