Rusty policy sustains junk

Jo-Maré Duddy - Without dramatic and deep cutting reform to free up the 80% of economy represented by private sector, government’s finances will remain weak and Namibia’s credit rating will be further downgraded.

Government needs to change its attitude completely, Cirrus Capital’s co-founder and director, Rowland Brown, reacted to Moody’s downgrade of Namibia over the weekend.

Moody’s on Friday downgraded Namibia’s sovereign credit ratings from Ba2 to Ba3, maintaining its negative outlook. The international credit ratings agency described government’s debt burden as “now markedly higher” and said its debt affordability was weakening.

“On the Moody’s rating scale, this now places Namibia three rungs into ‘junk’ territory, or the lowest of the ‘non-investment grade speculative’ basket – just one level above ‘highly speculative’,” Cirrus Securities said yesterday.

‘HAY BARN EMPTY’

“For the last five years we have cautioned that the macroeconomic situation of the country, and more specifically the fiscal position of the country, was becoming highly vulnerable,” Brown said.

“Earlier this year, before the extent of the impact that Covid-19 would have on the world was known, we cautioned that while the sun shone on the global economy for the last half decade, Namibia has languished, scoring a number of major policy-own-goals that have left all and sundry worse off,” continued.

According to Brown: “While the rest of the world was out in the sun making hay, Namibia entered this winter without reserves (fiscal, household or business). The hay barn was empty.”

As a result, Namibia’s ability to weather the crisis has been relatively weak and the economic damage done has been extensive, he said.

NOT JUST COVID

While Covid-19 may be the proximate cause, the underlying issues of fiscal erosion and economic degradation mean government had little choice but to further hollow out the fiscus, Brown said.

In a statement issued Monday, the Popular Democratic Movement (PDM) said Namibia’s fiscal house was not in order and Covid-19 cannot be offered as an excuse for the downgrade.

“The government has become so completely dependent on borrowing, that just one more small external shock will put it in a position where it cannot pay the interest on its debt,” the PDM’s treasurer general, Nico Smit, said.

‘WORRISOME SCENARIO’

One of Moody’s issues with Namibia is that government’s interest bill will rise to 15.5% of revenue in the current fiscal year, up from 5% five years ago.

Smit pointed out that the International Monetary Fund’s (IMF) benchmark for interest as a ratio of revenue is 10%. This has long been surpassed, Smit said, with the 12%-mark breached in 2019 and the 16% mark looming in 2021.

“This is a very worrisome scenario,” Smit said.

“The logical conclusion, based on the available data, is that the government is already in a situation where some part of its new borrowings is used to pay interest on old debt. This despite the restructuring of the debt maturity profile which started at the end of 2016,” he elaborated.

‘EXTRAORDINARY MEASURES’

Brown said extraordinary measures are needed to stabilise the deficit and debt stock over coming years – “measures way beyond those seen or proposed”.

Moody’s said while fiscal and external financing needs will remain elevated over the medium-term expenditure framework (MTEF), the large Government Institutions Pension Fund (GIPF) provides it “with some level of confidence in the ability of the government to continue to meet its liabilities should it be unable to access the international capital market and/or to draw from new credit lines from development partners”.

In this regard Brown said: “The pensions of ordinary people cannot and should not be relied upon to allow government to keep spending well beyond its income.”

‘STATE-CENTRIC’

Key among the extraordinary measures needed is to set the framework for a growth recovery, which in turn will become a revenue recovery, as well as employment recovery, he said.

However, this reform cannot have government initiatives and control at its core, Brown stressed.

“Indeed, any recovery and development plans that are state-centric will do little to turn the tide.”

According to Brown: “A complete change of attitude from government towards making it easier and less restrictive for businesses to survive and thrive (read: make profit) and for government to have less control over extensive aspects of business processes, decisions and implementation will stimulate material growth recovery.”