Untangling the Moody's decision
IJG says Namibia's credit-rating downgrade by Moody's should not be seen as a failure and corrective action can be taken.
Following last week's decision by ratings agency Moody's to downgrade Namibia's unsecured long-term debt stock from Baa3 to Ba1, stockbroking firm IJG has analysed the move.
According to IJG, Moody's was justified in its decision to downgrade Namibia to junk status, since the government's debt had grown, fiscal strength had been eroded and questions remained as to how fast the government could service its outstanding debts.
“Debt issuance over the past two years has been substantial. Debt to GDP has gone from just over 26% in June 2015 to 41.9% at present. Add in the portion of the African Development Bank loan received already and this goes up further.
This debt was raised partially to fund government expenditure and partially to support the external position of the country,” said IJG. On the issue of limited institutional capacity to manage shocks and address long-term structural fiscal rigidities, IJG felt that the ratings agency had made the right move.
“The argument posted by Moody's is very clear. Examples of the erosion of fiscal strength are provided and spot on. Budget deficits in 2015/16 and 2016/17 were larger than expected due to overoptimistic revenue forecasts which did not materialise.”
IJG further supported the Moody's decision by casting doubt on the government's ability to make payments due to creditors. Although it acknowledged that the government had indeed paid its dues to the construction sector, the delay in payment was a concern.
“The downgrade was inevitable as initial efforts to drive structural changes have not been immediately evident. Indeed, the opposite has been witnessed as government has struggled to pay outstanding invoices to the private sector.
“The inability to pay invoices is what would have been most concerning to Moody's as it brings into question the ability of government to honour its debt obligations.
“Much of these invoices have been settled as government has pointed out, but there was a substantial delay in satisfying many of these obligations, which is concerning,” said IJG.
“We are cognisant of the fiscal measures implemented by government thus far and expect to see further commitment to these in the mid-term budget review scheduled for October.
“The Moody's downgrade should not be seen as a failure of government but rather a warning to correct course after slowly straying from a sustainable path for the better part of a decade,” the IJG assessment read.
STAFF REPORTER
According to IJG, Moody's was justified in its decision to downgrade Namibia to junk status, since the government's debt had grown, fiscal strength had been eroded and questions remained as to how fast the government could service its outstanding debts.
“Debt issuance over the past two years has been substantial. Debt to GDP has gone from just over 26% in June 2015 to 41.9% at present. Add in the portion of the African Development Bank loan received already and this goes up further.
This debt was raised partially to fund government expenditure and partially to support the external position of the country,” said IJG. On the issue of limited institutional capacity to manage shocks and address long-term structural fiscal rigidities, IJG felt that the ratings agency had made the right move.
“The argument posted by Moody's is very clear. Examples of the erosion of fiscal strength are provided and spot on. Budget deficits in 2015/16 and 2016/17 were larger than expected due to overoptimistic revenue forecasts which did not materialise.”
IJG further supported the Moody's decision by casting doubt on the government's ability to make payments due to creditors. Although it acknowledged that the government had indeed paid its dues to the construction sector, the delay in payment was a concern.
“The downgrade was inevitable as initial efforts to drive structural changes have not been immediately evident. Indeed, the opposite has been witnessed as government has struggled to pay outstanding invoices to the private sector.
“The inability to pay invoices is what would have been most concerning to Moody's as it brings into question the ability of government to honour its debt obligations.
“Much of these invoices have been settled as government has pointed out, but there was a substantial delay in satisfying many of these obligations, which is concerning,” said IJG.
“We are cognisant of the fiscal measures implemented by government thus far and expect to see further commitment to these in the mid-term budget review scheduled for October.
“The Moody's downgrade should not be seen as a failure of government but rather a warning to correct course after slowly straying from a sustainable path for the better part of a decade,” the IJG assessment read.
STAFF REPORTER
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