Government bond interest payments rise

13 July 2018
The downgrading of Namibia’s credit rating by rating agencies and the slowdown in the economy, has led to government paying more interest on bonds issued, an analyst has said.
“The interest rate government has to pay on bonds has shifted up in the last four years, Eloise du Plessis, an analyst at PSG Namibia, said.
The interest paid across all of the bonds has increased by at least one percent per year since 2014, when the economy was still growing.
“You can see on the longer dated bonds, 10+ years, the government now has to pay at least 1.6 percent per year more than they had to in 2014. This is due to the credit rating downgrade and the struggling economy,” du Plessis said.
She believes this is where the danger of a low growth debt trap comes in.
“The cost of the debt for government becomes so high that there is no money for development because they have to use so much of the income on servicing debt.”
She, however, said the situation has improved recently compared to early 2017 when rates were even higher.
She noted that in the last 12 to 18 months, interest rates on the shorter dated instruments (for less than a year) have come down.
“This is in line with the reduction in interest rates we have seen.”
Government has issued about 22 bonds on the Namibian Stock Exchange, JSE in South Africa and two Euro bonds. Their maturity dates range from 2018 to 2033.
Finance Minister, Calle Schlettwein, said in his budget statement in March that total debt in the 2018/19 financial year is expected to reach N$83 billion from N$74 billion in 2017/18. Of this figure, N$53 billion comprises of domestic debt stock.
Domestic interest payments by the government have been rising from N$2,8 billion in 2016/2017 to N$3,7 billion this year and is expected to reach N$4,1 billion in 2019/20.
Foreign interest payments have also risen from N$1,4 billion in 2016/2017 to N$1,9 billion this financial year and are expected to reach N$2 billion in 2019/20.
In November 2017, Fitch Ratings downgraded Namibia's Long-Term Foreign-Currency Issuer Default Rating to 'BB+' from 'BBB.’
Fitch’s downgrade came after Moody’s in August 2017 downgraded Namibia's long-term senior unsecured bond and issuer ratings to Ba1 from Baa3 and maintained the negative outlook.
Moody’s attributed its decision to the erosion of Namibia's fiscal strength due to sizeable fiscal imbalances and an increasing debt burden as well as limited institutional capacity to manage shocks and address long-term structural fiscal rigidities.
It also cited the risk of renewed government liquidity pressures as revenue dwindled. 
GDP growth has slowed from the second quarter of second quarter of 2016 recording mostly negative growth.
According to the Namibia Statistics Agency, first quarter 2018 GDP growth remained weak, recording a contraction of 0.1 percent, albeit a slight improvement relative to the decline of 0.4 percent registered in the corresponding quarter of 2017.


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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