Schlettwein optimistic after Fitch downgrade
By Hilary Mare
FOLLOWING a Fitch downgrade this week, Finance Minister, Calle Schlettwein has said that government is committed to a growth-friendly fiscal consolidation and the package of structural policy reforms to support domestic economic activity, improve business confidence, policy certainty and bring about recovery of the domestic economy and sustainable public debt management.
The ratings agency downgraded Namibia’s long-term non-Rand foreign currency bonds from BB+ sub-investment grade assigned in 2017 with a negative outlook, to a BB sub-investment grade, with a stable outlook.
This is a notch lower than the previous rating, reflecting Fitch’s view that the domestic economy remains under recessionary pressures, amidst external shocks arising from the impact of the prevailing severe drought condition, elevated risks of contingent liabilities from certain Public Enterprises and lower sub-regional growth outlook.
“We are confident that these policy packages will place the economy on a firm positive and sustainable growth trajectory over the medium to long term. Throughout the years, Namibia has demonstrated its ability and resilience to deal with shocks and also to direct policy actions to addressing socio-economic development needs.
“We, therefore, remain optimistic that growth prospects will gain traction as the implementation of the adopted measures is scaled-up. The Government summons the collective support of all Namibians and call on the private sector and investor community to remain positive and supportive during this adjustment process,” Schlettwein said.
He added that achieving economic growth, which is the necessary condition for the reduction of public debt, revenue generation, the creation of jobs and the reduction of poverty and inequality, is by far the most important objective over the short and the long term.
“In this regard, the Government, in collaboration with the private sector, has already commenced with the implementation of growth enhancing measures,” further stated Schlettwein.
.In its report, Fitch highlighted a number of key drivers which weigh on the ratings and the outlook.
These included a weakening of economic growth which Fitch expects to contract by 1.2 percent in 2019, against its initial positive growth expectations of 0.7 percent, weak domestic demand as low credit extension to the private sector and fiscal consolidation weigh on domestic demand and the pace of economic activity, the negative impact of temporary factors such as the severe drought in the agricultural sector and the weak growth in the mining sector, particularly lower diamond output due to maintenance of some of the mining capital, increased budget deficit when statutory payments for project financing under off-budget extra-budgetary funds are considered, reduced ability to stabilize growth in public debt through cutting back on spending, particularly the inability to reduce the high wage bill costs in a low growth environment, and elevated contingent liabilities arising from certain Public Enterprises, thus posing significant contingent liabilities for the Government.