15 May 2018

Namibia: Govt Bond Encroached in High Debt

SIMONIS Storm junior analyst Indileni Nanghonga said they are worried with the maturity profile of government bonds, as they have high debt encompassed in three treasury bond maturities.

She said roughly 38%, or N$18,2 billion of the total domestic debt, standing at N$47,6 billion, is seen in the six to 12-month treasury bond (TB) maturities.

Nanghonga stressed that a solution that the government can look at is by having attractive schemes towards the longer end of the curve to avoid high concentration on the shorter end.

"With the current recession prevailing in Namibia, we recommend a short duration for bonds. We observed a parallel upward shift in the Namibian yield curve at the end of April, compared to the moderately flatter yield curve observed in March 2018. The yield curve moved upwards by 14,7 basis points on average in April 2018. The benchmark yields have also increased in April, resulting in an upward shift in the Nam bond yields. Yields on the TBs and short-dated maturities have been suppressed due to high demand, especially on the 12 month TBs, evident in the bid to cover ratios. There is a high appetite for maturities, ranging from the TBs to GC27, but the longer end (GC30 to GC45) remains reticent," she said.

The increase in demand for certain maturities may be credited to the upsurge in banking liquidity to N$3,3 billion at the end of April 2018, compared to N$2,2 billion the preceding year.

Simonis Storm also noticed an upsurge in the Bank of Namibia (BoN) bills to N$2,3 billion at the end of April, with Nanghonga opining that the high liquidity position has partly fuelled appetite for TBs, and in turn led to lower TB yields more recently.

"Furthermore, money supply (M2), which is notes and coins in circulation plus short-term deposits (money market funds), has increased since the end of 2017, albeit at a slow pace. The annual growth rate in M2 stood at 7,1% at the end of March 2018, higher than the 6,5% recorded in February 2018" she said.

As public debt increased to N$49,1 billion, reflecting a slight increase of 1% in April, BoN said the increase was reflected in both TBs and Internal Registered Stock (IRS), which rose by 1,3% and 0,7% monthly (to N$19,7 billion and N$29,4 billion), respectively.

Meanwhile, Nanghonga said on an annual basis, domestic debt rose by 16,9% due to the issuance of both TBs and IRS, which rose by 28,8% and 10,1%, respectively. "Government debt continues to increase at a faster rate than the economy. This is clearly worrisome as there is increasing evidence of debt being rolled rather than stimulating economic growth," she said.

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