Govt to borrow N$29bn to pluck debt deficit

Government plans to borrow N$29.22 billion during the 2026/27 financial year to finance budget deficits, refinance maturing debt and meet growing fiscal pressures linked to cash requirements and oil and gas VAT refunds.

The financing requirement — equivalent to 10.2% of GDP — is outlined in government’s annual borrowing plan for FY2026/27.

The bulk of the requirement stems from a projected budget deficit of N$15.78 billion, accounting for about 54% of total financing needs. Bond redemptions amount to N$3.58 billion, while foreign loan principal repayments stand at N$3.14 billion.

Government also requires N$4.57 billion to meet cash flow needs, while VAT refunds linked to oil and gas activities are projected at N$2.15 billion.

The inclusion of oil and gas VAT refunds highlights the growing fiscal impact of Namibia’s expanding petroleum sector.

Oil and gas companies involved in offshore exploration and development pay VAT on drilling services, logistics, imported equipment, aviation, accommodation and other operational costs incurred in Namibia.

However, because most operators remain in the exploration and pre-production phase, they are entitled to reclaim those VAT payments before commercial production begins generating significant state revenue.

While the sector is attracting billions of dollars in investment, the growing refund obligations are placing immediate cash flow pressure on Treasury as government processes increasing claims from offshore exploration companies.

Domestic market

Government plans to raise N$20.2 billion from the domestic market — about 69% of total planned borrowing — while the remaining N$9 billion will be sourced externally.

The finance ministry said international capital market funding would only be considered if pricing conditions remain favourable amid ongoing global market volatility and shifting investor appetite for frontier sovereign debt.

Domestic borrowing will largely come from pension funds, commercial banks, insurance companies and asset managers through government bonds and Treasury Bills issued on the Namibian capital market.

According to the annual borrowing plan, the domestic market will remain government’s primary funding source, although authorities will continue exploring external financing opportunities offering favourable pricing and concessional terms.

The latest borrowing plan comes as government continues managing one of the largest public debt portfolios in Namibia’s history.

By the end of March 2026, total public debt stood at N$178.69 billion, an increase of N$11.54 billion from the previous financial year.

The debt portfolio consists of N$152.93 billion in domestic debt, representing about 85.6% of total public debt, N$6 billion in commercial bank loans and N$19.76 billion in external debt.

Government said the increase was largely driven by continued deficit financing, weaker revenue projections and refinancing activities linked to the maturing US$750 million Eurobond.

Namibia redeemed the Eurobond on 29 October 2025 using a combination of a US$444 million sinking fund and rand-denominated commercial bank loans.

Ericah Shafudah said during the 2026/27 budget presentation that public debt is projected to stabilise at around 67.5% of GDP over the medium term as authorities attempt to balance fiscal consolidation with economic growth and infrastructure financing needs.

Managing refinancing risks

The borrowing plan also outlines measures aimed at managing refinancing risks and liquidity pressures during the coming financial year.

Domestic borrowing during FY2025/26 reached N$26.48 billion, slightly exceeding the annual target.

Fixed-rate government bonds accounted for the largest share of borrowing, while Treasury Bills continued providing short-term financing flexibility through weekly auctions across multiple maturities.

Government also introduced two new inflation-linked bonds — GI31 and GI41 — as part of efforts to deepen the domestic investment market and extend Namibia’s inflation-linked bond curve.

Authorities further used switch auctions to reduce refinancing pressure linked to the GC26 bond.

Under switch auctions, investors exchange bonds nearing maturity for newer, longer-dated bonds, allowing government to spread repayments over a longer period instead of settling large amounts at once.

Using this strategy, government reduced the outstanding GC26 balance from about N$6.4 billion to roughly N$1.7 billion before maturity — a reduction of nearly 73%.

As part of the FY2026/27 strategy, government plans to introduce three new fixed-rate bonds — GC29, GC34 and GC53 — to manage future redemption risks and align Namibia’s bond curve more closely with regional capital markets.

Authorities are also considering issuing a floating-rate note later in the financial year. Floating-rate notes allow government to borrow while interest costs fluctuate in line with market conditions.