Moody's downgrade unfair: Schlettwein

12 Aug 2017 16:50pm
WINDHOEK, 12 AUG (NAMPA) – President Hage Geingob is disturbed by comments and remarks speculating that the upcoming Swapo Party Congress and Namibia’s Elections in 2019 will lead to an increase in the country’s expenditure.
“These remarks are unfounded, untrue and rebukable, as our expenditure derogative are contained in the National Budget and will further be verified in the mid-year budget, so the two are therefore not in any way linked,” Geingob said.
He added during the opening of the Swapo Party Central Committee meeting in the capital on Saturday that the ruling party has not deviated from its programme to consolidate fiscal spending.
It also does not plan on doing so within the remaining three months leading to the congress in November, Geingob stated.
Moody’s on Friday downgraded Namibia’s long-term senior unsecured bond and issuer ratings from Baa3 to Ba1, maintaining a negative economic outlook.
The aim of Moody’s Investors Service is to provide investors with a system of gradation by which decisions on the creditworthiness and securities of investing in a country are made.
The rating agency, in a report, attributed the downgrade to the country appearing unable to honour its debts and not having implemented sufficient policy measures to contain the debt.
“The maintenance of the negative outlook… to Ba1 reflects the risk that the erosion in key fiscal and debt metrics could be more pronounced than currently anticipated, giving rise to significant funding challenges,” it reads.
Namibia’s national debt in 2016 was recorded at over N.dollars 140 billion and the country recently started receiving some of the N.dollars 10 billion loan at the African Development Bank.
Furthermore, the agency said Namibia looks unable to raise sufficient revenues to fund Government’s expenditure.
Moody’s described other factors behind its decision as increasing debt burden, limited institutional capacity to respond to shocks and risk of renewed Government liquidity pressures.
“The vulnerability to shocks has recently risen and the fiscal space for policy maneuver was further eroded with a sizeable increase in the wage bill, which already amounted to 40 per cent of total expenditures in the 2016/17 fiscal year, to a projected 45 per cent in the 2017/18 fiscal year,” the report reads.
Finance Minister Calle Schlettwein at the same event on Saturday said he has ensured that the country’s economy remains strong, despite the downgrade.
“We believe that the injection of that significant amount of money (debt) into the economy will stimulate the economy, improve growth and the revenue collection and economic activities as there would now be more to invest.”
Schlettwein said the rating was unfair, as it was not done on a broad base, but merely relied on activities done four months into the implementation for the 2017/18 financial year.
“This is highly regrettable, as a thorough assessment taking all factors into consideration would have been the proper way in dealing with reviewing Namibia’s sovereign credit ratings,” the minister said.
He further noted that even though it was overlooked by Moody’s, the country’s level of foreign exchange reserves increased to 5.3 months of import cover during the second quarter of 2017.
Moody’s in the report says a “sustained decline in foreign currency reserves to below three months of import cover and/or an increase in funding pressure resulting from reduced market appetite for government securities that lead to a material increase in borrowing costs would also put downward pressure on the rating” in the future.
The report says Namibia’s high share of debt in foreign currency, other than the South African Rand, “makes the fiscal position vulnerable to a further rapid deterioration in the event of an exchange rate shock, as was the case most recently in 2015”.
The investors rating agency said “other sources of potential deterioration are unexpected shortfalls in Southern African Customs Union (SACU) revenues relative to forecasts as well as expenditure over-runs in the context of upcoming SWAPO leadership elections and presidential elections (2019)”.