Africa-Press – Namibia. INVESTORS in government bonds have been warned to tread carefully when dealing in Namibia’s securities, as the country’s creditworthiness has been downgraded further.
Moody’s Investor Service, an agency that grades corporates and countries on the strength of their balance sheets to pay back borrowed loans, on Tuesday slapped Namibia with a downgrade, citing a stressed debt level.
The downgrade to another notch down was served with a stable look – meaning the immediate future shows a glimpse of hope.
In the rating commentary, Moody’s said it has downgraded Namibia’s long-term issuer and senior unsecured ratings to B1 from Ba3. The outlook was changed to stable from negative.
Countries rated at B1 are considered to be risky to invest in, as they fall in the non-investment grade. Namibia has been in the non-investment grade but just a notch higher – and has now slumped.
There are reasons for this – fronting is the escalated debt to national output that the treasury earlier this year said was going to reach 75% in the next three years.
“The B1 rating captures the economy’s reduced shock absorption capacity and the continued increase in the debt ratio projected over the next three years, to 75% of GDP in fiscal year 2024. Stagnating trend growth and income levels point to persistent social spending pressures, including to mitigate the fallout from higher food and energy prices triggered by the Russian invasion of Ukraine, thereby increasing the risk of fiscal slippages,” reads the rating.
The agency further said that Namibia is borrowing more than it can chew.
“Large gross borrowing requirements at 20-30% of gross national product and weakening debt affordability expose the credit profile to tightening domestic and external liquidity conditions to stem rising global inflation,” reads the note.
According to the recently released borrowing strategy by the treasury, the state will borrow N$18,5 billion for this fiscal year, pushing up the national debt balance to N$140 billion by the end of the fiscal year.
About a decade ago, the national debt was just 30% of national output, but the rate at which it has increased has become self-defeating, according to some analysts.
This has weakened the country’s muscle, Moody’s said, leaving it in a low growth and higher debt burden fix and creating cracks in the country’s shock absorption capacity.
Not only that, at individual level, Namibians are poorer by the day – income per capita which measures income per person has been decreasing since 2016 and this, according to Moody’s, will have the state stomaching social spending pressures.
Because not much will be spent on productive sectors, this will cause debt affordability to further deteriorate with interest per state revenue increasing to almost 17%.
This is a situation where government revenue is growing at a snail’s pace, but interest on borrowings is way ahead.
Finance minister Iipumbu Shiimi warned of this state in his 2022/23 national budget speech, saying a high interest bill means a significant share of revenue would be absorbed by debt servicing, adversely impacting allocations to key programmes in the furtherance of national development objectives.
Shiimi warned this could prevent the roll-out of certain government initiatives.
For Moody’s, this points to a deteriorating muscle for Namibia, and accordingly worth a downgrade.
There is an option to roll-over some of the loans Namibia has, but this will make matters worse, said Moody’s.
Moody’s said its crystal ball shows the country might not have enough money to redeem the 2025 euro bond.
“The quarterly replenishment of the US dollar account of the sinking fund will not fully cover the US$750 million euro bond that matures in October 2025,” reads the note.
Local analysts said they were not surprised by the rating.
“The downgrade is not entirely surprising as the majority of countries are going through this, but the stable outlook is positive despite the disclaimer from Moody’s,” said Salomo Hei, the head of research at High Economic Intelligence.
PSG analyst Michelle Louw said this is not good news as now the country will be deeply excluded from certain international bond indices.
Simonis Storm’s Theo Klein, like Hei, said he was not surprised by the downgrade.
“Namibia will find it harder to source or attract capital from foreign investors and due to the higher perceived risk from Moody’s, borrowing costs are likely to increase. We, therefore, expect bond yields to rise on this news,” he said.
Moody’s said the only possible upgrade would be if Namibia rebuilds fiscal buffers, which would enhance its capacity to absorb shocks without disrupting fiscal consolidation objectives.
The finance ministry had not made an official statement on the downgrade yesterday.
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