Schlettwein accepts Fitch’s negative stanceThe government under-estimated the threats to the Namibian economy, the finance minister has acknowledged after an alarming review by Fitch''s ratings agency. Entering the age of ‘less with more’ Rating agency Fitch’s dampened opinion on whether Namibia can comfortably honour its debts was not entirely unexpected.Although efforts to address the issues highlighted are already under way, Finance Minister Calle Schlettwein yesterday acknowledged that the country may have underestimated the impact some of these have had.
At a press briefing in Windhoek, Schlettwein acknowledged the Fitch findings, the most standout of which was a revised outlook from “stable” to “negative”, as objectively obtained and reflective of the situation on the ground.
He maintained, however, that Fitch’s overall assessment, whether on the domestic, regional or international market, remained positively in the realm of investment grade, unchanged since the country started dealing with rating agencies back in 2005.
“It is important to note that Namibia has voluntarily decided to subject its economy to international credit rating agencies,” the minister said.
“It is a necessity when trading on the open market to have your trustworthiness objectively evaluated.”
Namibia approached Fitch back in 2005, and later approached Moody’s for an additional credit rating opinion.
Fitch’s most recent opinion, issued on Friday, follows a mission by the agency to Namibia on 3 and 4 August 2016, Schlettwein said.
“I think one can fairly say the opinion expressed is based on a broad enough view to qualify as objective. We are satisfied that discussions held were broad based and many stakeholders were consulted,” he said.
Short of income
Key factors considered by Fitch in its opinion included Namibia’s budget deficit, which grew to 8.3% of GDP last year; an increase in government’s debt stock to 38.2% of GDP; and declining levels of international foreign reserves, to around 3.4 months of import cover.
Addressing these, Schlettwein said the government missed its target of a 5% budget deficit because it collected less revenue than it had budgeted.
This was mainly due to a drop in SACU revenue, sourced from tariffs charged on imports.
“The South African economy is the main contributor to the SACU revenue pool. So given a faster and more severe contraction of that economy, that contributed considerably to the shortfall,” Schlettwein said.
In terms of the domestic economy, he said the droughts of the last three years continued longer than expected and affected more industries than initially anticipated.
Another miscalculated risk was the global crash in commodity prices, Schlettwein said, which had further impact on the economy through its crippling of the Angolan economy.
“Our northern neighbour Angola is highly dependent on oil, and Angola is a major trading partner of ours,” he said.
Lower oil prices have resulted in Angola’s reserves being diminished, and by extension caused a standstill in trade between the two countries.
Besides hurting the trade of finished goods from Namibia to Angola, local businesses transporting these goods have also felt the impact, the minister said.
On top of it
Stressing government’s preparedness, Schlettwein said his Medium Term Expenditure Framework (MTEF) tabled in Parliament in February provided a basis for roping in expenditure, and was welcomed by Fitch in its statement.
The ministry is reviewing this year’s budget and the MTEF, he said, with specific proposals on spending cuts, including freezing and suspension of funds for recruitment in the civil service and non-priority development projects.
Furthermore, the ministry has had various engagements with banks and the domestic financial services sector on how to better leverage private funds for the use of domestic financing and infrastructure development.
“Through the spirit of openness and evidence-based policy, all proposals for intervention measures will be subjected to stakeholder consultations,” he said.
These, he said, would further inform compilation of the 2016 mid-year budget review, which he confirmed will be delivered at the end of October.
DENVER ISAACS