Moody’s points out valid risks-EAN

WINDHOEK, 15 Aug.- The Economic Association of Namibia (EAN) believes that Moody’s Investor Services pointed out some valid risks on Namibia’s revenue side, three days after Moody’s downgraded Namibia’s long-term senior unsecured bond and issuer rating from Baa3 to Ba1 with a negative outlook.

This in-turn moved Namibia from a lower-medium investment grade to a non-investment grade or to ‘junk’ status as it is often referred to.
Moody’s Ba1 rating is equivalent to Fitch’s BB+ rating. Namibia has however so far maintained the investment rating with Fitch at BBB-.
Klaus Schade, EAN 
Executive Director, said lower than expected growth in South Africa could result in a reduction of the SACU Common Revenue Pool and in lower transfers to the SACU member states including Namibia.

Schade said although the South African Rand and the Namibia Dollar had appreciated against the United States Dollar and other currencies until end of July, the currency could come under pressure because of global and regional political events, such as the ANC congress later on this year.

He added that a depreciation of the NAD against the USD would result in an increase of the value of the Euro bond in local currency and in interest payments.

“However, some of Moody’s arguments seemed to be taken out of context. The increase of the relative share of wages and salaries in the current Financial Year 2017/18 is due to the budget cuts Government has initiated in order to rein the budget deficit and total public debts,” Schade said.
Schade noted that instead of using this increase as a sign for an increased fiscal vulnerability, Moody’s could have used it as a sign for Government’s efforts to reduce expenditure, the budget deficit and total public debts.

“Furthermore, Moody’s is not taking into account Government’s promise to settle outstanding debts with the private sector, which will reduce the risk of private sector defaults on loans and will improve the cash flow situation of companies and the liquidity in the economy,” he said.
Schade also said that Moody’s knew about the upcoming SWAPO congress toward the end of 2017, and the next presidential elections in 2019 and should have taken concerns about expenditure overruns in the last assessment into account.

“It is not known whether these concerns are based on an analysis of previous budget performances ahead of party congresses and elections. The current budget does not provide any evidence that Government is embarking on an expansionary budget ahead of these two events,” he added.
Despite reservations with some of the assessment, the downgrading indicates that Government needs to continue and not relax the fiscal consolidation path.
“Government has taken serious steps to address a number of issues, such as ‘wasteful’ expenditure and bailouts for State-owned Enterprises (SOEs),” he said. – Sharma Mundingi