12 May 2017

Namibia Gets N$10b Loan

NAMIBIA has received a N$10 billion loan from the African Development Bank (AfDB) to bridge its budget deficit. The loan was sourced against the backdrop of a declining state fiscal environment and slowing economic growth, which threaten to put the brakes on government's development programmes.

Finance minister Calle Schlettwein yesterday confirmed the loan, only after the appearance of a media release by the AfDB late Wednesday, in which it announced the issuing of a US$226,5 million (R3 billion) credit line to effectively plug holes in the Namibian budget.

The rand-denominated loan was applied for at the beginning of the year. It will be split 60:40 between bridging the budget deficit, and to finance unspecified "development projects".

The minister told the media in Windhoek that the current budget deficit of N$6,1 billion would be covered in N$3 billion splits during the 2017/2018 and 2018/2019 financial years.

This means that government will get N$3 billion this year to bridge budget shortfalls, and the other N$3 billion next year to make up for shortfalls in the next financial year.

The remaining N$4 billion of the loan earmarked for financing "development projects" will also be utilised over the two financial years.

Schlettwein could not specify the targeted projects, simply saying "the identification of the projects will come after consultations with ministries and other stakeholders, including the African Development Bank".

The consultation process appears to be an attempt to adhere to the AfDB statement that it wanted to ensure that the money was used for approved purposes only.

"The programme will support the strengthening of public financial management and improve the quality and efficiency of public sector spending, while laying a solid foundation for industrialisation through support to critical business environment reforms," reads the AfDB statement.

The AfDB also referred to support for the government's "bold structural reforms".

However, Schlettwein said government was looking at "key" projects, such as the building of a desalination plant.

"The government will engage the AfDB on the specific elements of disbursement and appraisal of the infrastructure projects that are earmarked for targeted funding under this operation," he added.

Schlettwein stressed that the loan would not put government deeper into debt as it was already provided for in this year's budget and over the course of the three-year Medium-Term Expenditure Framework (MTEF).

The minister labelled the N$10 billion credit line as "a good loan".

The loan term is 15 years, inclusive of a three-year grace period.

The cost of servicing the loan would be based on a three-month JIBAR interest rate of 7,34%, plus a margin of 0,8%, Schlettwein said, adding that the loan cannot be referred to as a bailout.

According to economics site investopedia.com "A bailout is a situation in which a business, an individual or a government offers money to a failing business or government to prevent the consequences that arise from the downfall. Bailouts can take the form of loans, bonds, stocks or cash. They may require reimbursement."

The minister went on to say that the government decided to approach the AfDB because loans on the open market were US- dollar denominated, unlike the rand-denominated AfDB one.

"We have also seen that we have been experiencing liquidity squeezes domestically, and could not raise enough money domestically," he said. "We continue to diversify our sources."

Namibia's borrowing over the years, including a more than US$1,2 billion Eurobond, have been criticised as having been poorly spent on many "non-productive" infrastructure projects, such as government offices, or inflated ones like the fuel storage facility at Walvis Bay which ended up costing more than N$5 billion at present.

The fiscal crunch has caused massive cuts in government spending to key areas, such as health, education and capital projects, but spending on personnel remains a major concern, consuming almost 50% of the current budget.

During the conclusion of a high-level visit to Namibia last month, AfDB officials said the bank was spending an estimated US$533 million in Namibia, and that its involvement in the country has more than doubled since 2009.

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