… as domestic debt escalates by 300%, govt debt by 350%
By Hilary Mare
SIMONIS Storm Securities(SSS) has estimated that government debt may double over the next seven years with an assumption that the current annual budget deficit persists in the foreseeable future.
In a fixed income and economics report released last week, Junior Analyst at the firm, Indileni Nanghonga highlighted that total domestic debt escalated by 300 percent over the past 7 years to N$50.7 billion in July 2018. The total government debt (including foreign debt) increased by 354 percent to N$75.4billion over the same period.
“We remain concerned over the escalation of debt in an already low GDP growth environment especially with government receiving about N$4.5 billion on a monthly basis from the Bank of Namibia to finance expenditure,” Nanghonga said.
For the Year-To-Date (YTD) ending on the 31st of July, the SSS says Namibian government Bond Total Return Index registered a return of 5.9 percent. The 7-12 year bond categories outperformed with 6.4 percent during the same period followed by a 5.8 percent return on the 4-7 year bond categories.
Furthermore, Nanghonga added that yields on the treasury bills (TB’s) have been on a downward trajectory during the second quarter of 2018 as demand for short term maturities accelerated.
This was evident in the bid-to-cover ratio that increased above a 2x cover across all TB’s and short term bonds (specifically the GC20 to GC25).
“We ascribe the increase in demand to a high commercial banking liquidity position and lack of appetite for private sector credit extension from commercial banks given the local economic position. Nevertheless, we observed a decline in the demand for TBs on the 2nd of August 2018. The commercial bank liquidity position in Namibia has also scaled down in the beginning of August, recording liquidity position in Namibia at N$2.1 billion from a high of N$4.6 billion registered on the 6th of July 2018,” added Nanghonga.
Essentially, low demand continues to cast a dark cloud over longer dated bonds.
“We believe that the lack of clarity on the repayment of the two Eurobonds and SA risks such as a probable rising interest rates environment for 2019, currency vulnerability, prolonged low economic growth, upcoming elections and land redistribution issues have investors worried about the long term outlook in the bond market. We estimate the Eurobonds to amount to N$17.5billion at the end of 2018 based on our currency outlook. The sinking fund, which is estimated at N$5.6billion in 2018/19FY will provide some relief on the debt burden,” Nanghonga further stated in the report.
On the other hand, Namibian Private Sector Credit Extension (PSCE) increased at a slower pace of 5.5 percent at the end of June 2018 compared to a 7.3 percent registered in the prior year.
Instalment credit was at record low levels of -5.6 percent year on year at the end of June 2018, while overdrafts declined to 0.6 percent y-o-y in June compared to a 16.1 percent recorded in the prior year. On the contrary, credit extended through other loans and advances increased by 10.9 percent y-o-y in June 2018 compared to a 6.8 percent registered in the prior year as credit card debt and personal loans ticked up.
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