Fitch Ratings Credit Opinion on Namibia
By Carl Schlettwein, Minister of Finance
Fitch Ratings visited Namibia for the ratings assessment during 31 October -1 November 2017. The assessment and rating action are part of the annual ratings, which Fitch as the second ratings agency assessing Namibia, undertakes every year.
The required consultative approach with the authorities and stakeholders was conducted and it is appreciated. Such engagement clarified the Government policy position as articulated in the 2017/18 Mid-Year Budget Review tabled in the National Assembly recently.
The necessity for timely adjustments made on Government spending to give attention to once-off correction of the previously unbudgeted spending arrears, avoiding reversals in the provision of essential services in especially education and health sectors and to provide for a more directed infrastructure spending over the medium-term to support future economic growth objectives was clarified and understood.
The 2017/17 Medium-Term Policy Statement provides for the continuation of a sustainable consolidation to achieve debt sustainability. Expenditure-to-GDP ratios are falling year on year for the past three years and so are budget deficits. Emerging economic growth is protected through sourcing private capital for infrastructure development and the vulnerability of the external position is lessened by stronger international reserves and an improved current account deficit.
As a result of these constructive engagements, the policy context of the once-off adjustment in the 2017/18 budget as expressed in the 2017/18 Mid-Year Budget Review and the targeted recalibration of the mediumterm fiscal policy stance to address economic growth objectives and continued uninterrupted provision of the critical public services were understood. The policy stance to support the medium to long-term inclusive economic growth was embraced as critical for long-term socio-economic development.
The observed once-off increase in the revised expenditure for 2017/18 is to appropriate for the settlement of the previous spending arrears which were not reported for budgeting purpose. Over the next MTEF, moderate but targeted expenditure is to support socio-economic growth objectives, while maintaining a more gradual fiscal consolidation to avoid large unintended negative consequences.
Fitch Ratings Action, November 2017
In its ratings action released on 17 November 2017, Fitch:- retained Namibia’s Long-Term rating on the South scale at an investment grade (AA+), with a stable outlook; Downgraded the long-term non-Rand foreign currency bonds to sub-investment grade BB+, from BBB- investment grade, but assigns a stable outlook. This is better than the outlook assigned by Moody’s Investor Serve in August this year and reflects material improvements in a number of key indicators.
In retaining Namibia’s Long-term Rating on the South African scale at an investment grade and assigning a positive outlook on the downgraded foreign currency denominated bonds, Fitch recognized the following material improvements in the macroeconomic and fiscal policy metrics:- Improvement in liquidity and Government financing conditions, with liquidity increasing four-fold since 2016; Reduction in Current Account deficit, from a high of 14.5% of GDP in 2016, to an average of about 7 percent over the medium-term; Improved international reserves to an average of 4.2 months of import cover over the medium-term, from 3.1 months in 2016 and Continued political stability and strong governance which remain the hallmark of Namibia’s democratic governance.
The stated factors driving the downgrade on the foreign currency denominated bonds include weaknesses in fiscal outcomes, lower economic growth, interruption in the previously announced fiscal consolidation stance due to increased spending as a result of the previously unbudgeted spending arrears and the resultant higher-thanbudgeted budget deficit and public debt over the medium-term. Improvements in these metrics will be important in improving the rating in the medium-term
The Government of Namibia recognizes the policy significance to address the weaknesses raised by credit ratings agencies.
As such, the Government has proposed a package of policy interventions in the 2017/18 Medium-Term Budget Policy Statement for the next MTEF to address these concerns, consistent with the principle policy stance implemented since 2016/17 Mid-Year Budget Review. Among the key policy interventions are the targeted measures to support domestic economic growth objectives, protecting spending in the social sectors, maintaining the fiscal consolidation, albeit in a gradual manner, and implementing structural policy reforms to reinforce the impact of the policy interventions.
The Minister of Finance will provide an elaborate statement on 22 November in the National Assembly in which all the elements of the rating action will be addressed.