Business Reporter
FITCH Ratings, one of the world’s top three credit rating agencies, has affirmed Namibia’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at ‘BB-‘ with a Stable Outlook. BB-rated bonds indicate a non-investment grade with relatively high credit risk.
In a press statement on their website, the international rating agency said that Namibia’s ratings are supported by its strong governance indicators and institutional framework, as well as fiscal financing flexibility backed by the large non-banking financial sector (NBFS). However, these strengths are counterbalanced by elevated fiscal deficits, a rigid fiscal structure, high government debt levels, and moderate medium-term growth prospects. The Stable Outlook reflects Fitch’s belief that the government’s efforts towards fiscal consolidation will limit the increase in government debt and lead to its stabilization over the medium term.
Fitch estimates that the fiscal deficit narrowed to 5.3% of GDP in FY22/23 (ending in March 2023) from 8.1% of GDP in FY21/22, thanks to stronger-than-expected revenue collection and controlled spending. The agency expects the general government fiscal deficit to further improve to 4.5% of GDP in FY23/24, driven by a projected 72% increase in Southern Africa Customs Union receipts. However, this will be partly offset by higher social spending and debt servicing costs.
Fiscal risks arise from transfers to state-owned enterprises (SOEs) that have been higher than budgeted, although they have decreased year-on-year in FY23/24. Additionally, spending pressure is anticipated due to the rising cost of living and the general election scheduled for 2024. While the incumbent party remains the dominant political force, it faces growing challenges from smaller parties.
Fitch expects fiscal deficits to persist at elevated levels above 4% of GDP in the medium term as gradual fiscal consolidation takes place.
“The FY23/24 budget did not outline any significant revenue mobilization measures, except for ongoing efforts to improve tax administration, and proposed small tax cuts effective in FY24/25 and FY25/26. The authorities remain committed to fiscal consolidation, as demonstrated by a four-year public-sector wage freeze before a below-inflation adjustment in FY22/23. However, further consolidation will be challenging given the rigid fiscal structure, low growth, high living costs, and high inequality,” said Fitch Ratings.
The rating agency also expects the economy to grow by 2.6% in 2023, following a rebound of 4.6% in 2022, driven by the extractive industry and a broad-based recovery from the pandemic shock. However, weak regional and global growth, tightening global financing conditions, and risks related to water and energy supply, including the potential for higher energy prices due to electricity supply disruptions in South Africa, hinder growth prospects. Fitch anticipates growth to remain around 2.5% in the medium term.
The agency highlighted that risks for a further downgrade of Namibia’s investment worthiness include the failure to reduce fiscal deficits, leading to a significant increase in government debt-to-GDP in the medium term, as well as a deterioration in domestic and external borrowing conditions.
Macro risks emphasized by the agency include weakening economic growth, while international factors include a sustained decline in international reserves, potentially driven by a significant widening of the current account deficit, which could pose risks to the long-standing currency peg’s sustainability.
