Fiscal consolidation crucial, analysts sayJunk status can be avoided Two local economists talk about Namibia's credit rating and their expectations of economic growth this year. In light of Swapo's elective conference slated for later this year, Namibian Sun asked economist Klaus Schade of the Economic Association of Namibia and PSG equity strategist Eloise du Plessis whether the temptation to open the fiscal taps would prove too much for the treasury.
Both believe that fiscal consolidation is crucial in view of ratings agencies Moody's and Fitch's assessment of the country's position. In their reviews issued last year, both revised their outlooks from stable to negative, but kept their ratings of sovereign debt at Baa3 and BBB- respectively.
“Government is committed to fiscal consolidation in order to reduce the budget deficit and the public debt to gross domestic product ratio. The consolidation is inevitable in order to avoid a downgrading of Namibia by international ratings agencies to below investment rating or junk status,” says Schade.
He believes that the fiscal adjustments will put the construction sector under pressure. The commissioning of three new mines and buildings by the government and the private sector spurred on growth.
“The necessary adjustments to the national budget will put pressure on the construction sector in particular. The sector has performed extremely well over the past few years owing to private- and public-sector investments.
“The developments of the new mines (Tschudi copper mine, B2Gold mine, Husab Uranium mine) and other substantial private-sector investments have been completed. Combined with the budget cuts this will result in a contraction of the construction sector and in retrenchments,” Schade says.
Regarding growth, he is not too optimistic. “Overall, economic growth will remain sluggish this year. However, there remain a number of uncertainties on the global level concerning the policies the Trump administration in the USA will pursue and the course the Brexit negotiations between the United Kingdom and the European Union's 27 [member states] will take.”
Du Plessis agrees, saying: “Moody's says it is concerned about the risk of the intended changes to the budget not being followed. The rating agency states that its previous stable outlook was based on the assumption that the government would stabilise the public debt ratio at below 40% of Gross Domestic Product. In light of this, it is crucial that the Ministry of Finance continue to run a tight budget.”
She adds: “Namibia can keep its rating if the debt levels stabilise and lower, which is dependent on higher tax revenues and growth. A lot of this is determined by the commodity cycle. We have seen some commodities recover, but the price of uranium, on which the contribution of Husab to GDP growth hinges, is still low.”
OGONE TLHAGE
Both believe that fiscal consolidation is crucial in view of ratings agencies Moody's and Fitch's assessment of the country's position. In their reviews issued last year, both revised their outlooks from stable to negative, but kept their ratings of sovereign debt at Baa3 and BBB- respectively.
“Government is committed to fiscal consolidation in order to reduce the budget deficit and the public debt to gross domestic product ratio. The consolidation is inevitable in order to avoid a downgrading of Namibia by international ratings agencies to below investment rating or junk status,” says Schade.
He believes that the fiscal adjustments will put the construction sector under pressure. The commissioning of three new mines and buildings by the government and the private sector spurred on growth.
“The necessary adjustments to the national budget will put pressure on the construction sector in particular. The sector has performed extremely well over the past few years owing to private- and public-sector investments.
“The developments of the new mines (Tschudi copper mine, B2Gold mine, Husab Uranium mine) and other substantial private-sector investments have been completed. Combined with the budget cuts this will result in a contraction of the construction sector and in retrenchments,” Schade says.
Regarding growth, he is not too optimistic. “Overall, economic growth will remain sluggish this year. However, there remain a number of uncertainties on the global level concerning the policies the Trump administration in the USA will pursue and the course the Brexit negotiations between the United Kingdom and the European Union's 27 [member states] will take.”
Du Plessis agrees, saying: “Moody's says it is concerned about the risk of the intended changes to the budget not being followed. The rating agency states that its previous stable outlook was based on the assumption that the government would stabilise the public debt ratio at below 40% of Gross Domestic Product. In light of this, it is crucial that the Ministry of Finance continue to run a tight budget.”
She adds: “Namibia can keep its rating if the debt levels stabilise and lower, which is dependent on higher tax revenues and growth. A lot of this is determined by the commodity cycle. We have seen some commodities recover, but the price of uranium, on which the contribution of Husab to GDP growth hinges, is still low.”
OGONE TLHAGE