Fitch Ratings says it expects the Namibian weakening economic growth to contract by 1.2 per cent in 2019, against its initial positive growth expectations of 0.7 per cent.
In a report released Tuesday from Hong Kong, Fitch has also downgraded Namibia’s long-term non-Rand foreign currency bonds from BB+sub-investment-grade assigned in 2017 with a negative outlook to a BB sub-investment grade with a stable outlook because of the contraction.
This is a notch lower than the previous rating, reflecting Fitch’s view that the domestic economy remains under recessionary pressures, amidst external shocks arising from the impact of the prevailing severe drought condition, elevated risks of contingent liabilities from certain Public Enterprises and lower sub-regional growth outlook.
The results of the downgrade were release Tuesday following Fitch’s latest annual assessment visit to Namibia between 9 and 12 September this year.
Finance minister Calle Schlettwein confirmed the downgrade in a press statement issued just after Fitch Ratings released its report, saying that the Government takes note of Fitch Ratings action and the areas of improvement raised.
“As such, the Government reiterates its commitment to a growth-friendly fiscal consolidation and the package of structural policy reforms to support domestic economic activity, improve business confidence, policy certainty and bring about the recovery of the domestic economy and sustainable public debt management,” he said.
Schlettwein said achieving economic growth, which is the necessary condition for the reduction of public debt, revenue generation, the creation of jobs and the reduction of poverty and inequality is by far the most important objective over the short and the long term.
Furthermore, the report also mentions the weak domestic demand as low credit extension to the private sector and fiscal consolidation weigh on domestic demand and the pace of economic activity.
The other drivers, according to the report, is the negative impact of temporary factors such as the severe drought in the agricultural sector and the weak growth in the mining sector, particularly lower diamond output due to maintenance of some of the mining capital.
In addition, the report singles out as drivers the increased budget deficit when statutory payments for project financing under off-budget extra-budgetary funds are considered and the reduced ability to stabilize growth in public debt through cutting back on spending, particularly the inability to reduce the high wage bill costs in a low growth environment.
Lastly, according to Fitch, the elevated contingent liabilities arising from certain Public Enterprises, thus posing significant contingent liabilities for the Government also contributed to the downgrade.
Schlettwein said that while emphasizing these ratings areas of needed improvement, Fitch has recognized that Namibia’s strengths are in the reduction in the primary deficit, excluding SACU revenues, by a sizeable 7.6 per cent over the past four years, underscoring the effectiveness of fiscal consolidation to stabilize public finance.
The finance minister also said that Fitch recognised as another strength the sharp reduction in the Current Account deficit to about 1.8 per cent in 2018, from 15.6 per cent in 2016 as well as the financing flexibility on the back of well-capitalized banking and non-bank financial sector with a combined asset base in excess of 150 per cent of GDP.
“On the Fitch scale, Namibia is only second to South Africa, based on the latest Fitch Ratings action and, thus, the second highest-rated economy in the Sub-region, albeit at sub-investment grade,” Schlettwein said.
