The government’s failure to heed warnings about the state of the economy has been attributed as part of the reasons behind the mounting economic challenges and Tuesday’s downgrade of Namibia’s credit rating to BB with stable outlook, down from BB+ by Fitch.
“We are now two notches below investment grade, with a stable outlook (which I think is wishful thinking in the extreme). We have cautioned many times that things are far worse than policymakers admit. They will not listen,” Economist, Rowland Brown said in a reaction post on Twitter.
“Remember those days when people argued with me about whether we would be downgraded or not? Sigh... good times.”
Part-time member of the Corporate Advisory Reform Unit in the Ministry of Public Enterprises in her tweet said, “as long as Government continues to believe that it is everything, anything, everyone and anyone else but its own bad and non-decision making and poor implementation of good decisions that is the root cause ...”
This comes after the international rating agency said the downgrade of Namibia's ratings reflects the deterioration in domestic economy.
“The macroeconomic environment has worsened further and Fitch has lowered its assessment of Namibia's growth potential. Subdued economic prospects amid exceptionally elevated inequality and high unemployment will raise significant challenges for the government's plan to stabilise its debt by cutting back spending, particularly on high payroll costs,” Fitch said.
The rating agency now forecasts the domestic economy to contract by 1.2 percent in 2019, marking the third consecutive year of recession, against its earlier prediction of a 0.7 percent growth, given the 2.7% percent year-on-year fall in GDP in first half of the year.
“The downward revision reflects broad-based economic weakness as fiscal consolidation continues to depress domestic demand amid tepid regional economic activity in Southern Africa. Drawn-out economic weakness has been compounded by transitory factors, including severe drought and maintenance of key equipment in the diamond sector. GDP will merely stagnate over 2016-2021 in our forecasts, and Namibia will achieve the third-weakest economic performance among all Fitch-rated sovereigns during that period.”
Finance minister, Calle Schlettwein in his reaction to the downgrade, attributed the country’s economic woes to the current drought and external factors such as depressed global commodity prices and economic challenges also faced by the country’s trading partners.
“Namibia, as a small open economy is exposed to these adverse global developments through the trade channel, although specific domestic factors are noted. Within the sub-region, the Namibian economy is closely interconnected with the neighboring economies as trade partners whose growth is equally subdued. In the international credit rating’s context, Namibia is one of the few countries rated in the Sub-Saharan African region and, in fact, having been the last investment-grade economy in the region as rated by Fitch, before the downgrade in 2017,” he said.
“The feedback effects on growth for Namibia as a small open economy through the trade channel are large. The South African economy, to which the Namibian economy is closely integrated also faces a subdued growth outlook, with trade in the sub-region having receded to low ebb. Most of the rated Sub-Saharan sovereigns have their ratings down-graded due to shocks on growth and its concomitant effects on public finance.”
He said the government had already started implementing measures which are meant to stimulate the domestic economy such as the implementation of an increased development budget by 42.2 percent, implementation of the project financing arrangements with the African Development Bank to the tune of N$4 billion over the next three years among other initiatives.
“We are confident that these policy packages will place the economy on a firm positive and sustainable growth trajectory over the medium to long term. Throughout the years, Namibia has demonstrated its ability and resilience to deal with shocks and also to direct policy actions to address socio-economic development needs. We, therefore, remain optimistic that growth prospects will gain traction as the implementation of the adopted measures is scaled-up.”