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Downgrade fears loom as economy slumps

Fri, 30 June 2017 16:04
by Kelvin Chiringa
News Flash

With the local economy having collapsed into a full blown recession after a contraction of 2.7% year on year, the deepest annual contraction in the 2016/17 ?nancial year so far, fears of a downgrade to junk status have escalated.

According to analyst at Twilight Capital Consulting, Mally Likukela, government is caught between a hard rock and a hard surface as it futilely attempts to commit to ?scal consolidation yet this has upset economic growth. Likukela says the full blown recession has been spurred in part by tight government spending which has seen construction contracting ?ve times quarter on quarter as unemployment has fast become rampant.

“Namibia as a country is ill prepared to pull itself out of this recession and so if we are going to survive a downgrade this year, it will really be something beyond technical explanation. In fact we are supposed to have been downgraded already, what saved us was just public commitment that the ?nance minister made,” he says.

Yet according to Likukela government is not fully committing to scaling down on debt and public expenditure which will prompt the rating agencies to relook at Namibia’s sovereign rating.

“The ?gures that were released last week (by NSA) de?nitely points to the fact that growth which is a key determinant is going down. Debt is increasing, despite the fact that we have borrowed from the African Development Bank (AfDB) the fact is stock has increased and public expenditure is not scaling down. If all this persist, I do not see any way out of it and we are de?nitely heading for a downgrade,” he says.

What is perhaps alarming is how, as the indicators show, the economy has registered a decline four times in four consecutive quarters, and this according to business writer and data analyst, Jo-Mare Duddy “is the ?rst of its kind.” Responding to the contraction ?gures, SMEs Compete Director Danny Meyer warns that Namibia is currently “in the midst of a perfect storm,” while the consolidation path “has been rough and tough and the medicine bitter.”

“But there really was no alternative to belt-tightening. Slowing down on projects and programmes implementation, delaying others and even sacri?cing some that would be “nice-to-have”, but just could not be afforded at this time,” says the expert. Meyer has however praised the Finance Minister Calle Schlettwein for the swift response he has made to “arrest the slide,” albeit the economy’s growth has paid heavily, judging by the latest ?gures.

The general annual  increase in the price of basic commodities stands at 1.7% between 2016 and 2017 and consumers have been put on the line as their purchasing power continue to erode. However IJG Securities Research Analyst Dylan van Wyk is optimistic the decline in economic growth will not be long-lasting and by year’s end the storm will clear out.

 “As for the future, I do not expect this recession to be very long lived. As the economy starts to adjust and the lower base in the construction sector is set, we might still see Namibia return to positive, albeit low GDP growth in 2017,” opines Van Wyk. On the slump in construction, Economic Association of Namibia (EAN) Executive Director Klaus Schade advises, “If Local Authorities could speed up the process of land delivery, and there is no reason why it should take years before construction can start, then it would support the recovery of the construction sector.”

Namibia Equity Brokers analysts Ngoni Bopoto also concurs, “We remain of the opinion that while the outlook is precarious, 2Q 17 numbers will most likely show an improvement aided by renewed focus in the new ?scal year, continued recovery in diamond mining & agriculture, prospects of improved SACU receipts and statistical factors owing to a low base.” PSG analyst and Equity Strategist Eloise du Plessis reinforces this optimism as she projects a slight rebound in growth to 2.6% in this ?nancial year from 0.2% in 2016.

“Water dependent agriculture and manufacturing sectors are expected to achieve moderate recoveries as good rainfalls have continued to bring relief from the worst drought on record. The Namibia Agronomic Board’s forecast end of March for Namibia’s marketable white maize harvest in 2017 was 72 000 tonnes which would be 85% higher than the marketed white maize harvest estimate of 2016,” she says. 

On the prospects of Namibia being doomed to junk status due to the recession, FNB’s Market Research Manager Daniel Kavishe says the ratings will be in?uenced by a combination of factors and not GDP growth alone, which makes the downgrade escapable. “There is no growth number which says you are junk now, its combined factors that determine whether or not you are going to be junk status. It also depends on the trend, so we are in recession now but it’s hard to say whether in December Fitch will decide to downgrade us,” he says.