16 Nov 2023
The announcement of Namibia’s junk status last Friday has cast gloom over the country and attracted criticism from both government and local economic commentators, who all appear eager to shift the spotlight away from the negatives and to highlight the positives on the Namibian economic landscape.
Moody’s Investors Service on Friday downgraded Namibia’s long-term senior unsecured bond and issuer rating to junk status, while maintaining its negative outlook for the country’s economy.
In a statement titled “Blue Monday” issued yesterday, Capricorn Asset Management summed up the feelings by stating that “the entire country is in quite a mood(y) this morning because this downgrade just seems a bit unfair after so much has been done to comply with the recommendations given after the last assessment”.
The Capricorn statement was followed at midday by a lengthy analysis and critique of the Moody’s verdict by the Economic Association of Namibia (EAN). However, the EAN stated that “despite reservations with some of the assessment”, government needed to stay the course on cutting and tightening expenditure.
The EAN went on to state that “other structural and policy issues” need to be urgently addressed to improve Namibia’s investment ratings. What the body proposed was a “comprehensive review” of the public sector “to streamline operations and reduce recurrent expenditure, in particular the wage bill”.
This would “free financial resources for vital investment in infrastructure”, which would lead to job creation.
The EAN said the public sector review should include the about 100 state-owned enterprises, and welcomed as an “encouraging sign” government’s refusal to bail out some SoEs, while proposing the partial or full privatisation of some.
The association added that “the country needs an attractive policy environment to encourage not only foreign direct investment, but also domestic investment”.
It singled out the New Equitable Economic Empowerment Framework (Neeef) as a policy initiative in need of continued stakeholder engagement to improve the policy environment, along with the much-criticised Namibia Investment Promotion Act.
The EAN statement furthermore states that “some of these steps can cause pain, and hence need to be accompanied by mitigating measures.
However, they are necessary to regain fiscal space, improve the investment climate and support economic growth and job creation”.
PSG Namibia cut to the chaste by stating that “The government lost Moody’s confidence by not owning up to their cash flow problems sooner (reports of late payments had surfaced at the start of the year and were at the time vigorously denied, but later acknowledged following the AfDB loan), and not convincing the credit ratings agency through its communications that it has the situation under control.”
At a press conference in Windhoek yesterday, finance minister Calle Schlettwein reiterated that government would continue on its path of fiscal consolidation, which is highlighted by budget cuts, priority spending, as well as improving the quality of spending.
“It is important for us to follow through what we started,” he said, adding that government could not neglect the interests of the people.
The minister said in December 2016, following the tabling and approval of the mid-year budget review with its accompanying fiscal consolidation, Moody’s reaffirmed Namibia’s credit rating as investment grade, and revised the country’s outlook from “stable” to “negative”, reflecting a number of risk factors which needed to be addressed.
He said at the time, government had taken steps to address the risk factors pointed out by Moody’s, which thus now made “it difficult to swallow the bitter pill of junk status”.
“If we compare our situation as it was in December, we have proof that we are much better off than in December,” he stressed.
Schlettwein said since 1993, Namibia has never defaulted on any debt repayments.
Asked whether the government intended to reduce its “unsustainable” wage bill, Schlettwein conceded that the public sector wage bill remained the “big elephant in the room”, but did not warrant leading to a downgrade.
“What is also interesting about this rating is that the wage bill has not changed since December, so we don’t understand why it is all of a sudden a risk that justifies a downgrade,” he said.
Schlettwein also commented on the burden of SoEs on state finances.
“Public entities remain a drain on government’s budget. They have lost the ability to pay salaries and operational commitments on their own. So, time and again, taxpayers are forced to bail them out,” he said.
Schlettwein noted that government’s stance, going forward, was to align revenue to expenditure so that debt was minimised and the debt ratio was maintained at 42%, which is a threshold for small, medium-income countries.
“In fact, we want to bring that down to a self-composed threshold of 35% by improving the quality of spending and cutting out and avoiding non-essential spending,” he stated.