Moody’s affirms credit rating

STAFF REPORTER

Ratings agency Moody’s this week affirmed Namibia’s credit rating to Baa3 while changing its outlook from stable to negative. The agency warned that it would likely downgrade Namibia if its fiscal consolidation plan were to prove ineffective.

Said Moody’s in a statement: “The decision to affirm the Baa3 rating is informed by Namibia''s robust growth outlook, debt metrics still comparable to those of Baa3 peers, and political stability and an institutional framework that have proven conducive for reaching consensus on key macroeconomic policies and structural reforms.”

Moody''s also projected that the ratio of public debt to gross domestic product would approach 45% at the end of this fiscal year, an increase of 20 percentage points from financial year 2013/14, with foreign currency debt now accounting for about half of the total public debt.

“The speed of debt accumulation and the size of the budget deficit point to increased uncertainties with regard to progress on future fiscal consolidation. While government is committed to ambitious fiscal consolidation and has a demonstrated track record of sound fiscal policies in the past, its plans will face challenges from continued upward pressures on public wage bill, uncertainty surrounding future Southern African Customs Union revenues and an external environment characterised by low growth, investment and trade,” it said.

“An additional driver of the negative outlook is Namibia''s ongoing weak external position, evidenced by the country''s persistent large current account deficits, declining share of foreign direct investment as a source of financing and historically relatively low external reserves.

“Recognising the pressures on the trade balance from lower for longer commodity prices together with risk of some future fiscal slippages, Moody''s highlights the risks of additional pressure on reserves, which could translate into downward pressure on the rating.

“Should the trends motivating the negative outlook on Namibia''s Baa3 rating dissipate or reverse over 12-18 months, we would stabilise the outlook. A return to a stable outlook could result from the government''s commitment to fiscal consolidation that would result in a marked slowing and eventual reversal of debt accumulation.

“A sustainable improvement in the country''s twin balances, a sustained easing of funding conditions on the domestic market and a material increase in forex reserves comfortably above three months of imports would be also positive and lead to upward rating pressure.”