|01.02.2013 - Moody's Investors Service
Moody's issues annual report on Namibia
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.
A significant portion of Namibia’s GDP comes from the extraction and processing of minerals for export, in particular diamonds and uranium. Mining accounted for 8.8 per cent. of nominal GDP in 2010 and provided 40.6 per cent. of foreign exchange earnings. Rich alluvial diamond deposits make Namibia a primary source for gem-quality diamonds, and in 2010 approximately 1.5 million carats were recovered from Namibian mines. Namibia is the world’s fourth-largest producer of uranium, with almost 6,000 tonnes of contained uranium mined in 2010. Namibia also produces large quantities of zinc and smaller amounts of gold and other minerals such as copper and lead. Namibia’s other principal economic sectors include fishing, manufacturing and agriculture. Namibia’s principal exports include metal ores, diamonds, fish and manufactured products while its principal imports include machinery and equipment, transport equipment, food and beverages and chemical rubber and plastic products.
As at 1 September 2011, Namibia’s public debt was approximately N$16.8 billion, or 17.1 per cent of GDP. About a fifth of the debt is owed to bilateral and multilateral foreign creditors, while the rest is domestic debt. The Bank of Namibia has previously accessed the international lending markets in 2006 with a U.S.$50 million syndicated loan facility. The primary objective of this facility was to create a credit record with international lenders as a means of improving borrowing capability to
enable the Government to supplement its foreign exchange reserve levels as and when required. Since 2005, domestic debt has declined gradually from approximately 23.1 per cent. of GDP to 15.9 per cent. at the end of 2010 due to strong fiscal consolidation and prudent fiscal policies. Privatisation receipts of 1.3 per cent. of GDP in 2006 from the sale of a telecommunications firm contributed to the decrease. Moreover, the Government paid certain external debts and redeemed maturing domestic debts in 2009/2010, which also reduced the public debt ratio.
1 issue(s) outstanding worth USD 500 000 000