Namibian finance minister remains confident despite outlook revision

The issue ratings on Namibia’s senior unsecured foreign and local currency bonds are also affirmed at BBB-. The country ceiling is affirmed at BBB and the short-term foreign and local currency IDRs at F3.

Fitch has also revised the outlook on Namibia’s national rating on the South African scale to negative, from stable, and affirmed the long-term rating at AA+(zaf). The issue ratings on Namibia’s bonds with a national rating have been affirmed at AA+(zaf).

The revision of the outlook to negative reflects the fact that Namibia’s budget deficit widened sharply to 8.3% of GDP in fiscal year 2015/2016, well above the government’s 5% target and the worst on record.

hide

Fitch said: “The Ministry of Finance is exerting greater control over expenditure at all ministries and is cutting overtime, travel and capital spending. However, meeting deficit targets will prove challenging, particularly amid a secular decline in revenues from the Southern African Customs Union, which the government projects will fall under 7% of GDP by 2018, from 12.4% in 2014.”

Namibia’s current account deficit deteriorated to 14.1% of GDP in 2015, from 8.9% in 2013, and well above the BBB category median of 1.3%. However, much of the deficit has been financed by external borrowing from parent mining companies, reducing external vulnerabilities, reported Fitch.

Merchandise exports should start to grow in the coming years, as big mining projects come online. Moreover, imports should fall as capital goods demand decreases (data for the first half of 2016 already shows a slowdown in all import categories). Fitch expects the current account deficit to narrow to 6.9% of GDP by 2018. Foreign exchange reserves increased to around 3.4 months of import cover by mid-2016, although this is still below the peer median of 5.7%.

Speaking at the Organisation of Eastern and Southern Africa Insurers (OESAI) annual conference in Swakopmund, the finance minister, the Honourable Calle Schlettwein, said there had been some misunderstanding around the rating action as the news broke.

He told delegates: “What is important is that Fitch affirmed the sovereign rating and investment rating, which is still an investment grade rating. The word downgrade has been misused, or misunderstood. It is not a downgrade but a change in outlook from stable to negative.

“As outlined by Fitch, it was based on a number of factors. Namibia does not operate in a vacuum and the current challenging global outlook, with depressed commodity prices and [the state of play for] our neighbours [all played a part].”

The minister assured delegates that the government was taking action, which he believed would strengthen Namibia’s position going forward.

He also pointed to the importance of financial services within the economy as a whole, saying insurance remains one of the key contributors to GPD and helps power economic growth, as well as provide employment.

Fitch said: “A major reform – the New Equitable Economic Empowerment Framework – was announced by the president at the beginning of the year and seeks to increase the involvement of previously disadvantaged citizens in the private sector. While lacking in details, it is likely that the law will be approved by parliament (although the Supreme Court might end up blocking it). This has caused some unease in the business community and could slow down foreign investment in manufacturing and services.”

The minister, Mr Schlettwein, also referred to the “unequal society we have in Namibia” and the need to increase access to insurance for the most vulnerable. He pointed to the success of Namib Re and said: “I see the insurance industry as a key partner with government but more can be done by the industry to promote itself.

“Insurance penetration rates in Africa remain very low – in some countries below 1%. This means the majority of people are still excluded from accessing insurance. The status quo has to be changed. Insurance companies have to offer more innovative products, targeting more groups, especially the low income groups,” he added.

Overall, however, he said: “With a large young population, Africa still holds the key to global growth prospects, which means any company that wants to survive and grow will be looking to Africa.”