SADC states not ready to stop borrowing

Windhoek – Infrastructure development is still taking up a huge chunk of budgets of the Southern African Development Community (SADC) member states, which in turn forces countries to borrow money from international markets that comes with strings attached and creating more problems for the region.

This is according to the Namibia’s Ministry of Finance (MoF), which said countries in the region are not in a position to reduce borrowing as the need for infrastructure development is still a priority issue.

This comes at a time when the International Monetary Fund (IMF) is struggling to recover the money it lent to debt stricken Greece.

“Namibia is classified as a high middle-income country and therefore is not able to easily access any longer financing at cheaper terms for example concessional funding. This has resulted in Namibia and other similar African countries to borrow funds on commercial terms from the international markets.

“Furthermore Namibia and SADC countries in general have significant needs for infrastructure development and given their respective limited fiscal space and limited absorption capacity of the domestic financial markets, they might not stop borrowing from the international organisations and countries,” said Angelina Sinvula, Director of Asset Cash and Debt Management at the Ministry of Finance.

Sinvula also told The Southern Times that although it would be beneficial for African countries to borrow money from each other instead of going international, she noted that it is not a viable option as foreign aid and concessional funding is drying up for developing countries.

“The disadvantage of African countries borrowing from each other is that they won’t be able to establish a credible repayment history as they are graduating from concessional to commercial funding.

“Also, African countries have very shallow and illiquid domestic debt markets and given their sheer size of demand for infrastructure and other funding needs, they might not be unable to meet each other’s borrowing needs,” she said.

It is of paramount importance for African countries to access international markets for funding with the aim to establish repayment history and independent benchmarks for future issues by their Governments and potential issuers (State Owned Enterprises) in their respective countries looking for longer-term financing,” she said.

Statistics show that Namibia has been borrowing lot of money than before, due to the expansionary budget for the past three years, which also included diversifying sources of funding.

It was because of this that in 2013, government issued a bond of N$3 billion over five years that can be tapped into the South African financial market if there is a need during that period.

“The first JSE (Johannesburg Stock Exchange) bond issuance of N$850 million was done in 2013 and N$800 million was issued in June 2015. If there is a need and the market conditions are favourable government might continue to tap from the facility until the whole amount is completed.

“The government budget deficit is more than N$10 billion and taking N$800 million from the JSE bond is not significant borrowing as compared to our domestic borrowing. This facility only accounts for less than 1 percent of total government borrowing and is insignificant compared to the overall government borrowing requirement,” Sinvulaexplained.

Such an increase in the debt level is still below the benchmarks set at 35 percent of Gross Domestic Product (GDP) according to the set benchmarks in the Sovereign Debt Management Strategy document and currently the total Government debt is around 28 percent of GDP well below the 35 percent benchmark.

Despite all these challenges, Sinvula however said Namibia is committed to building the domestic market by issuing long term bonds and short term treasury bills every year.

“Borrowing is guided by the Sovereign Debt Management Strategy document which clearly states that 80 percent borrowing domestic market and 20 percent external borrowing, which means 80 percent of the budget deficit will be financed through domestic borrowing,” said the government official.

July 2015
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