By Hilary Mare
NAMIBIA Equity Brokers (NEB) has called on Government to restructure state assets by introducing private capital and disposing non-core state assets.
NEB deems such a move would present a sustainable solution to fiscal concerns amongst both investors and ratings agencies.
Namibia faces a ratings downgrade from both Fitch and Moody this financial year.
“We retain our view that unlocking value from restructuring state assets by injecting private capital (and by extension efficiencies) while disposing those deemed non-core would present a sustainable solution to fiscal concerns amongst both investors and ratings agencies.
“We concede that this exercise cannot be conducted in haste and recommend that an announcement of a clear strategy to this effect be made which will positively impact market sentiment over the near to medium term,” Ngoni Bopoto, economic analyst at NEB said.
Growth in Government domestic debt slowed to 29.5 percent y/y (from 45 percent in February) and 0.9 percent m/m to reach N$41.6 billion at end March 2017. The annual slowdown was driven by the impact of a high base and lower monthly increase (N$385million in absolute terms).
“Subdued investor sentiment towards long dated sovereign paper remains a key theme which is unwittingly driving the fiscal consolidation agenda,” he added.
The term structure of Government debt continues to improve with short-term Treasury Bills (TBs) now accounting for 36 percent in March 2017 compared to 39 percent in the corresponding period last year while ILBs represent seven percent of domestic debt from three percent.
The value of outstanding TBs at end March rose by 18.8 percent y/y (from 19.2 percent) and 0.8 percent m/m (from 2.4 percent) to N$15 billion as the auctions reflected improved appetite for the 182 and 273 day TBs. Plain bonds outstanding climbed 28.1 percent y/y (from 53.9 percent) and 0.6 percent m/m (from 5.2 percent) to reach N$23.8billion and subscription rates remained under pressure. Growth in ILBs also slowed while the market reflected improved appetite. Upward pressure on yields is evident and the market appears to be pricing in considerably higher sovereign and duration risk than the State is willing to pay which could explain lacklustre interest in longer term paper.
“Notwithstanding continued fiscal consolidation efforts outlined in the 2017/18 budget and a recovery in SACU receipts, balancing the fiscus will remain a challenge in the absence of a meaningful boost in government revenue. While the lack of appetite for sovereign paper actually assists government in driving its fiscal consolidation agenda, it also implies an element of perceived risk which may contaminate rating agency views in the absence of intentional efforts to retire debt and achieve target fiscal ratios,” expressed Bopoto.
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