06 Sep 2016 19:50pm
WINDHOEK, 06 SEP (NAMPA) The government plans to reduce its expenditure and look at fiscal consolidation in order to bring Namibia back to a stable credit rating.
This was said by Minister of Finance Calle Schlettwein during a media briefing here on Tuesday regarding the Fitch Credit Rating report that revised Namibia's economic outlook from stable to negative.
Fitch Ratings undertook a sovereign credit rating review mission to Namibia from 03 to 04 August 2016 and the credit ratings opinion was issued on 02 September.
It is good to be rated for finance and fiscal transparency. The rating is not a downgrade of the investment rating, but an opinion that outlook is clouded with risks, Schlettwein said.
He explained that the current medium-term expenditure framework (MTEF) tabled in February 2016 provides a basis for pro-growth fiscal consolidation, with phased spending cuts already having commenced, while other non-core spending has been lowered or postponed in many cases, and Fitch has welcomed this approach.
Schlettwein explained that the reason for consolidating (aimed at reducing government deficits and debt accumulation) is to better align income with expenditure because the space for borrowing has reached its ceiling.
The minister noted that the rating was based on Namibia's deficit increasing from 5.3 per cent to 8.3 per cent due to shortfalls in revenue such as the decline in Southern African Customs Union (SACU) revenue and a decrease in domestic revenue, and not because of additional spending.
He explained that the SACU revenue was affected by the severe contraction of the economy of South Africa, which is a main importer to the SACU revenue pool.
The minister added that domestic revenue slowed down because of climatic conditions such as the drought that affects mainly the agricultural and construction sectors.
Schlettwein also noted that the construction industrys water usage was restricted because of the shortage of water in the country.
He said Angola's economic downturn could also be a contributing factor to the country's deficit, as Namibia and Angola are trading partners.
The minister made reference to Angola being dependent on oil and oil prices crashing, adding that the contribution of Namibian companies to that country's pool has decreased.
Schlettwein also noted that the South African Rand weakening at the end of 2015 could be a contributing factor to the debt stock on foreign currency increasing because the Namibian Dollar instead of Rand was used to trade and had to be converted to foreign currency.
We did not anticipate the rand depreciating so sharply. We also did not anticipate that the drought would be so severe and water shortage would have such a huge impact on the economy, he said.
Schlettwein said the necessary expenditure realignment will be undertaken to ensure that public finances are placed on a sustainable trajectory, without significantly jeopardising economic growth and the effect of fiscal policy on the socio-economic development of the country.
He further said I am happy that Fitch Ratings joined us and say we have to consolidate because expenditure is the only variable we can use to reduce micro-economic stability.
Fitch Ratings is one of the Big Three credit rating agencies, the other two being Moody's and Standard & Poor's.