New York, January 31, 2013 -- In its annual credit report on Namibia, Moody's Investors Service says that the country's Baa3 rating reflects low levels of government debt and financial stability, as well as a deep natural resource endowment that has been mobilised to accelerate economic development since the country's independence in 1990. The outlook is stable.
The rating agency's report is an annual update to the markets and does not constitute a rating action.
Moody's determines a country's sovereign rating by assessing it on the basis of four key factors -- economic strength, institutional strength, government financial strength and susceptibility to event risk -- as well as the interplay between them.
Moody's expects real GDP growth to slow to 4% in 2013, with a deceleration in mining output growth being largely offset by stronger construction, manufacturing and tourism. Government outlays on projects related to the Targeted Intervention Programme for Employment and Economic Growth (TIPEEG) -- now integrated into the Fourth National Development Plan (NDP4) -- plus the boost to household spending from December's retroactive payment of civil servants' 2012 8% pay rise will drive domestic demand. The return of a more vigorous pace of growth would depend upon an economic revival in Europe, Namibia's largest export market.
The government's increased spending has increased the budget deficit and debt substantially in the past two years, although not as much as projected in the original 2011 plan due to a slow start-up and weak implementation capacity. The deficit was almost 8% of GDP in fiscal year 2011/12 (which ended in March 2012) and Moody's estimates that the shortfall will narrow to around 6% of GDP in 2012/13 and about 5% of GDP in the coming fiscal year as government spending levels off. After climbing to 25.3% in 2011/12 from 16.6% in 2010/11, the rating agency expects the debt-to-GDP ratio will reach 30% by the end of the next fiscal year. The debt ratio is unlikely to rise much beyond that level given policymakers' plans to rein in current spending next year in favour of investment.
Moody's cites the government's recent imposition of new export levies and withholding taxes as a risk to profitability and investment in the mining sector, which could adversely affect production and exports going forward. Although the revenue measures echo the global trend towards higher taxation on the extractive industries in resource-rich countries, excessive taxation could lead to mine closures and widespread layoffs of personnel at a time when government is trying to bolster job creation and maintain Namibia's reputation as an attractive destination for foreign investment.