Namibia’s credit profile balances improving growth prospects, Says Moody’s

WINDHOEK (Capital Markets in Africa) – The Government of Namibia’s (Ba1 negative) credit profile reflects its small and relatively diversified economy and its moderate but gradually improving growth prospects over the medium term set against rising public debt levels and external vulnerabilities, Moody’s Investors Service said in an annual report this week.

The report, “Government of Namibia — Ba1 negative, Annual credit analysis”, is now available on www.moodys.com. Moody’s subscribers can access this report via the link at the end of this press release. The research is an update to the markets and does not constitute a rating action.

“Namibia’s credit profile balances its strengthening growth prospects, which are supported by increased uranium and gold mining, against its rising public debt levels and external vulnerabilities,” said Daniela Re Fraschini, a Moody’s Assistant Vice President — Analyst and the report’s co-author.

Moody’s expects real GDP growth of 0.9% in 2018 and 2.1% in 2019. However, moderate average real GDP growth and a high level of wealth are counterbalanced by growth volatility linked to commodity exports.

The economic recovery hinges on continuing growth in agriculture and mining, as well as gradually improving manufacturing, which should offset contraction in the construction sector.

Namibia’s fiscal strength has weakened in recent years. Although government debt to GDP, at slightly more than 40% in FY2017-18, remains moderate relative to its regional peers, the pace of debt accumulation has been rapid in recent years. Government debt is now above the institutionally mandated 35% of GDP threshold, having increased from around 25% of GDP in FY2014-15. Moody’s expects debt accumulation to continue, reaching around 50% of GDP by 2020.

Namibia’s sovereign is also susceptible to a further tightening of domestic funding conditions, which could be related to persistent fiscal slippages and would raise debt servicing costs.

Moody’s could change the outlook on the sovereign rating to stable if the government were to demonstrate commitment to fiscal consolidation that results in a deceleration of debt accumulation and an eventual decline in debt levels.

A structural improvement in the twin balances, a sustained easing of funding conditions in the domestic market and a permanent increase in foreign-exchange reserves would also be credit positive.

Moody’s would likely downgrade the rating if fiscal consolidation were to fail to contain rapid public sector debt accumulation. A sustained decline in foreign-currency reserves to below three months of import cover, increased funding pressure reflecting reduced market appetite for government securities, leading to a material increase in borrowing costs, or both, would also put downward pressure on the rating.