Finweek_English_Edition_-_March_19,_2020__

in depth prescribed assets

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central bank, lowered its repo rate once in 2019,

it could not have been the reason for the blowout

in bond prices.

And the quality of the issuer, being the

Namibian government, has deteriorated

markedly since mid-2017. The country lost its

investment-grade credit rating from Moody’s

Investors Service in August 2017 as the rating

agency cited an erosion of the country’s fiscal

strength due to “sizeable fiscal imbalances and

an increasing debt burden”. In December last year

the agency downgraded the country yet again.

Credit rating agency Fitch ditched its

investment-grade rating of Namibia in November

2017 and lowered it by another notch in October

last year. Both credit ratings are now two levels

below investment grade.

“One can argue that the quality of our issuer

has in fact gradually deteriorated over the past

five years,” says Mnyupe, who also serves on

President Hage Geingob’s economic advisory

council which is tasked to advise on how to revive

Namibia’s economy. “When I look at the quality of

our issuer, I look at the ability of our government

to generate growth and associated revenue and

the debt-to-GDP metrics for example. In short,

its ability to service its financial obligations.”

When the rating of a country’s sovereign

bonds declines – and especially when it hits

sub-investment or “junk” grade – the cost

of the debt increases. This the Namibian

government knew well. And subsequently

issued the amendments to the prescribed asset

regulations of retirement and insurance funds.

Namibia’s debt rose from N$32.39bn in

the fiscal year ending in 2014, to an estimated

N$104.9bn in the year starting on 1 April,

according to the ministry of finance’s estimates

of revenue, income and expenditure statements

for those years. That means a jump in the debt-

to-GDP ratio from 23% in 2014 to an estimated

51% in the year beginning on 1 April, according

to calculations made from previous budgets and

data from the Namibia Statistics Agency.

With a struggling economy, the debt ratio

James Mnyupe

Managing director of

Allan Gray Namibia

Calle Schlettwein

Namibia's minister

of finance

will continue to deteriorate. Namibia’s GDP is

expected to have contracted in 2019 compared

with meagre growth in 2018, according to the

country’s monetary policy committee after their

February meeting where they reduced the repo

rate by 0.25 percentage points to 6.25%.

“The deterioration in 2019 was mainly due

to declining economic activity in sectors such

as mining, agriculture, manufacturing, as well as

wholesale and retail trade,” the statement said.

“Activity in other sectors, including transport and

construction, improved during 2019, relative to

the corresponding period in 2018. The domestic

economy is projected to improve in 2020.”

The International Monetary Fund supports

the central bank’s outlook and forecast that the

country’s economy will exit its recession in 2020

with a growth rate of 1.6%.

Schlettwein, in his medium-term expenditure

framework in October last year, predicted the

government’s debt to rise to N$112bn in the

fiscal year ending in March 2022. It means that,

if the government’s debt stayed on target to

reach N$96.2bn by the end of March this year,

Schlettwein will need to source N$15.8bn from

either the domestic capital markets (which includes

the retirement funds industry) or look abroad – due

to the junk credit rating – for more expensive ways

to fund the nation’s budget shortfall.

Mnyupe, however, says that if the

government plans to increase the domestic

asset requirement for retirement funds

again, it risks paying increased interest rates

to compensate investors for the credit risk

associated with the Namibian government.

Namibia’s retirement fund industry managed

N$168bn at the end of the second quarter of last

year, compared with an estimated N$196.7bn

GDP for 2019, according to the latest data from

the Namibia Financial Institutions Supervisory

Authority. This makes it, as is the case in SA, a

prime target for politicians in their bid to fund

unaffordable government budgets and state

operations. ■

[email protected]

“The deterioration in 2019 was mainly due to declining economic activity in sectors

such as mining, agriculture, manufacturing, as well as wholesale and retail trade.”

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