Government debt raises red flag

Government debt raises red flagMoody's downgrades Namibia's outlook to negative The credit-ratings agency Moody’s has downgraded Namibia’s economic outlook to Baa3 Negative. NAMPA



Namibia is among the African countries Moody’s Investors Services has downgraded from stable to negative.

In its outlook report for 2017 released on Tuesday, the credit-ratings company that is present in 36 countries said Namibia’s downgrade was due to various reasons, including rising government debt.

“We changed the outlook of Namibia (Baa3 Negative) to negative from stable to reflect the risks of fiscal slippage, rising government debt levels and servicing costs.”

The outlook noted that apart from relying heavily on or needing external export, the region’s subdued growth was driven by one main factor.

“The main driver of the negative outlook is the liquidity stress facing commodity-dependent sovereigns due to recurrent fiscal deficits and challenging funding conditions.”

Moody’s said by 31 December 2016, they had downgraded a third of the region’s 19 rated countries.

These included heavily oil-reliant Nigeria and Gabon where the flexibility of fiscal policies were limited, and Mozambique where foreign reserves were declining.

Moody’s said sub-Saharan Africa faced the greatest negative pressures in 2016 because more countries were downgraded than other regions such as Asia Pacific, Western Europe, North America, the Middle East and North Africa.

“Sub-Saharan Africa’s economies will continue to face commodity-induced liquidity stress in 2017, with recurring fiscal deficits amid challenging financing conditions.”

These challenging conditions are predicted to result in official financing, typically that earmarked for capital spending, being difficult to mobilise on a large scale.

“Low fiscal and external buffers and no access to IMF (International Monetary Fund) financing facilities further complicate the finding environment for these countries.”

China, Moody’s said, “will remain a major source of funding given that other bilateral and multilateral players have strict prerequisites tied to the provision of loans”.

With commodity trade under threat, foreign reserves, particularly in commodity dependent countries, are trending lower in many sub-Saharan countries.

“This is especially true for countries which, in the absence of other financing resources, have depleted their cash reserves for funding their deficits.”

Namibia’s domestic banking sector, Moody’s said, was like the rest of sub-Saharan Africa, liquid but small.

On the positive side, the company said fiscal positions in sub-Saharan Africa were likely to improve and debt to stabilise, while the downside risks remained in 2017.

“The authorities in the majority of the 19 rated sub-Saharan African sovereigns have embarked on fiscal consolidation plans, which we expect will have a positive impact in 2017.

“In Namibia, the minister of finance announced corrective measures, demonstrating commitment to an ambitious fiscal consolidation plan, but the speed of recent debt accumulation and the size of the budget deficit point to implementation risks.”

Schlettwein and finance permanent secretary Ericah Shafudah were not available for comment yesterday.