Corona: ‘Nam has no buffers’
The major macroeconomic risk presented by the developing coronavirus story is to Namibia’s fiscus, Cirrus Securities says.
Jo-Maré Duddy – The coronavirus poses “material” risks to Namibia’s economy and the probability of the country recovering from the recession this year are “very slim”.
“Namibia now has virtually no buffers to manage the external shock,” Cirrus Securities said yesterday.
Following the confirmation of two cases of Covid-19 in Namibia, Cirrus released an update on its economic outlook.
The major macroeconomic risk presented by the developing virus story is to Namibia’s fiscus, the analysts say.
“Government, as households and businesses, is now highly leveraged. From 16% debt to GDP [gross domestic product] in 2010, the country’s ratio is now north of 52%. With a large budget deficit of just under 5% already planned for 2020, and the budget ‘cut to the bone’ as is, the situation is precarious,” according to Cirrus.
Many state-owned enterprises (SOEs) are exposed to external demand, especially Air Namibia, the Namibia Airports Company (NAC), Namibia Wildlife Resorts (NWR) and, to a lesser degree, TransNamib and Namport.
SOE revenue
“Many of these entities can be expected to experience a major drop in revenue, without a commensurate drop in expenditure,” Cirrus says.
“As a result of the expected financial pressure on these entitles, coupled with a number of such already being loss-making with weak balance sheets, increased demand on the shareholder is inevitable.”
The fiscus, however, is in no better shape than many of the SOEs, Cirrus points out.
“Cash balances have remained extremely low since 2015 and demand for debt has reduced dramatically, with both the benchmarks and spreads moving to make the marginal cost of debt substantially greater.”
A “major risk” to the deficit and long-term debt therefore exists as result of the large increase in demands that will flow from SOEs - especially if combined with large increases in the financial burden on the public health system and other general disruptions, Cirrus believes.
Economic impact
The analysts say it is not possible to quantify the impact of Covid-19 on economic growth, the deficit and debt at this stage.
“However, the risks are material and will make the probability of a recovery from recession this year very slim.”
Signs of the broader macroeconomic impact can already be seen, Cirrus says.
“Signs of material external demand weakness are becoming ever more clear, while local and regional business disruption too seems inevitable.”
It looks like many economies in Europe, Asia and North America will go into recession, taking with them the global economy, Cirrus says.
“This is not due to the virus directly, but rather due to the attempts to stop its spread, via the ‘locking down’ of regions and countries.”
According to Cirrus, the risks for Namibia are substantial, even without major outbreaks of the virus in country.
“Shocks to global demand and supply as a result of the virus outbreak will hit many of Namibia’s industries by nature of our small, open, developing economy.”
Sectors
The local travel and tourism industry, as well as transport are the most exposed in the immediate future, Cirrus says.
“In all of the above, sizable revenue pressure can be expected and for many, reducing costs is challenging and undesirable.”
How well the sector’s institutions weather the storm is largely down to buffers and contingency planning, Cirrus says.
Some of Namibia’s mineral exports may also be negatively impacted.
“With global demand slowing, demand for luxury commodities such as diamonds will likely come under further pressure, while demand for the likes of uranium may also slow.”
Cirrus emphasises that while the rate of coronavirus infection is high if improperly handled, the mortality rate is relatively low, provided the health system is not overwhelmed.
“In this regard, the low population density in Namibia is a positive for the country, while the large immunocompromised population may be a negative.”
“Namibia now has virtually no buffers to manage the external shock,” Cirrus Securities said yesterday.
Following the confirmation of two cases of Covid-19 in Namibia, Cirrus released an update on its economic outlook.
The major macroeconomic risk presented by the developing virus story is to Namibia’s fiscus, the analysts say.
“Government, as households and businesses, is now highly leveraged. From 16% debt to GDP [gross domestic product] in 2010, the country’s ratio is now north of 52%. With a large budget deficit of just under 5% already planned for 2020, and the budget ‘cut to the bone’ as is, the situation is precarious,” according to Cirrus.
Many state-owned enterprises (SOEs) are exposed to external demand, especially Air Namibia, the Namibia Airports Company (NAC), Namibia Wildlife Resorts (NWR) and, to a lesser degree, TransNamib and Namport.
SOE revenue
“Many of these entities can be expected to experience a major drop in revenue, without a commensurate drop in expenditure,” Cirrus says.
“As a result of the expected financial pressure on these entitles, coupled with a number of such already being loss-making with weak balance sheets, increased demand on the shareholder is inevitable.”
The fiscus, however, is in no better shape than many of the SOEs, Cirrus points out.
“Cash balances have remained extremely low since 2015 and demand for debt has reduced dramatically, with both the benchmarks and spreads moving to make the marginal cost of debt substantially greater.”
A “major risk” to the deficit and long-term debt therefore exists as result of the large increase in demands that will flow from SOEs - especially if combined with large increases in the financial burden on the public health system and other general disruptions, Cirrus believes.
Economic impact
The analysts say it is not possible to quantify the impact of Covid-19 on economic growth, the deficit and debt at this stage.
“However, the risks are material and will make the probability of a recovery from recession this year very slim.”
Signs of the broader macroeconomic impact can already be seen, Cirrus says.
“Signs of material external demand weakness are becoming ever more clear, while local and regional business disruption too seems inevitable.”
It looks like many economies in Europe, Asia and North America will go into recession, taking with them the global economy, Cirrus says.
“This is not due to the virus directly, but rather due to the attempts to stop its spread, via the ‘locking down’ of regions and countries.”
According to Cirrus, the risks for Namibia are substantial, even without major outbreaks of the virus in country.
“Shocks to global demand and supply as a result of the virus outbreak will hit many of Namibia’s industries by nature of our small, open, developing economy.”
Sectors
The local travel and tourism industry, as well as transport are the most exposed in the immediate future, Cirrus says.
“In all of the above, sizable revenue pressure can be expected and for many, reducing costs is challenging and undesirable.”
How well the sector’s institutions weather the storm is largely down to buffers and contingency planning, Cirrus says.
Some of Namibia’s mineral exports may also be negatively impacted.
“With global demand slowing, demand for luxury commodities such as diamonds will likely come under further pressure, while demand for the likes of uranium may also slow.”
Cirrus emphasises that while the rate of coronavirus infection is high if improperly handled, the mortality rate is relatively low, provided the health system is not overwhelmed.
“In this regard, the low population density in Namibia is a positive for the country, while the large immunocompromised population may be a negative.”
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