RATINGS agency Fitch affirmed Namibia’s BBB- investment grade rating this week, in what can be highlighted as an assurance that government is on the right track, with its prudent budgetary measures, improved policymaking and better engagement with stakeholders, in terms of decision-making.
Fundamental to this is that Fitch, in announcing its decision, notes that Namibian authorities have committed to a significant front-loaded adjustment, which will likely narrow the fiscal deficit in the coming two years.
There are three important rating agencies that determine Namibia’s credit ratings – Moody’s Standard & Poor’s (S&P) and Global Fitch Ratings
There are two types of ratings that economists focus on – the long-term foreign currency debt ratings and the long-term local currency debt ratings.
Ratings season has become a nightmare, because of what is happening in neighbouring South Africa.
In April, S&P and Fitch placed South Africa’s credit outlook at junk status, while recently, Moody’s downgraded the neighbouring country to one notch above investment grade.
Fitch’s affirmation this week of Namibia being at investment grade must therefore be seen in this context, where previously the Land of the Brave has been tied to the hip to the neighbouring country.
It is in this context that Fitch has affirmed its confidence in the Namibian government’s fiscal consolidation agenda, and to certain extent, its sovereignty.
Although Fitch warned it will downgrade Namibia, in the event of continued widening budget deficits, it is important to understand that key ratings drivers remain Namibia’s strong growth potential and record of political stability (on the positive side), while the high fiscal and external deficits weigh on the negative side.
With a keen eye on the negative side and suggesting that we are not totally out of the woods yet, it is critical to stress that over the years, government funds have been ravaged by rampant public corruption, the middleman syndrome, self-profiting top government officials, as well as out-of-court settlements that have to some extent derailed progressive fiscal consolidation.
If government wants to continue reinvigorating the economy and continue affirming its investment grade ratings, it must not bow to political pressure, and be at liberty to redefine its spending priorities.
Over the years, we have repeatedly seen that the exploitation of resources and government corruption are inextricably linked, and the absence of accountability has allowed corruption to flourish.
It is under this assertion that high-profile cases, in which the matrix of accountability has collapsed, especially those involving politically-connected individuals and senior government officials, should never go unresolved.
Rapid action should be taken, going forward.
Essentially, continued fiscal credibility will depend on effectively controlling spending and implementing current consolidation plans. Namibia needs bold structural reforms, to boost the economy, remove bottlenecks to production capacities (electricity and skill shortages), and increased market competition in network sectors.
These reforms are fundamental for growth, job creation and the reduction of the high unemployment rate, and would allow the reform of social safety net policies, in a way which stimulates economic activity and labour force participation.
Weak commodity prices and a sluggish world economy are all contributors to slow growth, but even so, many of the barriers to faster economic growth are within the government’s reach to solve, in its quest for change.
Confidente. Lifting the Lid. Copyright © 2015