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Fitch affirms Namibia’s credit rating

A low public debt and continued positive economic growth amidst a global economic melt down has led to credit rating agency Fitch to affirm Namibia’s long term foreign and local currency Issuer Default Ratings (IDR) at ‘BBB-’ and BBB respectively.

The London-based agency also affirmed Namibia’s senior unsecured foreign and local currency bonds at ‘BBB-’ and BBB respectively. The outlooks on the long-term IDR’s are stable.
Fitch has also affirmed the Country Ceiling at ‘A-’, Short term foreign currency IDR at ‘F3’ and National rating on the South African scale at ‘AA-(zaf).
‘BBB’ ratings indicate that there is currently expectations of low credit risk. The capacity for payment of financial commitments is considered adequate but adverse changes in circumstances and economic conditions are more likely to impair this capacity. This is the lowest investment grade category.

The ratings agency said growth has remained robust in a difficult global environment due to accommodative economic policies and foreign direct investment which has averaged 5.8% of GDP each year since 2009.
Fitch, however, expects GDP growth to slow to 4.5% in 2013 from the 5% achieved in 2012 as a result of the impact of the current drought on agriculture, and low demand for minerals.
 “GDP growth should increase to 5% in the medium term due to continuing FDI, major infrastructure projects, a stronger global environment and new mines starting production from 2015,” Fitch said.
Fitch also noted that the budget has returned back to balance at 0% of GDP in the 2012/13 fiscal year from -7.1% in the 2011/12 budget.
“The improvement primarily resulted from the increase in SACU receipts, at 12.6% of GDP from 7.6% the year before due to arrears SACU receipts from previous years and an improvement in South Africa’s economic performance, lower capital spending and tax revenue over-performance,” Fitch said.
Fitch expects the budget deficit to average -2.6% of GDP over the 2014/16 Medium Term Expenditure Framework as government tries to stabilise public debt . As a result, Fitch expects large infrastructure projects to be financed by private and public partnership or SOEs funded by loans backed by government guarantees, as is the case for the current expansion of the port of Walvis Bay as the government gradually curbs capital spending.
Fitch is also of the view that foreign reserves will gradually increase by 2015 primarily supported by stronger SACU receipts.  On the political front, Fitch predicts that the 2014 presidential election will be smooth.
However, Fitch is worried about the over reliance on the SACU receipts and the high unemployment rate.
The agency said the 27% unemployment rate reflects the limited development of Namibia’s private sector and the capital-intensive nature of the mining sector which contributes 11% to GDP but only 2% of employment.

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