…Government debt keeps rising
By Hilary Mare
THE Bank of Namibia has released the borrowing plan for 2018/19 financial year, which includes the introduction of a new 273-day treasury bill that will be issued in September 2018, Confidente can reveal.
Confidente further understands that two new bonds were also introduced; a fixed-rate bond (GC23) that will be issued on 21 June 2018 and an inflation-linked bond (GI33) that will be issued on 28 June 2018.
“Further details pertaining to these bonds will be disseminated in due course, subsequent to their registration. Also take note that the GC22 will be off-the-run from June 2018,” Indileni Nanghonga, Junior Analyst at Simonis and Storm Securities said while confirming the introduction of the new bonds.
Bonds in the 12 years plus category continue to register higher returns of 9.9 percent year to date ending 30th of April followed by bonds in the 7 to 12 years category, which gained by 6.1 percent during the same period.
Inflation in Namibia and South Africa is currently on a lower trajectory thus drawing more attraction in the bond market as real returns remain favourable at 5.0 percent and 4.5 percent, respectively for 10 year notes.
“Positive economic and political events have been priced in for South Africa, leaving no handles to prevent a weakening Rand and rising bonds yields simultaneously. The Namibia yield curve has increased by 14.7bps on average in April, correcting from a substantial level of strength in bonds led by the Ramaphosa victory in the 1Q2018. In addition, inflation has been on a downward spiral, recording a 3.5 percent increase in March 2018. This has resulted in more attractive real returns (4.0 percent) for investors as a relative play against advanced economies,” Nanghonga said.
In support, The Federal Reserve (Fed) left rates unchanged on the 2nd of May 2018 but emphasised their expectation of higher inflation ahead. The Fed committee stated that core inflation is close to 2 percent levels. This is considered as healthy inflation levels and should push interest rates higher in the near future. The Fed is expected to hike rates in June and September with a Bloomberg rate hike probability of 100 percent at both meetings.
However, Namibian public debt stood at N$49. 1billion in April, reflecting a slight increase of 1.0 percent from the prior month.
The Bank of Namibia cited that the increase was reflected in both Treasury Bills (TBs) and Internal Registered Stock (IRS), which rose by 1.3 percent m-o-m and 0.7 percent m-o-m to N$19.7billion and N$29.4billion, respectively.
On an annual basis, domestic debt rose by 16.9 percent due to the issuance of both TBs and IRS, which rose by 28.8 percent and 10.1 percent, respectively. “Government debt continues to increase at a faster rate than the economy. This is clearly worrisome as there is increasing evidence of debt been rolled rather than stimulating economic growth,” explained Nanghonga.
Private sector credit extension (PSCE) remains stagnant at a lower growth rate of 5.7 percent in March albeit at an increasing pace when compared to the lower levels of 4.6 percent recorded in November 2017.
“With all other credit facilities (mortgage loans, other loans and advances and overdrafts) picking up, instalment credit remains supressed. We believe that with the expected improvement of economic activities in 2018, banks will be more willing to extend loans but at a slower and cautious pace.”
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