By: Nghiinomenwa Erastus
Namibia government debt is projected to reach 73,6% (N$144,1 billion) of the country’s production level in the next financial year (2022/23).
Interest payment for these debts will also take up 17,1% of what taxpayers contribute to the revenue pool- rather than spending it on infrastructure and other social expenditures.
The country mid-year reviewed Medium-Term Expenditure Framework shows.
For the current financial year ending in March 2022, the government needs around N$30 billion in debt, mainly from the domestic market.
The central bank, which borrows on behalf of the government almost weekly, sweeps the floor for funds through its conventional treasury bill and normal bonds subscription.
With the emerging different debt products, economic observers have been suggesting to the government to be creative on its borrowing to lower the interest bill.
Moreover, with its pledges to decarbonize before 2030, the country can access cheaper green funding, according to the emerging literature.
Some entities which can also benefit from the emerging green debt products are the country Development Bank and Agribank- the two are also capitalized through borrowing beyond initial government equity.
The government guarantees the two government-owned entities to seek more capital to size up the balance sheet and extend more capital to the economy.
In the current financial year, the finance ministry extended borrowing guarantees to the two banks to acquire more capital for their loan books.
The global economy is entering a transition period as forced by climate change impact, leading to more innovative green debt products, the two main being green loans and sustainable linked loans.
The Villager used Simonis Storm’s analysis to provide the basics on the two.
Green loans differ from normal loans because their proceeds are tracked and allocated to eligible green projects. Besides this, they are structured as normal loans.
Green loans are based on the four core Green Loan Principles.
According to Simonis Storm, green loan proceeds needed for designated green projects should provide clear environmental benefits, which will be assessed, measured, and reported by the borrower.
The process for project evaluation and selection- the borrower of a green loan should communicate how it is organized to assess and select projects that will receive loan proceeds.
In addition, the borrower explains how it will manage the environmental and social risk of eligible projects.
The management of proceeds- the proceeds of a green loan should be credited to a dedicated account or tracked by the borrower to maintain transparency and promote the integrity of the product.
Reporting: the principles recommend using qualitative performance indicators and, where feasible, quantitative performance measures (for example, energy capacity, electricity generation, greenhouse gas emissions reduced/avoided, etc.
Simonis Storm’ assessment highlighted that global green loans increased from US$5,8 billion in 2018 to US$33,4 billion in 2021.
According to the World Bank, developing countries account for about US $1,6 billion.
Sustainability linked-loans involve setting sustainability performance targets which the borrower needs to achieve.
Targets include reducing carbon emissions, improving energy efficiency or achieving a certain sustainability rating from an external reviewer.
“If these targets are met, the interest rate on loan is reduced,” Simonis Storm highlighted.
Additionally, proceeds of these loans do not have to be allocated solely for green projects, allowing companies from a broader range of sectors to take up these loans.
Sustainability-linked loans have increased from US$9,6 billion in 2018 to the US $354 billion in 2021
One of the global lenders, HSBC, recently expanded its sustainability-linked loan offering to its American client base. They will lend loans conditional on diversion of waste from landfills, reduced water use, social/diversity metrics, and reduction of greenhouse gas emissions.
While domestically, local banks such as Bank Windhoek have registered green and sustainability bonds, and DBN has opened a climate change sensitive and green lending facility.
Simonis Storm explained that considering the higher transaction costs of bond issuance, the minimum bond size tradeable, potential issuers in emerging markets with small green portfolios might feel inclined to receive a green loan instead of issuing a green bond.
The global issuance of sustainability-linked loans has surpassed green loans and green bonds.
According to Reuters, green debt currently accounts for about 1% of total global non-financial corporate debt but is expected to gain market share in the long run. Email: erastus@thevillager.com.na
