Fitch Rating downgrades Namibia to BB+

20 Nov 2017 20:40pm
WINDHOEK, 20 NOV (NAMPA) – Fitch Ratings’ sovereign rating model on Monday downgraded Namibia’s long-term foreign currency Issuer Default Rating (IDR) from BBB- to BB+ with a stable outlook.
This is according to the Namibia Country Risk Report, which focuses on a 10-year forecasts to 2026, issued by the Business Monitor International (BMI) Research, a Fitch Group company.
The report indicates that the downgrade of the Long-Term Foreign Currency IDR reflects weaker-than-forecast fiscal outcomes and projects that public debt-to-Gross Domestic Product (GDP) will continue to rise over the medium term.
This will leave debt in the 2019 financial year (FY) to end-March 2020 at nearly double the ratio in FY14, it said.
It added that the downgrade also reflects a weaker-than-expected economic recovery and that the medium-term growth has shifted to a lower gear.
The report explained that key rating drivers of the downgrade include the fiscal consolidation, which was temporarily interrupted in FY17, saying the general government deficit will narrow to 6 per cent of GDP from 6,9 per cent in FY16, against a revised government target of 5,3 per cent.
It noted that the initially projected reduction in aggregate public capital spending will not materialise due to N.dollars 2.5 billion capital injection in a new public infrastructure fund and to the settlement of previously unreported arrears worth N.dollars 2.7 billion arising from commitments undertaken in the last financial year.
GDP growth will decelerate to 0,8 per cent in 2017 from 1,4 per cent in 2016, it said, noting that the cuts in public investment have taken a toll on domestic demand and activity in the construction sector.
“The economic outlook through to year 2019 remains lacklustre. We project GDP growth to strengthen to 2 per cent in 2018 and 3 per cent in 2019, well below the 2010-2015 average of 5,7 per cent,” it stated.
It said the acceleration in growth will be driven by the rebound in crop production, steady growth in mining output and stabilisation of public investment.
Namibia’s medium-term growth will remain constrained by the lack of fiscal space, low prices for key mining products including uranium, tighter financing conditions and subdued growth in neighbouring South Africa and Angola.
With specific reference to the possible need to restructure ‘loss-making’ state-owned enterprises (SOEs), particularly in the transport sector, the report suggests that significant contingent liabilities for the budget may arise and that the expected liquidation of the SME Bank and the Road Contractor Company could generate meek costs to the budget.
The report, which expects a Cabinet reshuffle after the ruling Swapo party’s ordinary congress this week, further projects major reforms, including an overhaul of the SOE sector.