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Namibia’s economy improving, says Finance Minister

Avatar of inke inke - 22. August 2017 - Economics

Namibia's Finance Minister Calle Schlettwein

Finance Minister Calle Schlettwein has called on the country’s private sector and the investor community to “remain positive and supportive” despite a downgrade in rating. 
Speaking at a business breakfast organised by the Namibia Chamber of Commerce & Industry (NCCI), Minister Schlettwein said on 21 August 2017, the government’s fiscal consolidation measures were credible and showed results, while remaining on track. 

In a surprise move, Moody’s Investors Service downgraded Namibia international credit rating from Baa3 to Ba1 a week earlier. At a previous rating in December 2016, Namibia kept its investment status, but Moody’s changed the country’s outlook to ‘negative’. “Our government has taken note of this decision with concern, we do not concur with this assessment,” Schlettwein noted, “Namibia’s economic activity and outlook for this year is better than a year ago.” 

Moody’s reasons for downgrade 

Moody’s has, late on 11 August 2017, downgraded Namibia’s long-term senior unsecured bond rating from Baa3 to Ba1 with a negative outlook. This is a non-investment grade or ‘junk’ status. Moody’s cited an “erosion of Namibia’s fiscal strength” and alleged “increasing debt burden” as concerning. It also noted limited institutional capacity to manage possible shocks and to address long-term fiscal rigidities. Moody’s also saw a risk with the Namibian government’s liquidity. 

In the political front, Moody’s noted that the upcoming elective congress of the ruling SWAPO party at year-end and the next parliamentary and presidential elections slated for the end of 2019 could bring uncertainty.

Frank discussions

In his open and frank dialogue with the business community, Minister Schlettwein said, since last September the government introduced measures to cut expenditure, freeze new infrastructure projects and refrain from new debts. “In my mid-term budget review in Parliament last October I announced these measures, which include cuts of N$5 billion for the financial year, which ended 31 March. Barely four months into the new financial year, Moody’s rating is – in our view - made too early and, therefore, on a very narrow base and may contain speculative conclusions on the performance of the budget for this whole financial year.”

Tax collection had been better this year, with about 40 percent already collected to date. 

Government’s debt level was brought down to 41.9 percent of GDP (gross domestic product). The budget deficit decreased from 8.3 to 6.3 percent. 

Namibia’s foreign exchange reserves increased to 5.3 months of import cover by June 2017. “This is a crucial variable in credit worthiness that cannot be ignored. It is puzzling that at a time when Namibia’s import coverage has increased, Moody decides to downgrade our credit ratings,” Schlettwein pointed out. 

Bouncing back 

Key economic sectors such as mining and agriculture started to rebound improving economic and revenue prospects. “Tourism enjoys robust growth, the severe impact on the construction industry is diminishing,” he added.

Government has already paid N$1.7 billion of the outstanding invoices to contractors – mainly construction. The remaining outstanding invoices of some N$2 billion would be paid by the end of August, Schlettwein emphasised. He also noted that expenditure not approved by his Ministry and Cabinet would in future not be tolerated. “Government has introduced the performance management system for Ministers and government officials. Those who not perform must bear the consequences,” Schlettwein made clear.

According to the Namibia Statistic Agency (NSA), the country’s economy grew by 1.1 percent in 2016, up from the projected 0.9 percent. For 2017, around two percent growth is expected and 3.7 percent for 2018.

“For us as government it remains very important that our social and pro-poor approach in the national budget is supported. Social grants are paid and this month the government pension was increased by N$100 to N$1,200 monthly,” the Minister explained.

Reforms coming

Government was aware of its high wage bill for over 100,000 civil servants and was addressing it, Schlettwein told the business community. It had to be done in a humane and responsible way. Offering voluntary civil servants retirement at the age of 50 was being mooted.

“We also envisage an aggressive reform of public enterprises. Many public enterprise think they need not make profits and need not pay dividends to government and that they will get bailed out, when in dire financial straits, this has to change” he pointed out. 

To stimulate the economy, Namibia’s central bank lowered its repo rate from 7 to 6.75 percent on 16 August.

Brigitte Weidlich 

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