Namibia: Moody’s Concerned Over Increasing Debt

Moody’s Investors Service on Friday downgraded Namibia’s long-term issuer and senior unsecured ratings and maintained a negative outlook for the country’s economy.

The downgrade reflects a further weakening in the country’s fiscal strength despite policy statements of plans to rein in the fiscal deficit.

Moody’s is concerned about Namibia’s higher debt burden which is expected to continue to rise for the foreseeable future while debt affordability is weakening. The international ratings agency admitted that the coronavirus shock continues to pressure the country’s revenue generation capacity, a trend they said is exacerbated by Namibia’s weak growth prospects, “notwithstanding moderate institutional adjustment capacity and external buffers that backstop creditworthiness”.

Meanwhile, the negative outlook reflects risks remaining slanted to the downside.

“Implementation of the government’s fiscal consolidation plans will invariably prove challenging in a low growth environment, particularly as the government targets reducing the large but politically challenging public sector wage bill. Moreover, very large gross borrowing requirements, given the sovereign’s continued reliance on short-term funding, point to material liquidity risk,” read the statement from Moody’s.

Concurrently, Namibia’s long-term local currency bond and bank deposit ceilings were lowered to Baa2 from Baa1. The long-term foreign currency bank deposit ceiling was lowered to B1 from Ba3, and the long-term foreign-currency bond ceiling was lowered to Ba1 from Baa3.

Moody’s said it expects a sharp widening of Namibia’s fiscal deficit to 9.6% of GDP over fiscal 2020, remaining elevated at 8.3% in 2021. This, they stated, will lead to an increase of the debt burden to 72% of GDP by end-2020 and 74% in 2021, up from 56% at end-2019 and nearly triple the level at end-2014.

Meanwhile, debt affordability has weakened, with the interest bill set to rise to 15.5% of revenues in next fiscal year (up from 5% five years ago).

“The increase in debt is driven by the primary deficit and interest costs: both representing a drag on debt dynamics over the coming five years, while growth will provide only a moderate offset starting from 2021. Interest costs are set to peak at around 6% of GDP and the foreign currency share at around 1% over the forecast period, leaving debt affordability at a moderate level while ever the interest rate remains lower than nominal growth,” said Moody’s.

The ratings agency also expects real GDP to contract by 6.9% in 2020, and only to grow by 2.4% in 2021 as agricultural production gradually returns after a prolonged and devastating drought, while the mining sector and the travel and tourism industry remain depressed.

The weak growth outlook continues to pressure revenue generation, compounded by the forthcoming decline in Southern African Customs Union (SACU) receipts in the next two years. However, the recovery of SACU receipts starting from 2023 supports a gradual narrowing of the primary balance, only then allowing for a stabilisation of the debt burden.

Moody’s expects Namibia’s debt burden to peak at around 80% of GDP by 2025, and to remain broadly stable over the medium-term, despite the absence of significant policy measures to arrest and ultimately reverse the debt accumulation.


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