At the beginning of September this year, the outcome of Namibia’s credit ratings assessment by Fitch Credit Ratings Agency was published. Fitch had reaffirmed Namibia’s credit rating at BBB-, but revised the outlook from “stable” to negative.
Moody’s Investor Services, the second sovereign credit rating agency, made public its assessment and not surprisingly it mirrors by and large what Fitch earlier had said. The credit ratings opinion was issued last week and came as no surprise to many.
The ratings agency announced this, saying that the decision to revise the credit risk outlook was based on Namibia’s poor policies to reduce the deficits and accumulated debt stock.
They also said that Namibia’s public debt has continued to rise, and that there are chances that the economy could slide further when the government tightens domestic funding conditions.
“The speed of debt accumulation and the size of the budget deficit point to increased uncertainties with regards to progress on future fiscal consolidation,” said Moody’s.
In both credit ratings assessments, however, Namibia has been able to retain its investment grade rating, thanks to the firm commitment to credible policy measures to mitigate the downside risks weighing on the outlook.
Finance Minister Calle Schlettwein put these ratings into perspective, but the damage has clearly taken its toll already.
Concerted efforts have been put in place to mitigate against inherent risk factors in the economy and: “As a first benefit of these concerted measures, we have been able to retain our investment grade rating. It is my expectation that asset managers who are responsible for managing the country’s vast institutional savings would equally recognize this concerted policy implementation through investment in Government securities going forward in line with the announced deficit reduction stance,” Schlettwein said.
The Government has also crafted out a strategy for funding the outstanding invoices to date. The activities for implementing the strategy and the processing for some of the invoices has already kicked off at an accelerated pace, in addition to ongoing budget income based payment of invoices.
As such, the Road Fund Administration (RFA) has already started paying out invoices of up to N$318 million from its accumulated cash reserves. This amount would rise to as much as N$450 million with appropriate adjustment on the non-priority or uncommitted expenditure on Roads Authority budget that is financed by RFA.
Government also had consultations with the Construction Industries Federation at which Government has communicated its plans for meeting the payments. Immediate settling of some of the invoices through the RFA and continued payments over the budget year have already commenced and are a reflection of honoring the payment plans in the spirit of the consultation.
He also assured the service providers from various industry sub-sectors that the Government is committed to meeting its contractual obligations for services rendered. This commitment, however, should be seen against the backdrop of budget revenue flows and tight liquidity conditions which the Government has to contend with to be able to fund bulk invoices at one point in time.
At the same time it was, Schlettwein said, a matter of grave concern to note that contracts and resulting invoices to the tune of N$800 million have been committed over and above what has been appropriated in this year’s budget, most of which are contracts in the road sector. From both the Appropriation Acts and State Finance Act point of view, such over-committing of the National Budget, the State is not only illegal, but an act of complete lack of financial discipline.
However, irrespective of robust growth and expansion over the previous five years, the key players in sector, up to now, owe Government as much as N$300 million in assessed principal tax or some N$1.45 billion in accumulated tax arrears. These tax arrears, most of which were accumulated during previous years of robust growth for the industry, represent overdue revenue for Government that, were they paid in good time, would have resulted in a less precarious situation of our public finances and could have been utilised to settle some of the hitherto outstanding invoices as well as providing increased services to the public.
To ensure prompter payment of taxes assessed and tax arrears, Schlettwein instituted measures to encourage those who are in arrears, by settling their arrear obligations with less penalty and interest escalation.
In this regard, taxpayers settling their principal tax arrears up to 20 percent of interest accumulation, will benefit from a waiver of the penalty obligations. He called on taxpayers affected, to take immediate steps to approach the Receiver for the repayment plans. The Receiver of Revenue will make an announcement regarding the details and the commencement date of this incentive and debt recovery programme.
He concluded the statement by stating that the budget policy measures that the country has adopted are necessitated by the exigencies of the situation that we are facing as a small, open economy. These measures are indispensable to correcting current imbalances and restoring sustainability and reassured the public and commercial sectors of its commitment to honouring the contractual obligations and he called on the support of all players, Public Enterprises and their governance boards as well as the private sector.