CORRECTION: Moody's explains Namibia’s downgrade

11 Jan 2017 17:40pm

WINDHOEK, 11 JAN (NAMPA) – A report by Moody’s Investors Service explains why Namibia’s economic outlook for 2017 was downgraded from stable to negative in early December 2016.
In its outlook report for 2017 released on Tuesday, the investor company explained Namibia is among the Sub-Saharan African (SSA) countries downgraded due to various reasons, including rising Government debt.
“We changed the outlook of Namibia (Baa3 Negative) to negative from stable to reflect the risks of fiscal slippage, rising government debt levels and servicing costs.”
The outlook titled ‘Sovereigns-Sub-Saharan African: Negative Outlook Amid Liquidity Stress, Low Growth, political risk’ noted that apart from relying heavily on or needing external export, the region’s subdued growth is driven by one main factor.
“The main driver of the negative outlook is the liquidity stress facing commodity dependent sovereigns due to recurrent fiscal deficits and challenging funding conditions.”
Moody’s said by 31 December 2016, they had downgraded a third of the region’s 19 rated sovereigns.
These included heavily oil-reliant Nigeria and Gabon where the flexibility of fiscal policies are limited, and Mozambique where foreign reserves were declining.
Moody’s said SSA faced the greatest negative pressures in 2016 because more countries were downgraded than other regions including Asia Pacific, Western Europe and North America and the Middle East and North Africa.
“Sub-Saharan Africa’s economies will continue to face commodity-induced liquidity stress in 2017, with recurring fiscal deficits amid challenging financing conditions.”
These challenging conditions are predicted to result in official financing, typically that earmarked for capital spending, being difficult to mobilise on a large scale.
“Low fiscal and external buffers and no access to IMF (International Monetary Fund) financing facilities further complicate the finding environment for these countries.”
China, Moody’s said, “will remain a major source of funding given that other bilateral and multilateral players have strict prerequisites tied to the provision of loans”.
With commodity trade under threat, foreign reserves, particularly in commodity dependent country’s, are trending lower in many SSA countries.
“This is especially true for countries which, in the absence of other financing resources, have depleted their cash reserves for funding their deficits.”
Namibia’s domestic banking sector, Moody’s said, is like the rest of SSA, liquid but small.
On the positive side, the investor company said fiscal positions in SSA are likely to improve and debt to stabilise, while the downside risks remain in 2017.
“The authorities in the majority of the 19 rated SSA sovereigns have embarked on fiscal consolidation plans, which we expect will have a positive impact in 2017.”
Moody’s notes Finance Minister, Calle Schlettwein under a list of SSA countries at the forefront of addressing the shortfall.
“In Namibia, the Minister of Finance announced corrective measures, demonstrating commitment to an ambitious fiscal consolidation plan, but the speed of recent debt accumulation and the size of the budget deficit point to implementation risks.”
Schlettwein and Finance Permanent Secretary Ericah Shafudah were contacted for comment on Wednesday, but they were not available.