Government, through the finance ministry, is actively reducing the country’s reliance on external borrowing in favour of prioritising the domestic financial market. Currently, government’s borrowing plan involves financing government debt with 80% from domestic sources and borrowing and 20% from external sources. Moreover, most of Namibia’s external debt is denominated in South African Rand to avoid exchange rate exposure. 

“If you look at the Fiscal Strategy for 2025/2026- 2027/2028, you will observe that from FY2025/2026, the external debt further reduced to below 15% after the redemption of the Eurobond, further reflecting government’s commitment to prudent management of government debt,” explained finance minister Ericah Shafudah. 

The minister added that for the 2025/26 fiscal year, Namibia increased its net domestic borrowing plan, to approximately N$17.3 billion. “This marks a notable escalation compared to previous fiscal periods, reflecting the government’s strategic shift toward mobilising resources from domestic market,” Shafudah responded to New Era questions. 

She continued that a key motivation for this elevated domestic issuance is to bolster the Eurobond sinking fund in preparation for the October 2025 Eurobond maturity. 

“By front-loading domestic borrowing, the government aims to alleviate future external debt service pressures while reducing its reliance on volatile international capital markets, while at the same time providing investment opportunity to our local investors,” Shafudah stated. 

The minister explained that, for example, government has paid a total of N$8.2 billion on interest for the U$750 million Eurobond. This is interest, she emphasised, that could have been paid to local investors and could have contributed to the growth of the country’s investment value and the economy as a whole. 

She went on to clarify that the increase in government securities issuance will provide the markets with investment opportunities to mop up the highest liquidity ever recorded, while at the same time providing government an opportunity to manage its sovereign liabilities and provide an opportunity for regulatory compliance for institutional investors. 

“Namibia does not have a programme with IMF or World Bank (WB) on managing debt. The cooperation between Namibia and the Bretton Wood Institutions (IMF & WB) are of statutory in nature where these institutions provide technical and advisory services on general economic developments as shareholder in terms of the Articles of Agreements establishing those institutions,” the finance minister stated. 

Managing debt 

Namibia’s total debt stock is projected to reach N$172 billion during this financial year, which represents 62% of gross domestic product (GDP), down from 66% of GDP last year. Although still higher than preferred, this level of national debt can be sustainable if properly managed. However, revenue risks, coupled with interest rate projections, could potentially derail efforts to reduce both the budget deficit and public debt, analysts say. 

To manage this debt, Shafudah noted that government is not considering drastic expenditure cuts, as these have implications on the livelihood of society given that most of the expenditure goes to social spending. 

“If we do that, it will reverse the gains that we have already achieved in the fight against poverty. However, the government will seek efficiency in spending to make sure money is spent on social projects with a high return and leakages are eliminated,” she added. 

Generally, the minister stated, there are multiple drivers of debt in developing countries like Namibia including external and internal induced factors. 

“The recent factors that drove debt in Namibia include increased needs of resources required to fund infrastructure development (investment in roads, energy, education, water and healthcare) and sustaining expenditure on social safety. The other drivers include external shocks that reduced revenue while expenditure remains at the same level or increased to mitigate impacts of external shocks on the economy and households,” Shafudah stated. These external shocks were, for example, Covid-19, commodity price shock and volatility, as well as geopolitical tension (Russia/ Ukraine) that affected prices of and demand for essential commodities both imports and exports. 

Meanwhile, the medium-term roadmap to reduce government debt is laid down in the Fiscal Strategy for the Medium-Term Expenditure Framework (MTEF) 2025/2026- 2027/2028, but Shafudah noted the initiative did not start there. 

“This is reflected in the sustained primary budget surplus over the MTEF. The budget surplus signifies government’s commitment to prudent financial management, while paying off debts and investing in future generations. In this regard, you will observe that despite the increase in nominal terms, the stock as ratio of GDP is decreasing from the 66% to about 61.4% in 2027/2028,” she noted. 

Moreover, government, through the finance ministry, has also embarked on strategic reforms aimed at enhancing the efficiency, accountability, and sustainability of public enterprises. This includes the Ownership Policy. Another critical pillar of these reforms announced in the national budget is the reintegration of commercial public enterprises back into their respective line ministries. 

“This policy approach aims to eliminate duplication of functions, reduce overhead costs, and strengthen policy coherence between ministries and the entities operating within their sectors.” 

Fiscal consolidation 

In the short-term, government implements a fiscal consolidation policy where savings are realised on scaling down identified spendings, implementation of reforms as highlighted in the budget statements where efficiency gains can be realised through elimination of wastages, while optimising tax compliance measures. 

The minister explained that fiscal consolidation is a measure of managing expenditure, to ensure spending does not explode. 

The underlying principle of fiscal consolidation is to ensure that Namibia’s public finances remain sustainable in the long term and debt stock remains stable to maintain economic stability. Evidently, the fiscal consolidation policy is not just about debt sustainability but includes revenue mobilisation, prudent public finance management as well institutional and structural reforms, among others. Therefore, fiscal consolidation is a necessary tool to manage public finance and instil discipline in spending allocations, the minister stated. 

Some analysts believe Namibia’s debt situation is quite precarious, with former presidential economic advisor, John Steytler, concerned about the huge amounts of money spent on debt servicing. “Firstly, we must grow the size of the economy. Secondly, we must look at expenses, and where possible, cut wasteful expenditures. Thirdly, we must increase revenue collection,” Steytler recently commented. Economics lecturer Mally Likukela pointed out that while the debt-to-GDP ratio remains an important indicator, it is susceptible to swings in GDP as a denominator, which could give misleading outlooks. “The fact that it shows a slight slowdown does not mean an improvement because the debt stock remains high. The key issue of concern, which is the debt service cost, remains elevated even when the ratio gets smaller, as it does not get cheaper in line with the ratio,” Likukela noted. 

– ebrandt@nepc.com.na