Credit rating upgrade unlikely – Moody’s

06 April 2018
Rating agency Moody’s says an upgrade to Namibia’s credit rating in the near term is unlikely.
In August last year, Moody’s Investors Service downgraded Namibia’s long-term senior unsecured bond and issuer ratings to Ba1 from Baa3 and maintained a negative outlook.
The Windhoek Observer this week asked Zuzana Brixiova, Vice President and lead analyst for Namibia, whether the measures announced in the 2018/2019 budget were enough for an upgrade in the country’s credit rating.
In response, Brixiova said although an upgrade was unlikely in the near term, Namibia’s rating outlook could be stabilised if the government showed feasible commitment to fiscal consolidation, resulting in a deceleration of debt accumulation and an eventual decline of debt levels.
She said the current negative outlook means that Moody’s see more downside to the rating, stemming mostly from the risks to fiscal targets in 2018/19 and beyond. 
Brixiova said a rapid accumulation of government debt or an increase in funding pressure resulting from reduced market appetite for government securities leading to a material increase in borrowing costs, would put downward pressure on the rating.
“Furthermore, a structural improvement in the twin balances, a sustained improvement of funding conditions in the domestic market, and a permanent increase in the level of foreign exchange reserves would also be beneficial,” Brixiova said.
Nambia’s public debt-to-GDP ratio is estimated at around 43 percent of GDP in 2017/18, from 29 percent in 2015/16.
The government projects that the debt will peak at around 46 percent of GDP in 2019/2020. This debt stabilisation depends on a gradual fiscal consolidation that would reduce fiscal deficits from the current 5.4 percent of GDP to 4.5 percent and 3.9 percent in 2018/19 and 2019/20, respectively.
“In Moody’s view, the government’s fiscal targets are subject to several risks, reflected in our negative outlook on the Ba1 rating. Firstly, real GDP growth has underperformed forecasts several years in a row, and we see this trend continuing for some years. Secondly, this year’s consolidation effort is based on reducing expenditures, while the consolidation from the last fiscal year was revenue based,” said Brixiova.
Moody’s expect spending pressures to rise in 2019, with the upcoming presidential elections.
“Lastly, external debt is still high at almost 40 percent of total government debt, exposing it to currency risk.”
Commenting on the possible implications of the National Equitable Economic Empowerment Framework (NEEEF) draft bill on Namibia’s credit rating, Brixiova said the lengthy process of finalising the NEEFF bill, which has been under public consultation for over two years, has introduced uncertainty into the investment climate, which will likely remain until the final version of the bill is announced and formally approved, with its implications tested.
Fitch Ratings, which also downgraded Namibia’s Long-Term Foreign-Currency Issuer Default Rating (IDR) to ‘BB+’ from ‘BBB-’ with a stable outlook in November last year, said this week that it still stands by its views in the statement outlook, Media Relations Officer, Peter Fitzpatrick told the Windhoek Observer.
Fitch said in November that the stable outlook reflects Fitch’s assessment that upside and downside risks are broadly balanced. 
According to Fitch, future developments that could result in a downgrade include a significant deterioration in debt dynamics beyond its current forecasts, wider-than-expected external deficits or emergence of significant external funding pressures and lower-than-forecast economic growth.
Fitch said in November that future developments that could result in an upgrade include narrowing of the budget deficit sufficient to place the government debt-to-GDP ratio on a downward trajectory, marked improvement in the current account balance consistent with a stabilisation of external-debt-to GDP ratios and stronger medium-term growth resulting from better prospects for the mining sector or implementation of structural reforms.

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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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