By Hilary Mare
ACCORDING to Simonis Storm Securities (SSS) latest report, ‘Namibian Fixed Income & Economics’, government’s debt has increased by 714 percent over the last 10 years.
The report which was released last week also highlighted that this increase is also coupled with an increase in corporate debt by 235 percent and individuals debt by 150 percent over the same period.
“We remain concerned over escalating debt levels given the skewed bond maturity profile at the short end. This will put pressure on government’s ability to repay debt. Corporates and government are highly indebted, while individuals remain under severe pressure. In our view, skill enhancement and improving revenue collection streams should be the main focus towards sustained future economic growth,” said the firm.
In essence, Namibia’s bond yield curve widened on average by 40.8bps in August 2018.
The widening of the yield curve was mainly witnessed on the longer dated maturities (GC30 to GC45) with an average of 52.1bps, whereas the short to medium-dated maturities (GC20 to GC27) widened by 34.5bps on average in August 2018.
“The increase in the yields of short to medium-dated maturities can be attributed to the increase in the South African benchmark yields as the spreads on these maturities continued to drop in August 2018. Additionally, the commercial bank liquidity remained elevated, fuelling demand on the short end. On longer dated maturities, the widening yields can be attributed to both an increase in the benchmark yields and the widening spreads between SA and Namibian bonds.
“Demand for longer dated bonds has picked up slightly in an auction held on the 5th of September 2018 and we believe that the high yields observed on the long end look attractive at this point in time. We expect the Rand to remain vulnerable to external risks, geopolitical tension, heighten trade disputes and SA specific risks such as low economic growth,” added SSS.
Notably, the Private Sector Credit Extension (PSCE) stalled further by 5.4 percent y-o-y at the end of July 2018 compared to a 5.5 percent y-o-y recorded in the prior month.
The continuous annual slowdown is primarily driven by an enormous decline in instalment credit which registered a -6.27 percent y-o-y in July 2018. Credit through mortgage loans and overdrafts has dropped, registering a slow growth of 6.7 percent and 0.7 percent at the end of July compared to an 8.3 percent and 17.7 percent, respectively in the prior year. From January to July 2018 the PSCE growth rate averaged 6.0 percent compared to a high of 16.0 percent seen in 2013 and 2015.
“This indicates the deterioration of private sector participation in economic activities which in our view will negatively affect tax revenue,”
On the other hand, gross fixed capital formation had a steep drop in 2016 and remained in negative territory in 2017.
“With low investments, a consolidating government and low private sector participation, our view is that low economic growth will persist over a prolonged future. We expect GDP to grow at a moderate rate of 0.6 percent in 2018. Mining will be the main driver of GDP in 2018 as diamond production increased by 22 percent in the period from January to August 2018 compared to January to August 2017. In addition, Uranium production increased by 96 percent during January to July 2018 compared to the same period last year,” reflected SSS.
On the 13th of August 2018, Fitch reaffirmed Namibia’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at ‘BB+’ with a stable outlook. This did not come as a surprise as the fiscal consolidation measures are not sufficient to reduce public debt/GDP. The macroeconomic environment has deteriorated, which will negatively affect tax collection.
“We do not see the above reverting in the near future,” further stated SSS.
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