Namibia gets a favourable rating from Fitch

25 Apr 2018 14:40pm

Fitch credit rating has given the local economy an upgrade on the South African scale to 'AAA(zaf)' from 'AA+(zaf)' although it maintained a negative outlook.

The economy’s senior unsecured bonds rated on the national scale to 'AAA(zaf)' from 'AA+(zaf) has also upgraded.

Fitch affirmed Namibia's Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) at 'BBB-' and revised the Outlooks to Negative on 2 September 2016.

This comes in the wake the country’s budget deficit as a percentage to GDP reducing in two consecutive years owing to drastic fiscal consolidation measures that cut on too much expenditure.

Financial year 2016/17 registered a deficit of N$11.4 billion and that of 2017/18 is anticipated to come to N$9.2 billion.

Fitch’s upgrade also comes when the disputed 25% shares requirement from companies of those that benefited from apartheid to be ceded to previously disadvantaged Namibians has been removed. 

The upgrade follows the downgrade of South Africa's Long-Term Local-Currency IDR to 'BB+' from 'BBB-' on 7 April 2017.

Said deputy permanent secretary in the ministry of trade, Michael Humavindu on a social media platform, “For a first time the ratings agency Fitch has rated Namibia quite separate from South Africa. In the latest statement released by the rating agency Namibia is upgraded and this could persuade investors to also see the country separate from SA and it also bolsters Namibia’s chances to draw investments.”

Seven months ago, Fitch downgraded Namibia's long-term foreign-currency Issuer Default Rating to BB+ from BBB- with a stable outlook

This came as a double blow for the small open economy as Moody’s rating agency also decided to downgrade the country’s long-term senior unsecured bond and issuer ratings to junk status, a month before.

This received a massive backlash from locals who dismissed it as a product of a desktop research marred by speculation.

Meanwhile, strong economic growth is expected as towards the end of 2017 with a robust recovery speculated to come next year. 

However, the country’s international reserve stock has gone by by N$4 billion, while government’s buffer for the budget is strict.

Sentiment is rife that government will suffer a cash crisis by end of this year and will be forced to take up more debt.

Consumer demand has not yet picked up due to recessionary pressures, and inflation is on the low but businesses continue to shun taking up credit.

However, the mineral sector has witnessed strong growth as well as agriculture due to some good rains, albeit some areas continue being hit hard by drought and farmers have been receiving aid, especially those affiliated with the Namibia Agricultural Union.

National Ratings provide a relative measure of creditworthiness for rated entities only within the country.

In this context, Namibia's 'AAA(zaf)' rating denotes Fitch's expectations of the default risk relative to other issuers or obligations rated on the South African scale.

Namibia's National Rating is sensitive to Namibia's sovereign rating as well as South Africa's sovereign rating.

A change in Fitch's assessment of either Namibia or South Africa's credit quality would result in a change in Namibia's National Rating.