….as vehicle sales surge
Simonis Storm expects foreign reserves to remain under pressure over the short-medium term due to the widening trade deficit.
The local stockbrokerage and investment research firm said this in its Credit Report for March released on Tuesday in which it outlined that that the widening trade deficit that is mainly triggered by the weaker Rand and lower commodity prices that puts pressure on Namibia’s export revenue.
The central bank attributed the foreign reserve decline from N$25.5 billion in February to N$24.9 billion in March 2016 on the net government payments and net commercial banks’ Rand purchases in March.
“The import cover stood at 2.8 months of imports during December 2015, which is below the international import cover requirement of 3 months. We are also of the view that the government’s commitment towards debt sustainability may imply a possible standstill on borrowing from the foreign markets to safeguard its sovereign credit rating, thus once again reinforcing the potential challenge for the BoN[Bank of Namibia] in managing the foreign reserves,” it said.
The latest BoN statistics shows that the country’s total debt grew by a slower pace of 14.6% to N$121.4 billion in March 2016 to a debt level of N$106 billion in March 2015.
“The significant rise in monthly growth can be attributed to a 5.2% growth in government debt during March compare to 0.1% in February,” said the firm.
The firm also indicated that despite the tough consumer environment resulting from the increase in interest rates, household debt continues to grow.
“During March 2016, debt accumulated by households was mainly through overdraft and instalment credit. We believe that the impact of the rising inflation and debt servicing costs have reduced households’ real disposable income, and thereby prompting them to take on additional debt to stay afloat.”
Furthermore, forecasted the company: “Government debt grew significantly by 5.2% in March 2016 compared to 0.1% in the prior month. We expect the monthly growth in government debt to increase further. This is because BoN’s Borrowing Plan aspires for 90% of the budget deficit for 2016/17 (N$8.2bn) to be funded from the domestic capital market. In contrast, the monthly growth in corporate debt slowed to 0.2% compared to 0.7% in the prior month.”
As for private sector credit extension, Simonis Storm said the 12.6% growth of credit extended can be attributed to growth in other lands and advances that grew by 18.6% and 10% for borrowings done through overdraft facilities.
“Meanwhile, other categories (Mortgage loans and instalment credit) continue to shrink on an annual basis. In contrast, mortgage loans spur the monthly growth in PSCE during March 2016. We believe that the overall slowdown in PSCE is indicative of the pass-through-effects of a continued tightening of the monetary policy cycle by the BON, with two interest rate hikes of 25bps each already executed since January this year,” it said.
Admittedly, said the firm, vehicle sales picked up by 13% to 1525 units in March.
The increase is however 625 units lower than the previous period where the vehicle sales stood at 2150 units.