GRN on course with debt reduction
Namibia Equity Brokers (NEB) analyst Ngoni Bopoto has said GRN is well on course in its efforts to bring down debt to manageable levels judging by latest indications from the Bank of Namibia while a noted recovery in SA has come at the right hour for the local economy.
Bopoto af?rms that despite a month on month and year on year debt increase of 1.2 percent between July and August 31 2017 with debt standing at N$43.8 billion, a comparison with last year’s ?gures for the same period shows a reduction in the level of growth. “What we ?rst need to note is that the numbers you’re referring to indicate that debt grew by about roughly 27.4 percent year on year.
But if you compare that increase at the end of this month last year it was growing at around 40 percent,” he says. February ?gures of the current ?nancial year indicate that debt was growing at 45 percent. “So there has been a success in slowing the rate of growth in government debt. That is the ?rst thing that we need to all note and people have not considered that.
Yes, debt is growing, but it is growing at a much slower rate than it was at the beginning of this year. That in itself speaks to quite a few things,” says the NEB analyst.
What has driven the slowdown? Bopoto af?rms that the current development has been a deliberate attempt by the government to curb borrowing in the market. The Finance minister has said that GRN was focussing efforts on pinning down on current borrowing levels to a self-imposed threshold of 35 percent.
“That 35 percent is according to the prudential limit set in the Debt Strategy document crafted many years ago. Last year there were even considerations of reviewing that threshold and increase it a little bit,” says Bopoto. Analysts at NEB have suggested that there is currently no scienti?c proof that indicates that a threshold of 35 percent is the optimal debt level for the local economy. “You’re very correct to say that it was self-imposed, so these were numbers we ?xed ourselves.
Now what we have found is that there is no empirical evidence suggesting that 35 percent is indeed the optimal level of debt for Namibia or emerging markets. Even for developed markets where they are working with something like 60 percent,” Bopoto counters.
He follows this view with a suggestion that rather than pinpointing focus on the debt marker, the concern should be fully put on how to make use of what GRN borrows. “That number in itself is not what we should be watching. What we should be concerned about is what are we doing with our debt.” He says Analyst and Director at SMEs Compete Danny Meyer say, “If borrowed funds are used for consumption it undermines development. Funds should be used to develop the country’s infrastructure such as roads, railways, bridges, dams, airports. To fund social needs such as schools, colleges, vocational training centres, hospitals, housing, etc.”
Meyer is however optimistic that the current debt levels are manageable while to bring it below 35 percent requires more effort and commitment. “Seemingly the focus is on frugality and public expenditure ef?ciency rather than merely changing the source of borrowing from international to domestic. In any situation, reduced spending requires discipline coupled with a concerted effort to cut wastage without sacri?cing service delivery and quality of service provision,” says Meyer.
GRN has reviewed its debt sources and has announced that from this ?nancial year onwards, debt would be sourced from the domestic market to avoid high interests as a result of currency ?uctuations. This move has however been mainly in?uenced by the Moody’s downgrade which makes borrowing from the international market costly.
Meanwhile, Bopoto has welcomed developments from SA following reports that Africa’s two biggest economies (SA and Nigeria) emerged from recession in the second quarter although a Reuters poll suggests that strong growth may not show up until business con?dence has been restored.
“South Africa is our neighbour and biggest trading partner and also very important regarding SACU receipts. The SACU revenue sharing formula is somewhat complicated, but apart from being based on each member’s imports from SA, there is also a component of how SA’s economy is growing that is hinging the SACU shares that we get. So positive news in SA is always good for us,” he says.