{"id":23637,"date":"2022-06-29T17:32:36","date_gmt":"2022-06-29T17:32:36","guid":{"rendered":"https:\/\/www.africa-press.net\/namibia\/all-news\/downgrade-is-premature-and-unjustified-likukela"},"modified":"2022-06-29T17:45:16","modified_gmt":"2022-06-29T17:45:16","slug":"downgrade-is-premature-and-unjustified-likukela","status":"publish","type":"post","link":"https:\/\/www.africa-press.net\/namibia\/all-news\/downgrade-is-premature-and-unjustified-likukela","title":{"rendered":"Downgrade is premature and unjustified \u2013 Likukela"},"content":{"rendered":"

Africa-Press – Namibia. <\/strong><\/span>The decision last week by Fitch Ratings to downgrade Namibia reflects monumental bad timing, which is grossly premature and unjustified.<\/p>\n

This is according to local economist and managing director of Twilight Capital Consulting Mally Likukela.<\/p>\n

In a response to the latest downgrade in which Fitch Ratings on Friday downgraded Namibia to \u2018BB-\u2019 from \u2018BB\u2019, with a stable outlook, Likukela said: \u201cThis downgrade is probably the most painful one in the entire history of Namibia\u2019s downgrades because it comes at a critical time, where Namibia, together with the rest of the world, remains under pressure from the economic meltdown induced by the Covid-19 pandemic. Simply put, this downgrade means more bad news piled on bad news\u201d.<\/p>\n

Likukela continued that this will undoubtedly reverse all the economic recovery gains the country achieved so far since the advent of the pandemic-induced recession.<\/p>\n

\u201cSince international rating agencies have tremendous power to influence market expectations and investors\u2019 portfolio allocation decisions, crisis-induced downgrades like this will undermine Namibia\u2019s macroeconomic fundamentals. Like a self-fulfilling prophecy, a country (even countries with strong macroeconomic fundamentals) will deteriorate so that it converges with model-predicted ratings. Credit ratings downgrade by Fitch will increase the country\u2019s borrowing costs and constrain its fiscal options,\u201d Likukela noted.<\/p>\n

The local economist explained that this downgrade increases the government\u2019s cost of borrowing, as premiums investors demand to hold its debt will be raised.<\/p>\n

\u201cWith these ratings, the government will either have to cut back on public spending, particularly social spending or tax more. With Namibia\u2019s already weakened social development indices (poverty, inequality, health etc.), this will have an immediate devastating impact on the poor and vulnerable groups in the country, who rely on government welfare programmes. The saddest reality about this downgrade is that this rating will impose a new wave of other problems, worse than Covid-19. The value of sovereign bonds as collateral in central bank funding operations will be cut, and this will drive interest rates higher,\u201d said Likukela.<\/p>\n

As such, Likukela warned of a devastating chain reaction that will be set in motion.<\/p>\n

This includes sovereign bond values that will be grossly discounted \u2013 at the same time escalating the cost of interest repayment instalments, ultimately contributing to a rise in the cost of debt.<\/p>\n

He added a wave of corporate downgrades will also follow because of the sovereign ceiling concept.<\/p>\n

This is because a country\u2019s rating generally dictates the highest rating assigned to companies within its borders.<\/p>\n

Despite the factors, Likukela said this latest downgrade calls for an urgent need for government to fast-track the implementation of ongoing structural economic reforms to avoid further harm to the country\u2019s sovereign rating.<\/p>\n

\u201cIf these reforms are not implemented, downgrades will continue, and this will translate to unaffordable debt costs, deteriorating asset values as mentioned earlier (such as retirement, other savings and property) and reduction in disposable income for the many Namibians, whose incomes have remained unchanged and already decimated by the increase in inflation (the cost of living),\u201d Likukela warned.<\/p>\n

Meanwhile, another economic analyst Klaus Schade yesterday said the latest downgrade did not come as a surprise, since neither economic nor fiscal prospects have considerably improved.<\/p>\n

\u201cA downgrade implies that investors might face greater risks in lending to a country or company. Investors, domestic and foreign, have therefore most likely already factored in greater, perceived risks. However, the current domestic demand for Government Bonds and Treasury Bills indicates that there is still a strong appetite in the market,\u201d said Schade.<\/p>\n

He added it will take time to reverse the trend and improve the rating since government feels the impact of higher inflation and higher interest rates that put additional pressure on government\u2019s expenditure.<\/p>\n

\u201cSteps need to be taken to improve government revenue. Auctioning a larger share of the total fishing quotas, reviewing the current income tax act and in particular tax-deductible allowances as well as reviewing the VAT zero-rating of certain food items could all support boosting revenue, while PSEMAS needs to be reformed to reduce the current subsidy of some N$2.3 billion annually. Reducing policy uncertainties could attract domestic and foreign direct investment, create jobs and in turn increase revenue through income tax and VAT,\u201d Schade recommended.<\/p>\n

In its reports, Fitch noted key factors for the downgrade include the country\u2019s elevated fiscal deficits.<\/p>\n

\u201cModest growth prospects and a rigid expenditure profile will maintain high fiscal deficits relative to \u2018BB\u2019 peers. Fitch estimates the general government fiscal deficit widened to 9.5% of GDP in the fiscal year ending March 2022, above the estimated \u2018BB\u2019 median 5% deficit for 2021, from-8.2% in FY20\/21,\u201d the Fitch report read.<\/p>\n

The ratings agency continued that international financing conditions have tightened, which they expect will lead to further increases in the government\u2019s interest bill, which during the 21\/22 financial year stood at 16% of revenue.<\/p>\n

For More News And Analysis About Namibia<\/a> Follow Africa-Press<\/a><\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"

Africa-Press – Namibia. The decision last week by Fitch Ratings to downgrade Namibia reflects monumental bad timing, which is grossly premature and unjustified. This is according to local economist and managing director of Twilight Capital Consulting Mally Likukela. In a response to the latest downgrade in which Fitch Ratings on Friday downgraded Namibia to \u2018BB-\u2019 […]<\/p>\n","protected":false},"author":84,"featured_media":23635,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[2,5,8,16],"tags":[234,236,233],"class_list":["post-23637","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-all-news","category-economy","category-homepage-english","category-twitter","tag-africa-press","tag-africa-press-namibia","tag-namibia"],"yoast_head":"\nDowngrade is premature and unjustified \u2013 Likukela - Namibia<\/title>\n<meta name=\"description\" content=\"The decision last week by Fitch Ratings to downgrade Namibia reflects monumental bad timing, which is grossly premature ...\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.africa-press.net\/namibia\/all-news\/downgrade-is-premature-and-unjustified-likukela\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Downgrade is premature and unjustified \u2013 Likukela\" \/>\n<meta property=\"og:description\" content=\"The decision last week by Fitch Ratings to downgrade Namibia reflects monumental bad timing, which is grossly premature ...\" \/>\n<meta property=\"og:url\" content=\"https:\/\/www.africa-press.net\/namibia\/all-news\/downgrade-is-premature-and-unjustified-likukela\" \/>\n<meta property=\"og:site_name\" content=\"Namibia\" \/>\n<meta property=\"article:publisher\" content=\"https:\/\/www.facebook.com\/AfricaPressTunisiaa\" \/>\n<meta property=\"article:published_time\" content=\"2022-06-29T17:32:36+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2022-06-29T17:45:16+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/static.africa-press.net\/nambia\/sites\/29\/2022\/06\/postQueueImg_9-62bc8f872d216.jpg\" \/>\n\t<meta property=\"og:image:width\" content=\"720\" \/>\n\t<meta property=\"og:image:height\" content=\"404\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/jpeg\" \/>\n<meta name=\"author\" content=\"cfeditoren\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"cfeditoren\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"4 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"Article\",\"@id\":\"https:\/\/www.africa-press.net\/namibia\/all-news\/downgrade-is-premature-and-unjustified-likukela#article\",\"isPartOf\":{\"@id\":\"https:\/\/www.africa-press.net\/namibia\/all-news\/downgrade-is-premature-and-unjustified-likukela\"},\"author\":{\"name\":\"cfeditoren\",\"@id\":\"https:\/\/www.africa-press.net\/namibia\/#\/schema\/person\/068c7ab4e9634ae78ec5d54ec46598bb\"},\"headline\":\"Downgrade is premature and unjustified \u2013 Likukela\",\"datePublished\":\"2022-06-29T17:32:36+00:00\",\"dateModified\":\"2022-06-29T17:45:16+00:00\",\"mainEntityOfPage\":{\"@id\":\"https:\/\/www.africa-press.net\/namibia\/all-news\/downgrade-is-premature-and-unjustified-likukela\"},\"wordCount\":817,\"commentCount\":0,\"image\":{\"@id\":\"https:\/\/www.africa-press.net\/namibia\/all-news\/downgrade-is-premature-and-unjustified-likukela#primaryimage\"},\"thumbnailUrl\":\"https:\/\/static.africa-press.net\/nambia\/sites\/29\/2022\/06\/postQueueImg_9-62bc8f872d216.jpg\",\"keywords\":[\"africa press\",\"Africa Press-Namibia\",\"namibia\"],\"articleSection\":[\"all news\",\"economy\",\"homepage-english\",\"twitter\"],\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"CommentAction\",\"name\":\"Comment\",\"target\":[\"https:\/\/www.africa-press.net\/namibia\/all-news\/downgrade-is-premature-and-unjustified-likukela#respond\"]}]},{\"@type\":\"WebPage\",\"@id\":\"https:\/\/www.africa-press.net\/namibia\/all-news\/downgrade-is-premature-and-unjustified-likukela\",\"url\":\"https:\/\/www.africa-press.net\/namibia\/all-news\/downgrade-is-premature-and-unjustified-likukela\",\"name\":\"Downgrade is premature and unjustified \u2013 Likukela - 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