Germany has revealed that it will start advancing loans to Namibia in the local currency, a shift from its previous position, where loans were advanced in foreign currency.
The move according to German Ambassador, Christian Schlaga comes at the request of Namibia, as the country moves to deal with the foreign exchange risks that comes with securing foreign exchanged pegged loans.
“Because we follow Namibia’s interests in this case, it was defined by the Ministry of Finance under the current circumstances, considering the exchange rates circumstances, it is more advantageous for the Namibian government to take up a loans in the local currency and we agreed to that,” he said told the Windhoek Observer.
“We have no problem currently for the time being and we think it’s a good contribution to the overall financial treasure of Namibia. For the time being they will be local currency, what will be in 5 or 10 years I do not know, nobody can tell,” the
Finance minister Calle Schlettwein said government was pleased that the German government had acceded to its request in the recently signed interest-subsidized loans between Germany and Namibia.
“Our relationship allowed the possibility of concessional loans in either Namibian dollars or Rand, reducing the foreign exchange risk, “he said.
This comes as Namibia has set aside N$5 billion towards the settlement of two foreign denominated bonds for US$500 million and US$750 million issued by government and expected to mature in 2021 and 2025 at N$18 billion (US$1,250 billion).
Chinese concessional loans make up 2.6 percent of the country’s total debt with Namibia having benefitted from grants to the tune of N$1.3 billion, interest free loans at N$302 million and concessional loans worth N$1.7 billion.
With the country’s total debt according to latest figures from the Finance ministry standing at N$76,6 billion, with domestic debt accounting for N$51,3 billion, or 67 percent, foreign bonds accounted for N$17,6 billion, or 23 percent, bilateral debt accounted for N$1,1 billion, or 1 percent and multilateral debt accounted for N$6,7 billion, or nine percent of the total debt.
“The targeted loan uptake does not constitute additional borrowing, but means funding for budgeted projects. The disbursements provide for local currency repayment arrangement, which eliminates foreign exchange risks,” Schlettwein said during the signing of a cooperation agreement valued at N$1.5 billion, the first loan from the country pegged in Namibian dollar.
The agreement covers programmes to the value N$1.3 billion financing three projects to support the development of water and transport infrastructure as well as financial inclusion in particular in rural areas.
Of the amount, N$320 million will be provided for the completion of Phase 2 of MR44 Swakopmund – Walvis Bay and N$ 640 million will be provided to upgrade the water infrastructure of the City of Windhoek which also includes the construction of an additional Direct Portable Reclamation Plant.
Long-term financing to NamPost in support of lending to Small Enterprises and Low-Income Households via its subsidiary NamPost Financial Brokers (PostFin) as part of efforts to increase the financial inclusion in particular in rural areas, will receive N$320 million.
Ngoni Bopoto, a strategist at BroadSide Capital, said the loan advancement in local currency was a welcome development.
“Namibian dollar denominated loans certainly reduce risks associated with currency translation with regards to loan repayments. However, we must bear in mind that while borrowing forex in a very strong local currency environment and repaying it over a weaker local currency environment is expensive the inverse also holds true,” he said.