Mid-Term Budget Review: Who really cares about escalating debt?
The Minister of Finance, Calle Schlettwein tabled the Mid-Term budget for 2018/19 last week and made no adjustments in the projected expenditure.
Schlettwein reckoned that Namibia’s public finance faces triple challenges which are; Consolidation, Lower economic growth and High unemployment. Meanwhile, Simonis Storms Securities analysts still expect revenue to undershoot over the 2018/19 financial period on the back of the above highlighted challenges.
The Minister has highlighted that taking on more debt is unsustainable, yet there has been an increase in the projected debt level. Public debt to GDP is projected to escalate to 44% in 2018/19 compared to an initial 40% expectation recorded in the annual budget.
“We are estimating public debt to GDP at 47.7% in the current financial period. One would assume that the debt to GDP has increased due to declining economic activity, however, what is more concerning is the increase in the projected debt levels in value terms by 11.9% to N$82.6 billion in 2018/2019,” Simonis Storms Securities stressed.
This, the firm said, remains frightening that this increase is accompanied by weaker economic activity. The firm added that escalating debt levels for a small open economy with little revenue generation capacity is a recipe for disaster.
“Coupled to this, the rating agencies are also closely monitoring the debt levels. Note that the key measures for a positive rating are steady fiscal consolidation, public debt stabilization objectives and the prospect of a return to a moderate growth outlook. Although Namibia’s debt as a % of GDP is lower than Brazil, India, SA and China, a 45% debt to GDP is excessive for a small economy with a population of 2.3 million and nominal GDP of N$178 billion,” the firm added.
Meanwhile, the Ministry of Finance has revealed the debt redemption strategy to ensure the smooth redemption of the bonds that will mature between 2020 and 2025. This strategy entails maintaining a sinking fund which currently stands at N$5.7 billion.
The total outstanding debt for bonds maturing between 2020 and 2015 amounts to N$35.9 billion. Simonis Storms Securities noted that although this is a good strategy, it will be insufficient to cover the outstanding amount, therefore, they expect most debt to be rolled forward.