By Hilary Mare
THE N$10 billion loan deal, struck between government and the African Development Bank (AfDB) last week, will save the State more than N$300 million annually in interest costs, Confidente has established.
The deal, signed under the programme-based operation and infrastructure financing theme, will see N$6 billion go towards operational financing, which will be dispensed in equal tranches over the period, while N$4 billion is set aside for infrastructure financing.
Alluding to the fact that the loan is extremely favourable for Namibia, Cirrus Capital co-founder and renowned economist, Rowland Brown, told Confidente this week that the deal not only marks a sizable injection into the slowing economy, but it can also be regarded as capital on extremely good terms.
“It is (South African) rand based, meaning that currency risk is relatively low; it is at an extremely favourable interest rate (three-month JIBAR + 0.8 percent), and it is long-term (15 years),” Brown said.
JIBAR is the Johannesburg Interbank Agreed Rate.
“This loan does not mean that the government can now spend more than before, but rather that the funds will used to fund the already known budget deficit. It certainly does mean that funding this deficit will be a lot cheaper,” Brown said.
“At present, this loan will save Namibia more than N$300 million per year in interest costs, when compared to borrowing on conventional instruments of the same duration, but the magnitude of the savings will change along with the JIBAR and the relative rates of other government securities in future years, should the rate remain floating,” he said.
The funding initiative is AfDB’s maiden policy-based operation in Namibia and the first of two programmatic series for the 2017/18 and 2018/19 fiscal years.
The bank noted that Namibia registered one of the highest average growth rates in Africa, over the past 20 years, and has made some good progress in reducing poverty.
“However, more progress is needed to further reduce unemployment, and income inequality. These challenges are compounded by the bottlenecks in public financial management and the business environment, which limit the pace of industrialisation and economic diversification,” the bank noted.
Finance Minister Calle Schlettwein also highlighted that the loan is a financing mechanism, to partially fund the budget deficit, as projected in the budget and the Medium-Term Expenditure Framework (MTEF).
“Let me also state, right at the onset, that this is not an additional loan over and above the budget and Medium-Term Expenditure Framework. It is also not a budget support facility that enhances the budget per se; rather, it is, as I have stated, a financing mechanism to partially fund the budget deficit, as projected in the budget and MTEF. The programme-based operation alone will thus finance about half of the budget deficit this year,” Schlettwein said.
“This financing mechanism will have two components, one directed at partially financing the general budget deficit and, the other component targeted at infrastructure financing for some of the key economic projects contained in the budget. Our focus on infrastructure projects is in the areas of national priorities.
“The focus is especially on the logistics sector, mainly the railway line and strategic road infrastructure, renewable energy and water and the sanitation and agricultural sectors,” Schlettwein said.
“These are areas, which are aligned to the national priorities, as articulated in the Harambee Prosperity Plan, the national development plans, and Namibia’s Country Strategy Paper with the bank, as well as with the AfDB High-Five priority areas of support, across its membership,” he explained.
Brown stated that the liquidity injection will be extremely favourable for the government, as well as for many other institutions in the country, as the liquidity squeeze, which has been seen over recent years, will be much abated.
“This is good news for the banks, but also for many other financial sector and real sector players in our economy,” he added.
Confidente. Lifting the Lid. Copyright © 2015