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Local mood gloomy as Moody’s prepares to rate Namibia

by Kelvin Chiringa 

Dark clouds have hung over Namibia’s economic rating as Moody’s prepares to set its judgement on the country’s investment status after the tabling of the mid-year budget review.

Economic Association of Namibia’s (EAN) director and economic analyst Klaus Schade set the record straight last week at a PPPs conference saying that chances of a positive rating are from slim to none. 

His fear has been echoed by other renowned analysts who have agreed that the prospects that Namibia will receive a negative rating are quite obvious considering the state of the economy right now. 

“We don’t think (the) budget review will likely give us a positive rating due to the following reasons, the economy remains in a recession, the midterm budget was more negative compared to the FY2017/18 budget statement,” says trainee economist at Simonis Storm Securities Indileni Nanghonga.

That the public debt is expected to rise and debt sustainability remains a risk, spells higher possibilities of a negative rating, she points out.

“It is worrisome for us that the debt level is expected to rise above the expected economic growth,” says Nanghonga.

The budget deficit for FY2017/18 is estimated to rise to about 5.2% of GDP, worse than a 3.6% initially expected, she adds, and this will not escape the curious eye of Moody’s.

“The lack of fiscal consolidation in the midterm budget is also a setback to (the) already weak economy. The government has to commit itself to cutting expenditure, but currently, that is not the case.  

"The total indicative expenditure ceilings for FY2018/19 and FY2019/20 are further strengthened by additional N$2.6bn and N$2.8bn,” says the economist. 

Head of research at IJG securities Dylan van Wyk says the budget reflected a clear departure from the fiscal consolidation framework implemented in the previous midyear budget. 

“The increases in spending, resulting mainly from unbudgeted and unpaid invoices are exactly the type of expenditure over-runs Moody’s warned about in their August review,” he cautions.

He adds that in their earlier assessment Moody’s stated that: “We would likely downgrade Namibia's rating further if the fiscal consolidation plan were ineffective in containing the rapid public sector debt.”

“It seems Moody’s were spot on with their assessment in August,” says Van Wyk. 

Finance Minister Calle Schlettwein has thrown all his weight behind tightening the fiscus as a sure way to score a positive rating, but politicians have already begun mud-slinging his efforts as ineffective and anti-growth.

Namibia’s fate continues to be tied against that of its largest trading partner, South Africa, which seems to be sailing its economic ship along rocky straits marked by political uncertainties ahead of its elective congress and a falling Rand.

The mere presence of Moody’s in South Africa recently was said to be bad news already for the struggling economy.

 “Fiscally, South Africa is moving in the wrong direction. We need to stop that slide and start moving in a different direction in more way than one way,” sacked finance minister Pravin Gordhan is quoted in the South African media as a warning. 

While Moody’s is said to be giving its judgment over South Africa this month, EAN’s director, Schade, confirmed that the same will happen to Namibia in just a few weeks’ time from now.