Calle to address credit rating concerns The Minister of Finance, Calle Schlettwein, will address the media tomorrow with regards to Namibia’s latest economic outlook that was downgraded by international ratings agency Fitch from stable to negative. According to the statement released by Fitch, Namibia’s budget deficit widened sharply to 8.3% of Gross Domestic Product, well above the government’s 5% target and is the worst on record.
The overshoot in the deficit is due to weaker than expected revenue from domestic sources, including company tax and lower-than-expected income tax.
Fitch says that the government is targeting narrowing of the deficit to 4.3% of GDP in the current financial year.
Outturns for the first few months of the current financial indicate revenue has grown strongly.
However, it says much of the deficit has been financed by external borrowing from parent mining companies, reducing external vulnerabilities. The statement notes that merchandise exports should start to grow in the coming years as big mining projects come online. Moreover, imports should fall as capital goods demand decreases. Fitch expects the current account deficit to narrow to 6.9% of GDP by 2018.
According to the statement, while the Ministry of Finance is exerting greater control over expenditure at all ministries and is cutting overtime, travel and capital spending and meeting deficit targets, it will prove challenging, particularly amid a secular decline in revenues from the Southern African Customs Union (SACU), which the government projects will fall under 7% of GDP by 2018 from 12.4% in 2014. It was also noted that growth performance remains a key rating strength and that Namibia’s economy grew 5.7% in 2015.
Fitch expects it to expand 4.4% this year.
Also, new mining capacity is rapidly coming online, notably the Husab Uranium Mine, which is expected to begin production by end of this year and is expected to add around 5% to GDP.
According to Fitch the continued strong growth performance is particularly impressive given the continued drought, weak performance in key trading partners (notably South Africa and Angola) and higher interest rates, says Fitch.
The statement says the New Equitable Economic Empowerment Framework (NEEEF), seeks to increase the involvement of previously disadvantaged citizens in the private sector.
“While lacking in details, it is likely that the law will be approved by parliament, although the Supreme Court might end up blocking it.”
It says this has, however, caused some unease in the business community and could slow down foreign investment in manufacturing and services.
Also the rapid growth in house prices in recent years has created certain risks for the banking sector.
“However, given the introduction of macro prudential measures and falling demand from Angola, it is likely that the housing market will cool from here, with a slowdown at the top end of the market already visible.”
STAFF REPORTER