Fitch Ratings this week affirmed Namibia’s long-term foreign-currency issuer default rating at ‘BB’ with a negative outlook. However, the international ratings agency noted that credible fiscal plans and evidence of stronger ability to implement fiscal reforms sufficient to stabilise the government debt to GDP trajectory in the medium term could lead to a positive rating upgrade. Additionally, in terms of macroeconomic performance, Fitch stated that stronger medium-term growth, for example from improved prospects for the mining sector, would also improve Namibia’s international credit rating.
“Namibia’s ‘BB’ rating balances comparatively high fiscal deficits and debt against strong institutional features and support to the sovereign’s financing flexibility from a developed domestic financial system. The negative outlook reflects increased downward pressures on creditworthiness due to a continued rise in general government (GG) debt driven by persistent wide fiscal deficits and a protracted recession aggravated by the coronavirus pandemic shock. It also reflects challenges to fiscal consolidation from a difficult social context marked by a particularly high level of inequality,” read the Fitch Rating action commentary. Fitch expects Namibia’s GG debt to rise to 70% of GDP at the end of the current fiscal year and further to 76% in the 2022/23 financial year from 56% in during 2019/20, remaining much higher than the forecast ‘BB’ median (60% of GDP in 2020).
“Namibia’s GG debt has been steadily increasing since end-FY14/15, despite significant measures towards fiscal consolidation, illustrated by a 7.6% of GDP narrowing in the primary balance excluding transfers from the South African Customs Union (SACU) between FY15/16 and FY18/19. The rising debt trajectory reflects that given the weak macroeconomic conditions since the end of the mining and credit boom in 2016, the results of consolidation efforts have been partly offset by its negative impact on growth and revenues,” Fitch Ratings stated. Fitch continued that the acceleration in Namibia’s debt trajectory reflects the severe impact of the pandemic shock on public finances and the domestic economy. “We project the GG deficit to double to 10.7% of GDP in FY20/21 from 5% of GDP in FY19/20, exceeding the forecast ‘BB’ median of a 7.8% of GDP deficit in 2020. Our forecast for the fiscal deficit takes into consideration a 3.5% of GDP decline in non-SACU GG revenue and a 1.4% of GDP increase in spending on health services and economic relief measures. A temporary 2% of GDP improvement in SACU transfers will offset a rise in debt interest cost and capital spending,” Fitch stated.
Meanwhile, it is expected that Namibia’s budget deficit will remain large over the next two years, narrowing only to 7.6% of GDP in FY21/22 and 6.5% in FY22/23 (forecast ‘BB’ medians: 5.3% in 2021 and 4.2% in 2022) on our forecasts. We expect fiscal revenue to further deteriorate as a pick-up in non-SACU tax receipts driven by a mild economic recovery will be insufficient to offset a projected sizeable drop in SACU transfers, weighed down by a subdued regional economic activity.