Ratings agency, Fitch believes overall economic conditions have stabilised
Confirming Namibia’s sovereign rating at BBB- but keeping the outlook negative, Fitch Ratings last week said it has taken note of the Ministry of Finance’s gigantic response to reduce last year’s budget stress by an immediate, front-loaded saving of N$5 billion.
However, Fitch does not share the ministry’s ambitious plans to reduce the budget deficit, stating that it believes a deficit of 4.2% of GDP this year, and 3.1% next year, are more realistic. The government’s official, published targets are 3.6% and 2.5% respectively.
Demonstrating that Fitch, just as much as any other analysts, is exposed to the vagaries of official statistics, Fitch stated. “High public expenditure growth coupled with underperforming revenues from the Southern African Customs Union (SACU) and from the domestic mining sector, pushed the deficit to 8.5% of GDP in FY15 ending March 2016.”
“The deficit fell to 6.3% of GDP according to official estimates for FY16 [released in March 2017], much higher than the initial budget target of 4.3%, but a substantial achievement against the backdrop of stagnant GDP growth” Fitch continued.
Stating why the deficit is of grave concern, Fitch said public debt has exploded to 42% of GDP at the end of the 2016 fiscal year whereas Fitch’s benchmark for the BBB median is 41%. When it passes this mark, warning lights start to flash for the ratings agency. But to put these statistics in perspective, the International Monetary Fund’s benchmark debt ratio for so-called Middle Income countries, is 43%.
Last Friday, 19 June 2017, Fitch Ratings officially affirmed Namibia’s Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) at ‘BBB-‘ with a Negative Outlook. The issue ratings on Namibia’s senior unsecured foreign- and local-currency bonds have also been affirmed at ‘BBB-‘. The Country Ceiling has been affirmed at ‘BBB’ and the Short-Term Foreign- and Local-Currency IDRs have been affirmed at ‘F3’.
Fitch has also affirmed Namibia’s National Long-Term Rating on the South African scale at ‘AAA(zaf)’ with a Negative Outlook. The issue ratings on Namibia’s bonds with a National rating have been affirmed at ‘AAA(zaf)’.
“The ‘BBB-‘ rating reflects Namibia’s strong growth potential and record of political stability, balanced by high fiscal and external deficits. The Negative Outlook reflects uncertainties about the growth outlook and the ability of the government to reverse the rise in debt” Fitch stated.
Downside risks to the current rating would include a failure to narrow the fiscal deficit sufficiently to put the government debt/GDP ratio on a downward trajectory. Also, the failure to narrow the current account deficit or significant drawdown in international reserves and weaker than expected economic growth, are listed as negatives.
Positives are a narrowing of the budget deficit consistent with a downward trajectory of the government debt/GDP ratio and a marked improvement in the current account balance and increase in foreign exchange reserves.
The research for the Namibian assessment is done by Primary Analyst, Jermaine Leonard, Secondary Analyst, Mahmoud Harb, both under the directing of Stephen Schwartz, a Senior Director in the Fitch Hong Kong branch.