By: Hertha Ekandjo
Economists have said that Namibia being ranked as high on default risk for the year won’t stop investors from investing in the country.
This follows as the finance ministry on Wednesday morning indicated that Bloomberg’s ranking on Namibia being high on default risk for 2022 is misleading.
In June, Bloomberg ranked Namibia 10th in the Sovereign Debt Vulnerability Index.
Bloomberg is the global leader in business and financial data, news and insight.
In response to this financial reporter and analyst, Nghiinomenwa Erastus says Namibia being ‘labelled’ as one of the default high-risk countries won’t stop investors from investing in the country as Namibia has made use of local investors.
“The international investors will listen to Bloomberg, but this is how smart we are. We borrow more locally. The fact that we borrow more locally cautions us from whatever investors’ sentiment that they are going to get,” he said.
Erastus stated that caution comes in because Namibia’s capital market doesn’t have alternative investment opportunities for government institutes of pension funds and many others.
“They have to put it in bond whether they like it or not. That is the best thing to do. You will not see a change in not giving money to the government. That change is not going to happen,” he said.
He said the government dominates Namibia’s bond market.
“They don’t have an option. They have to give money to the government. Regardless of Bloomberg making noise, 70 per cent of our debts are local. We can roll them over whenever we want because these people have no alternative assets before the money,” Erastus emphasised.
Moreover, he narrated that local investors don’t have any alternative on where to run.
According to Erastus, the finance ministry should have announced to the nation at which rate the economy was growing.
“If you look at this year, we have around about N$3.5 billion if I am not mistaken of loans that government needs pay, which are maturing this year. But if you go to government reserves, they have less than N$2 billion. So where are you going to find the money in the short run to repay the loan?” he questioned.
He further mentioned that this is the main focus point looked at when it comes to the risk involved when revolving around loans or financing.
He also emphasised that a country’s economic growth is the one to determine whether a country will be able to repay its debts.
Meanwhile, economist Klaus Schade told The Villager that he doesn’t regard Namibia as a default high-risk country.
“I also don’t see a default on Namibia’s side, but I think we need to fund ways to increase revenue or reduce expenditure and all that to reduce debt GDP ratio and, of course, the interest rate on payments,” said Schade.
The economist explained that Namibia needs to have domestic targets when it comes to the interest rate, with the target not more than 10 per cent of its revenue.
Moreover, Schade said the country’s revenue rate is at 15 per cent, of which it is expected to rise to 16 per cent.
“Investors will certainly take note of Bloomberg’s ranking, but investors who consider investing in Namibia, be it foreign direct or portfolio investment, will not take at her indicators but will look into more details about opportunities in Namibia. The economic opportunities and political stability of the country,” he emphasised.
In the media release, the finance ministry noted that it reviewed the various indicators of the Sovereign Debt Vulnerability Index.
The ministry stressed that it finds the methodology utilised by the author to rank the countries incoherent and misleading.
“It is also unclear to us the weights applied to each indicator and, subsequently, the impact of each indicator on the ultimate country ranking in the index. We, therefore, do not concur that Namibia is one of the countries ranked high on default risk in 2022,” it reads.
However, it also acknowledged the increase in the ratio of public debt in recent years stemming from significant shocks to the economy over the period, adding that Namibia’s current public debt levels do not pose a default risk in the near to medium term.
The statement reads that government will institute measures to ensure that it meets its debt obligations.
“As we have consistently reiterated in several budget statements, there is no substitute for fiscal sustainability. As a result, ensuring the sustainability of our public finances is one of the highest policy priorities of the government,” the press release noted.
The finance ministry said it would continue to invest in strengthening the ministry’s domestic resource mobilisation capacity while entrenching fiscal and structural reforms.
“We believe that the combination of such measures will improve our fiscal position and thus improve our debt servicing capacity going forward.”