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Eurobond converted to domestic debt

2021-04-01  Edgar Brandt

Eurobond converted to domestic debt
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In a bid to minimise international currency fluctuations, government approached the Government Institutions Pension Fund (GIPF) to provide foreign currency to settle the 10-year Eurobond that matures this year. In return, government will then owe GIPF as the international debt will have been converted to domestic debt to cover the more than N$7 billion required to redeem the Eurobond. According to government officials, more than N$5 billion have already been set aside to redeem the bonds. 

During a debate on the budget last week, organised by the Capricorn Group and EY, finance minister Iipumbu Shiimi confirmed that government opted for the debt conversion “to cushion against foreign currency fluctuations”. 

The Eurobond is basically a foreign currency denominated loan. Namibia currently has two of these loans, one for US$500 million and another US$750 million (US$1.25 billion) almost N$19 billion at yesterday’s exchange rate. The bonds are scheduled to mature this year and in 2025. 

To minimise the impact on the domestic economy, the Ministry of Finance is using a debt redemption strategy to reduce any default risk by maintaining two sinking funds in two currencies, namely the Rand as well as a USD-denominated fund, to cater for foreign debt redemption.

According to chief economist at the Capricorn Group, Floris Bergh, Namibia’s domestic debt will amount to N$75.8 billion while foreign debt will add up to N$43.9 billion for a total of N$119.8 billion or 68.8% of GDP. 

“This debt trajectory will not stabilise over the forecast horizon, rising to 77% over three years. More needs to be done to get it under control,” Bergh stated during the debate. However, he noted this would be a mammoth task given persistent pressure from the wage bill, which accounts for 52% of revenue, and interest bills amounting to 14% of total revenue. 

During the tabling of the 2020/21 budget, Shiimi stated that Namibia’s budget deficit is expected to gradually reduce from 10.1% to 4.1% of GDP during the Medium-Term Expenditure Framework (MTEF).   

“We think the minister of finance missed a trick therein that he did not aim for a confidence inspiring 3%, especially since the intention is now to roll the Eurobond coming due in November 2021. The total funding requirement will remain large relative to the domestic economy,” Bergh commented on the budget deficit. –

2021-04-01  Edgar Brandt

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