Southern Africa: Domestic Debt At 63.2 Percent Breaches SADC Benchmark

14 October 2021

Namibia's total debt as a percentage of gross domestic debt (GDP) has breached the Southern African Development Community (SADC) benchmark of 60%.

At the end of June 2021, this figure stood at 63.2%. This debt level represents annual and quarterly increases of 6.9 percentage points and 1.8 percentage points, respectively. Generally, government debt as a percent of GDP is used by investors to measure a country's ability to make future payments on its debt, thus affecting the country's borrowing costs and government bond yields.

According to the recently released quarterly bulletin by the Bank of Namibia (BoN), going forward, the total domestic debt stock is anticipated to rise to N$159.3 billion over the medium-term expenditure framework (MTEF) period, which represents a staggering 77.3% of GDP.

"The debt stock of the central government rose over the year to the end of June 2021. The total government debt stock stood at N$118.9 billion at the end of June 2021, representing a yearly increase of 17.5% and a quarterly increase of 7.8%. The increases on a yearly and quarterly basis were driven by a rise in the issuance of both Treasury Bills (TBs) and Internal Registered Stock (IRS), coupled with the disbursement of an IMF loan and supplemental financing from the African Development Bank (AfDB) to finance the budget deficit," reads the report.

The central bank noted that the central government's budget deficit is estimated to narrow during the FY2021/22, compared to the preceding fiscal year. The deficit as a percentage of GDP is estimated to narrow to 8.6% during the FY2021/22, from a record high deficit of 9.5% registered during the previous fiscal year, which was largely due to an increase in expenditure alongside lower revenue, both induced by the pandemic.

It stated that the smaller deficit in the FY2021/22 is due to a reduction in central government expenditure as a result of the resumption of government's fiscal consolidation programme. Central government revenue collection is estimated to decline in 2021/22 due to lower SACU receipts, coupled with an anticipated fall in company taxes. Furthermore, the bank stated that total domestic debt for the period under review rose both year-on-year and quarter-on-quarter during the period under review, to meet the government's financing requirements.

Meanwhile, government's total domestic debt rose over the year by 22.3% and 5.3%, year-on-year and quarter-on-quarter, respectively, to N$81 billion at the end of the first quarter of the FY2021/22.

"The increase was reflected in both TBs and IRS, mainly on account of increased borrowing to meet the government's financing requirements. Most of the TBs were allotted to the banking sector, while the IRS was mainly allotted to non-banking financial institutions. As a percentage of GDP, domestic debt rose year-on-year by 5.7 percentage points to 43.1% during the period under review but declined on a quarterly basis by 0.4 percentage points from 43.4%," the report stipulated.

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