Junk status lurks

national 9 Septe 2016 bNamibia remains at risk of a credit rating downgrade, if a cocktail of short-term remedial policy measures announced this week by Finance Minister, Calle Schlettwein, are not followed, an eminent local economist has warned.
Schlettwein, among other actions, proposed spending cuts, which include the freezing and suspension of public service recruitment and non-priority development projects.
This comes as the country received a rating outlook revision by global ratings agency Fitch, after its visit to the country early last month.
“As mentioned we are now on a negative watch (but we have not yet been downgraded). A downgrade remains possible and will be inevitable, unless we make a number of wholesale changes over the next few months,” IJG Securities Head of Research, Rowland Brown, told the Windhoek Observer.
“In this regard, we need to recognise that we have been living beyond our means for the past five years, and that we now need to slow debt issuance dramatically, and by extension, reduce spending. In short, we need to embrace the fact that we will have a few years of consolidation, after our past six years of strong growth,” he said.
The Bank of Namibia (BoN) said the country has a chance to redeem itself, by addressing the concerns of the ratings agency.
“The statement by Fitch Ratings has clearly stipulated the areas of concern, as well as the remedial measures that the government could adopt to avoid a downgrade.
“In this regard, the Bank of Namibia is of the opinion that should the short-term policy measures proposed by the government be fully implemented, the country could avoid a downgrade during the upcoming rating review. The Bank of Namibia believes that the country will do everything possible to address those concerns and avoid a downgrade,” the apex bank said.
Schlettwein’s recommendation for a recruitment freeze will, however, face a stern test, after his initial plea in his budget statement in February fell on deaf ears, with the Ministry of Defence proceeding with its recruitment - a position defended by Minister Penda ya Ndakolo at the time.  
Government has also been found wanting, in its belt-tightening efforts, after agreeing to above-inflation salary hikes for its 100,000 strong workforce, contrary to earlier assertions that any increases will be inflation adjusted, a position that added an additional N$1,7 billion to its costs.
“We have an abnormally expensive civil service, relative to the rest of the world, relative to GDP. This is certainly one of the factors that have to be addressed over the next few years, if we are to stay investment grade rated. However, this is a challenging topic, as we also have high levels of unemployment,” Brown said.
Although speculation is rife that capital projects, such as the construction of a new parliament and offices for the prime minister, might be culled as part of the austerity measures, questions over the commitment of the various ministries to implement the cuts, remain.
 “If this matter is left to the Ministry of Finance alone, it will surely fail. Government as a whole has to drive these strategic cuts, and all ministers, permanent secretaries and other employees need to get behind this initiative.
“At present, the situation is recoverable, but it requires that we take tough decisions. If we continue with a-business-as-normal-approach to the next six months, we will find ourselves in a very difficult position that will see the country roll back a lot of the progress we have achieved since independence,” the IJG Securities research head said.

“Expenditure cuts will need to be done in a strategic manner, to ensure that we do not drive a rapid growth slowdown in the economy. This means reducing non-core expenditure, and outsourcing large capital projects to external funding where suitable.”
Brown said the New Equitable Economic Empowerment Framework (NEEEF) remains the elephant in the room, amid increased speculation over its requirements, with the Law Reform and Development Commission (LRDC) revealing to the Windhoek Observer recently that black-owned businesses would also be required to comply.
“The only real solution to this problem, in a sustainable manner, is to grow the private sector through domestic and foreign investment into the country, creating jobs and wealth. This is very possible, but it requires a rebuilding of trust in the country’s policymakers, and that we clarify current proposals for media freedom restrictions, the NEEEF impact on property rights, and continue to uphold the rule of law (most importantly, pay greater respect to the Constitution).
“In this regard, it is important to note that confidence can be destroyed by action, inaction or the threat of action,” Brown said.
“At the same time, we need to encourage investment, through the provision of a competitive business environment/climate, and through improved policy predictability.”
Brown said there now exist the possibility of a slower growth rate than the IJG Securities projection of 1,6 percent.
“We will be lucky to achieve growth above 1,6 percent in 2016, and there is a small possibility of even lower growth. We expect to see others revising their growth forecasts downward in the next few months, stating the fiscal challenges as the main reason,” he said.
The central bank was, however, mum about whether it was going to announce revised growth figures, from its projected growth rate of 4.5 percent for this year.
“As is customary, the Bank of Namibia will continue to review its projections; and should those be revised going forward, due to changing economic conditions, the bank will update the public accordingly,” it said.