Nam able to honour debts despite negative rating

By Magreth Nunuhe

WINDHOEK – Despite recent unfavourable investment ratings globally for Namibia, the contrary suggests that the country is able to honour its debt commitments on the international market, with a stock of international reserves standing at N$32,7 billion estimated to cover 5,5 months of imports of goods and services.   

The Bank of Namibia’s (BoN) deputy governor Ebson Uanguta disclosed this during the Monetary Policy Committee announcement on Wednesday, where the central bank also made known that it had cut the repo rate by 25 basis points, bringing the rate to 6.75 percent.

This was not only to maintain the one-on-one link between the Namibian dollar and the South African rand, but to also support the domestic economic growth of the country.

According to Uanguta, the upsurge in stock of international reserves was mainly due to repatriation of funds by financial institutions of close to N$2 billion; the inflow of N$3 billion loan from the African Development Bank (AfDB) and the National Bank of Angola’s (Banco Nacional De Angola ) N$5.5 billion loan repayment of which an outstanding amount of $204 million (roughly N$2,6 billion) is still owed and is to be paid in four equal monthly instalments of N$51 million each between October to June next year.

Namibia has recently been downgraded to sub-investment category, also referred to as “junk status”, by international rating agency, Moody’s, which demoted the country’s long-term senior unsecured bond and issuer ratings to Ba1 from Baa3 with the key factors for downgrading being “erosion of Namibia’s fiscal strength due to sizeable fiscal imbalances and an increasing debt burden; limited institutional capacity to manage shocks and address long-term structural fiscal rigidities and the risk of renewed government liquidity pressures in the coming years.

Further to that, the deputy governor said that Namibia has enjoyed favourable inflation improvement with lower inflation rate realised and projected to settle at 6.2 percent, strong fiscal consolidation, while GDP growth is expected at 2 percent for 2017.

Namibia’s inflation rate averaged at 7 percent during the first six months of 2017, compared to 6.3 percent during the corresponding period in 2016.

In January 2017, inflation climbed to an all-time high of 8.2 percent before slowing down to 5.4 percent in July 2017, attributed to lower food inflation.

Other factors that also contributed to the decreased inflation was growth in private sector credit extension (PSCE) during the first six months of 2017, with the average growth standing at 8.5 percent on average, lower than the 12.5 percent over the same period in 2016.

Slower growth was mainly detected in credit advanced to both the household and corporate sectors, especially in the form of mortgage and instalment credit.

Activities in the domestic economy remained weak during the first six months of 2017 when compared to the same period in 2016, mainly reflected in the construction, manufacturing, wholesale and retail trade and transport sectors.

“There were however over the same period a few pockets of improvement in sectors such as mining and communication as well as livestock marketed that have provided some stimulus to the real economy,” added Uanguta.

On the global economic front, the economy is projected to grow by 3.5 percent in 2017, from 3.2 percent in 2016, supported by improved growth prospects for both the Advanced Economies (AEs) and the Emerging Markets and Developing Economies (EMDEs).

Some advanced economies improved in the first quarter of 2017 compared to the previous quarter, like the US, France, Germany, Spain and Italy which has had positive recovery.

“Going forward, economic growth in the AEs as a whole is expected to improve to 2 percent in 2017, compared to 1.7 percent in 2016, largely reflected in a cyclical recovery in global manufacturing,” the Deputy Governor pointed out.

Economic activity in the EMDEs improved in the first quarter of except for South Africa that contracted for two consecutive quarters due to low investment and consumption expenditure, sluggish exports and weak industrial growth.

Growth in Russia, Brazil and China improved during the period under review, while that of India moderated.

August 2017
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