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SA’s downgrade puts pressure on Namibia

13 April 2017 Author   Chamwe Kaira

The cost of servicing Namibia’s foreign debt has jumped from N$875 million to N$916 million over the past 10 days as the weakening of the local currency pegged to the rand continues to be felt following the downgrade of South Africa to junk status by international ratings agencies. The country’s exchange rate has weakened from N$/US$13,09 during the budget speech in February to N$/US$ 13,70.

“The downgrade of the South African investment rating means that there is additional pressure on Namibia’s ability to service its foreign debt,” Eloise du Plessis, an analyst at PSG Namibia said Wednesday, when she was reacting to some of the remarks made by President Hage Geingob in his State of the Nation Address.

“This means that it will be more difficult to get the budget deficit and debt-to-GDP ratio down, both important factors when ratings agencies decide whether a country is able to repay its debt,” du Plessis said, contrary to Geingob’s Wednesdayaddress, where he saidGovernment has managed to contain its debt and has continued to enjoy investment grade ratings by Fitch and Moody’s.

“We have worked very hard over the past 18 months to avoid being downgraded, despite the fact that some variables that impact grading decisions of rating agencies, are outside of our control,’’ Geingob said.

Finance Minister Calle Schlettwein announced four days after the SA downgrade, that the public debt had increased by N$1,6 billion.

“Exposure of Namibia’s economy to external factors is demonstrated by the impact of RSA downgrade on public debt, up by N$1,6 billion in 4 days,” he twitted.

Geingobruled out any de-linking plans despite the downside of the currency peg, which has cost Government heavily.

“At the moment, however, we do not see any reason to delink our currency from the South African Rand. We will carefully monitor macroeconomic conditions and if need be, attune policy accordingly to ensure a stable environment for business and households to operate in,’’ the president said.

Namibia Equity Brokers Research Analyst, Ngoni Bopoto said the Government lacks the fiscal space to continue stimulating the economy and drive much needed growth.

“It is essential that private sector steps up and use its unique attributes to propel the national development agenda which encompasses inclusive growth while pursuing its profit motive.”

Geingob said 2016 was characterised by unexpected global headwinds, whichnegatively affected the fiscal position and the general performance of the economy.

He said due to a slump in commodity prices, low SACU receipts, adverse currency movements and a near collapse of cross border trade with Angola, combined output of domestic economic activities had to be revised downwards.

The domestic economy was projected to grow by four percent in 2016, but the Government realisedduring the mid-termbudget review that the projection was unattainable and revised the figures downwards.

This resulted in the Government introducing budget cuts to ensure fiscal sustainability.

“Today, the fiscal position has stabilised.We expect modest growth for 2017, while the longer-term growth outlook has improved considerably,’’ he said.

The president, however, said the economic downturn was used by the Government as an opportunity to re-prioritise and realign spending to national developmental priorities.

“Most budget cuts have been effected in non-priority votes, such as daily subsistence allowances and overtime, which have been cut by more than 50 percent compared to previous outlays.”

He said the Government was aware that the civil service wage bill, both in relation to GDP and total expenditure, is high.

Geingob further said that despite the current size of the civil service, the country continue to face acute shortages of skills and experience in some areas, with high unemployment rate, especially among the youth, which is estimated at 39, 2 percent, a source of concern.

According to the Namibia Statistics Agency, there were 712, 000 Namibians employed in 2014, a figure almost double the number of people employed in 1997, when the first Labour Force Survey was conducted.

“This insufficient job creation is attributable to investmentflows that are largely concentrated in the resource sector and capital-intensive industries,’’ he said.

The president warned that youth unemployment has the potential to undermine the peace and stability in the country. He said the Public Private Partnership Bill, which was recently passed in the National Assembly, will facilitate much required private investment, giving the economy an additional boost at a time of fiscal consolidation.

He added that while NEEEF maybe imperfect, most commentators are avoiding the inequality question.

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The Windhoek Observer is an English-language weekly newspaper, published in Namibia by Paragon Investment Holding. It is the country's oldest and largest circulating weekly.


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