WINDHOEK – This week’s downgrade of Namibia’s credit rating by Fitch Ratings reflects the mutually reinforcing deterioration in economic growth and fiscal metrics. Namibia’s macroeconomic environment has worsened further, prompting Fitch to lower its assessment of Namibia’s growth potential. Subdued economic prospects amid exceptionally elevated inequality and high unemployment have raised significant challenges for government’s plan to stabilise its debt by cutting spending, particularly on high payroll costs.
Fitch now expects the Namibian economy to contract by 1.2 percent in 2019, marking the third consecutive year of recession, against earlier expectations of 0.7 percent growth given the 2.7 percent year-on-year fall in GDP in the first half of 2019.
According to Fitch, the downward revision reflects broad-based economic weakness as fiscal consolidation continues to depress domestic demand amid tepid regional economic activity in southern Africa. “GDP will merely stagnate over 2016-2021 in our forecasts, and Namibia will achieve the third-weakest economic performance among all Fitch-rated sovereigns during that period,” reads a statement from Fitch Ratings.
“The government is committed to fiscal consolidation but is yet to lay out sufficient measures to achieve its targets. It plans further budget savings by cutting payroll spending, which consumes more than half of fiscal revenues and transfers to State-Owned Enterprises (SOEs),” the Fitch statement continued.
On the Fitch Ratings scale, Namibia remains second only to South Africa in sub-Saharan Africa, based on the latest Fitch Ratings action and thus, Namibia is still the second highest rated economy in the Sub-region, albeit at sub-investment grade.
In fact, Finance Minister Calle Schlettwein has emphasised that no economy in sub-Saharan Africa currently has an investment grade rating by Fitch, but stressed the government continues to strike a fine balance between fiscal consolidation and achieving broad-based economic growth in favour of long-term sustainability and to deliver the overall budget as appropriated.
This means government has taken note of Fitch Ratings action and the areas of improvement raised and as such has reiterated its commitment to a growth-friendly fiscal consolidation and the package of structural policy reforms to support domestic economic activity, improve business confidence, policy certainty and bring about recovery of the domestic economy and sustainable public debt management.
In this regard, the government, in collaboration with the private sector, has already commenced with the implementation of growth enhancing measures. These include the implementation of an increased development budget by 42.2 percent, from N$5.5 billion to N$7.9 billion in current financial year, which is to be used as a lever to supporting domestic economic activity. As such, available data indicate the easing of contractions in the construction sector.
Another step government has taken is the implementation of the project financing arrangements with the African Development Bank to the tune of N$4 billion over the next three years for the agricultural mechanisation programme, rail and road infrastructure projects as well as essential public infrastructure projects in the education sector. Procurement of these projects have reached an award stage and are poised to inject activity and enhance the productive capacity of the economy.
Similarly, the implementation of SME and youth entrepreneurship financing facilities at the Development Bank of Namibia are meant to provide improved access to finance for SMEs and youth entrepreneurs, thus enhancing economic activity, job creation and self-employment.
Also, directives for local sourcing and local empowerment provisions in public procurement sphere to stimulate domestic productive capacity, local value and jobs have been implemented.
Moreover, increased mobilisation of domestic savings through increased domestic asset requirement from 35 percent of total assets to 45 percent by December 2018 has been implemented, thus releasing money into the domestic economy to finance investments in the real and service sectors.
Implementation of public enterprises and state assets reforms within the framework of the Public Enterprises Act and effectively managing contingent liabilities arising from certain public enterprises.
Government has also committed to implement public-sector wide wage bill reforms to reduce the wage bill as a proportion of Gross Domestic Product and total expenditure and is also striving to adhere to recommendations of the 2019 Economic Growth Summit in the broad areas of structural policy reforms and private sector investment commitments in the local economy.