02 Oct 2019 06:40am
WINDHOEK, 02 OCT (NAMPA) - The United States of America's Fitch Ratings has downgraded Namibia's long-term foreign-currency Issuer Default Rating (IDR) from BB+ to BB.
The rating, released on Tuesday, revised Namibia's credit risk outlook from negative to stable.
According to the credit ratings agency, the lowered assessment of the country's growth potential reflects the deterioration in economic growth, fiscal metric and a worsened macroeconomic environment.
Subdued economic prospects amid exceptionally elevated inequality and high unemployment will raise significant challenges for the government's plan to stabilise its debt by cutting back spending, particularly on high payroll costs, the agency said.
Fitch added that the downward revision further reflects broad-based economic weakness as fiscal consolidation continues to depress domestic demand amid tepid regional economic activity in Southern Africa.
It further attributed the country's economic weakness to amongst others, the severe drought and maintenance of key equipment in the diamond sector.
The agency projected that the gross domestic product (GDP) will merely stagnate over 2016 to 2021 in its forecasts, and Namibia will achieve the third-weakest economic performance among all Fitch-rated sovereigns during that period.
In Fitch's view, recent policy initiatives aiming at spurring investment, including an investment summit held in August, will have only a muted impact on economic activity amid persistent structural bottlenecks, the agency said.
Meanwhile, general government debt will remain on an upward path over the medium term, driven by low growth.
The ratings agency projects general government debt will rise above 51 per cent of GDP in the fiscal year 2021/22, up from 45 per cent at the end of 2018/19.
The general government primary deficit excluding transfers from the Southern African Customs Union (SACU) has shrunk by 7,6 per cent of GDP in four years, despite a decline in domestic tax revenues, Fitch said.
This was achieved through significant capital and non-wage operational spending cuts that have fallen to multiyear-lows, leaving only modest room for further savings. However, a significant portion of past savings were absorbed by the rise in interest costs and the drop in SACU transfers.
The volatility of SACU transfers, which account for nearly one-third of GG revenues, and the fast depletion of on-shore diamond mining reserves raise downside risks for public finances, it added.