14 August 2017

Namibia: Government, Moody's At Loggerheads Over Rating

Photo: Stefan Magdalinski/Wikipedia
Independence Avenue Windhoek

Windhoek — Moody's Rating Agency has downgraded Namibia's credit rating, saying the country's financial standing suggests it would be unable to raise enough funds to pay its debts in coming years.

The United States of America-based rating agency downgraded Namibia's long term senior unsecured bond and issuer rating to Ba1 from Baa3, saying the country appears unable to honour its debts, and has not put up sufficient policy measures to contain debt and thus looks unable to raise sufficient revenue to fund government expenditures.

Finance Minister Calle Schlettwein, however, expressed serious concern at the sudden downgrade, saying it "essentially put Namibia's international debt issuance in the category of junk status, an assessment we do not concur with".

He points out that one crucial element that Moody's ignored is that the country's foreign exchange reserves increased to 5.3 months of import cover in the second quarter of 2017.

"This is a crucial variable in credit worthiness that cannot be ignored. It is puzzling that at a time when Namibia's import coverage has increased, Moody's decides to downgrade our credit ratings."

Schlettwein further said he does not believe domestic economic conditions warrant a downgrade at this point in time.

This is because Moody's also downgraded Namibia's bonds and bank deposits - both local and foreign.

The agency says the factors behind its decision include the "erosion of Namibia's fiscal strength due to sizeable fiscal imbalances and increasing debt burden".

It also says for the coming years there looks to be "limited institutional capacity to manage shocks and address long-term structural fiscal rigidities" and that there is a "risk of renewed government liquidity pressures in the coming years".

In response, Minister Schlettwein said Moody's rating "relied merely on an exchange of e-mails on a single item", that of outstanding invoices and how government is planning to settle them.

"This is highly regrettable. A thorough assessment taking all factors into consideration would have been the proper way in dealing with reviewing Namibia's sovereign credit rating."

He said a review of Namibia's rating only four months into the budget implementation for 2017/18 is premature and premised on a very narrow factual base and may very well contain purely speculative conclusions on the performance of the budget over the whole financial year.

"The process followed by Moody's is, therefore, not systematic, as we are busy developing the mid-year budget review and better informed ratings action and effective country assessment could have benefited from the mid-year budget review planned for October 2017," Schlettwein said.

He also said Moody's statement that there are sizeable fiscal imbalances and an increase in the debt burden does not stand up to the facts. This is because there has been no additional borrowing to pay for the outstanding invoices, of which N$1,7 billion has already been paid.

The payment of those invoices was done from government's own cash reserves and budgeted funds. "All borrowing undertaken this year are in line with the expectations in the budget," Schlettwein said.

He further dismissed Moody's statement on the government's debt level being at 43 percent, saying it currently stands at 41,9 percent and is thus within the threshold of 42 percent of GDP for middle income countries the size of Namibia to be considered sustainable.

"It is not the first time that we have exceeded our debt threshold, and we have demonstrated during times of previous external shocks our resolve to reduce debt to within sustainable limits. The resolve of the Namibian government towards prudent, sustainable and stable macroeconomic policies cannot be questioned."

The finance minister was at pains to point out that Moody's view that the country would not be able to raise enough funds to cover expenditures, given shortfalls in expected revenue from the Southern African Customs Union (SACU), as well as an expected increase in expenditure to fund the Swapo congress, was "purely speculative and not evidenced at all".

"The Swapo congress is an inner-party process and the insinuation of budget overruns being caused by the leadership and presidential elections are irresponsible," he said.

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