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Sunday 21 April 2019
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Debt ring of the Eurobond or Euro-bondage?

In 2011 Namibia was issued an amount of US$ 500 million (approx. N$ 7.5 billion) and our current debt is at N$ 59.5 Billion?

 

In 2014, the IMF Managing Director, Christine Lagarde, cautioned African countries against endangering their debt ratios by issuing sovereign bonds. In some definitions a Eurobond is when various countries put a combined security to request for a loan, especially after they have exhausted other options and they are less likely to receive individual loans.  In 2002 total central Government debt was N$ 7.7 billion, increased to N$ 12.5 billion in 2005, in 2011 debt was swelling from N$15 billion to N$ 24 billion, between 2014 and 2015, debt plateaued to astronomical N$ 31 billion to N$ 59 billion. “Namibia has higher debt-to-GDP ratio than Angola.”
We may have a higher debt-to-GDP ratio at 39% (Q4, 20015) than Angola that has only 31%, but their debt is higher at US$ 35 billion (N$ 502 billion). Zambia’s debt-to-GDP ratio of 37.5% and Ghana 55%. The monetary union criteria require a debt-to-GDP ratio of below 50% of GDP per country.    The Eurobond is N$ 18.6 billion, leaving our foreign debt at N$ 27.4 billion and overall debt including domestic debt is N$ 59 billion.  I know reading about so much debt in one paragraph is sickening but my question is “How do we resolve the debt? In which instances do we borrow, to build infrastructure or for operational expenses? What changes can State Owned Enterprises make to refrain from dependence on the government.” The Eurobond was not hedged thus currency volatility poses serious forex losses. At the time of borrowing in 2011, the exchange rate was N$6.6 to US$ 1, but now it is N$ 14.3, creating double forex losses for us.   The fiscal climate of the countries is hugely affected by their monotonous dependence on minerals and trying to keep up with global players in boosting mineral exports. In some instances, debt is sued to fund none-income-generating public infrastructure, for example none income generating roads are not a priority.
Debt slows a country’s growth ambitions and also risks it assets in many ways. The Namibian debt conundrum caused a hiatus of cash flow across the government and many companies, tenderers, service providers, SME’s, etc.
Suggestions: Firstly, we must apply austerity when disbursing funds, I complement the manner in which the Finance Minister Hon. Calle Schelltwein has stalled on major spending. Public officials must negotiate prices for their operational needs, for example buy cheaper furniture and cars, reduce unnecessary travels, spend less time on government phones and be more productive with less.
Secondly, Educate public officials on prudential government financial policies. It is not wise to cut costs only but all people must understand the financial plan of the ministries and parastatals, this way they will comprehend the need to capitalise on resources allocated to them. There is a lot of duplication in systems, often consultants are used to carry out existing studies, unnecessary work is also outsourced for huge amounts that can be handled by another ministry or parastatal. This reminds me of how City of Windhoek outsource land servicing at high costs instead of buying their own plant equipment or alternatively negotiate a servicing deal with the Roads Constructor Company. The best way to minimize consultants is by working with scholars at NUST and UNAM, and the wide pool of academia in Namibia. Thirdly, I would suggest the use of concessional loans for infrastructure projects as opposed to taking out new loans. Concessional loans carry lesser interest rates and longer periods for repayment. The government should consider projects where private sector cooperation can help its performance, for example in achieving development goals, infrastructure projects and skills transfer. The private sector cultivates good working ethics towards productivity and efficiency that the state can emulate.  This is a good morale boosting cooperation and nation building… “and they make more money with less speeches.”
“The difficulty lies not so much in developing new ideas as in escaping from old ones.”  John Keyenes (Economist). We cannot apply the same formula and expect a different outcome when diffusing debt. However, not all debt is bad but in these times only good financial policies will rescue us from negative ratings. God bless.




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