Namibia's Ba1 negative credit profile reflects its moderate but gradually improving growth prospects over the medium term, Moody's Investors Service said in an annual report.
The investor service, in a statement last week said the report, 'Government of Namibia -- Ba1 negative, Annual credit analysis', is now available and the research is an update to the markets and does not constitute a rating action.
Moody's expects real Gross domestic product (GDP) growth of 0.9% in 2018 and 2.1% in 2019, however, moderate average real GDP growth and a high level of wealth are counterbalanced by growth volatility linked to commodity exports.
According to the firm, Namibia's economic recovery hinges on continuing growth in agriculture and mining, as well as gradually improving manufacturing, which should offset contraction in the construction sector.
The firm said Namibia's fiscal strength has weakened in recent years, although government debt to GDP, at slightly more than 40% in financial year 2017-18, remains moderate relative to its regional peers, the pace of debt accumulation has been rapid in recent years.
"Government debt is now above the institutionally mandated 35% of GDP threshold, having increased from around 25% of GDP in financial year2014-15. Moody's expects debt accumulation to continue, reaching around 50% of GDP by 2020," they added.
Meanwhile Moody's said Namibia's sovereign is also susceptible to a further tightening of domestic funding conditions, which could be related to persistent fiscal slippages and would raise debt servicing costs.
According to the firm, they would likely downgrade the rating if fiscal consolidation were to fail to contain rapid public sector debt accumulation.
"A sustained decline in foreign-currency reserves to below three months of import cover, increased funding pressure reflecting reduced market appetite for government securities, leading to a material increase in borrowing costs, or both, would also put downward pressure on the rating," the research firm added.