10 October 2018

Namibia: Govt Debt At Unsustainable Levels - Expert

GOVERNMENT debt has grown to unsustainable levels, and it would thus not be able to borrow at the same rates as previously in future, Cirrus Capital co-founder Rowland Brown said yesterday.

He added that if the country has to experience any growth in future, it would not be government-driven, but rather private sector-driven.

Brown was speaking at the second Lithon annual conference on infrastructure, urban development and finance that took place in Windhoek.

He said the fact that the government was going through fiscal consolidation was challenging to see whether it would invest in infrastructure, as well as in social projects.

"The bottomline when it comes to this is that the government and households are unlikely to be the big drivers of growth. Thus, we will have to look at other avenues for growth," Brown said.

He added that from 1990, the economy grew, although a large part of this growth was linked to debt, which is not sustainable growth in the long-term.

"Government's role in the economy also grew. Despite having these huge amounts of revenue, the government borrowed aggressively over the past few years in order to elevate growth to the types of levels we see. This growth was also largely fuelled by debt, and this is an alarming picture," he stated.

Although it looks like foreign investments in the country are likely to grow the economy in the long-term, Brown noted that Namibia should create an environment that is open for these investments.

"There has been a drastic contraction with regards to foreign investments in 2016, which tells you what the outside world thinks of Namibia. We should be concerned about this, as this is a warning sign. Productivity has also dropped. Net exports relative to the gross domestic product (GDP) have been dropping fast. Our imports are more than our exports, relative to GDP. This is a very worrying sign," he continued.

He further explained that when one looks at growth, what can be seen from 2010 to 2015 was a huge amount of credit issued by the banks into the private sector.

Brown said: "In fact, over a period of 17 years, we saw 120% increases in the amount of credit outstanding, and at the same time, the government was spending extremely aggressively. The third factor was that we had quite a lot of investments into our mining sector. Two of these three sectors are concerning, and are not sustainable.

"The first was the debt going to the private sector, particularly into households. During the third quarter of 2017, the household debt-to-disposal income ratio was over a 100%, indicating that the average households had spent next year's income already, and have done this by borrowing aggressively."

Namibia is in a recession for two-and-a-half years, with analysts saying the government's budget cuts have been the leading cause. The domestic economy's performance remained suppressed in the second quarter of 2018 when it declined by 0,2%, compared to the same period in 2017.

This also means the contraction was worse than the -0,1% seen in the first quarter of 2018. The country has been in a recession since the second quarter of 2016.

charmaine@namibian.com.na, twitter: @Char_Ngatjiheue.

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