Increasing government debt worrisome – analysts
Analysts at Simonis Storms Securities remain concerned over the escalation of debt in an already low GDP growth environment especially with Government receiving about N$4.5 billion on a monthly basis from the Bank of Namibia to finance expenditure.
This comes after the total government debt (including foreign debt) increased by 354% to N$75.4 billion in July 2018.
The financial securities firm is of the view that government will be forced to take on additional external debt as the debt burden will be hefty for the economy to bear amidst estimated prolonged lower GDP growth.
“We estimate Government debt to double over the next 7 years with an assumption that current annual budget deficit persist in foreseeable future,” Indileni Nanghonga, Junior Analyst at Simonis Storms Securities said.
The firm added that at current maturity profiles, including the JSE and Eurobonds, about N$41.2 billion will mature in the next seven years which implies domestic debt should double over the next seven years to meet payment obligations. Moreover, total domestic debt escalated by 300% over the past 7 years to N$50.7 billion in July 2018.
Meanwhile, yields on the treasury bills (TB’s) have been on a downward trajectory during the second quarter of 2018 as demand for short term maturities accelerated. Simonis Storms ascribes the increase in demand to a high commercial banking liquidity position and lack of appetite for private sector credit extension from commercial banks given the local economic position.
The commercial bank liquidity position in Namibia has also scaled down in the beginning of August, recording liquidity position in Namibia at N$2.1 billion from a high of N$4.6 billion registered on the 6th of July 2018.
Low demand continues to cast a dark cloud over longer dated bonds. The firm believes that the lack of clarity on the repayment of the two Eurobonds and South Africa’s risks such as a probable rising interest rates environment for 2019, currency vulnerability, prolonged low economic growth, upcoming elections and land redistribution issues have investors worried about the long term outlook in the bond market.
Furthermore, it is estimated that the Eurobonds will amount to N$17.5 billion at the end of 2018 based on the firm’s currency outlook.