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Thursday 18 July 2019
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Time to review spending priorities: Mungunda

In the aftermath of Moody’s decision to downgrade Namibia to non-investment grade, Standard Bank’s Chief Executive Vetumbuavi Mungunda says the time has come for the country to review its spending ways.
Moody’s Investor Services earlier this month downgraded Namibia’s long-term senior unsecured bond and issuer rating from Baa3 to Ba1 or to “non-investment grade” status. Moody has however maintained Namibia’s local currency rating at BBB- or “investment grade” status.
“Both Moody’s and Fitch had previously warned that the country’s elevated debt levels and sizeable deficit could potentially warrant a downgrade. Given the measures that the government had put in place to reign in expenditure and meaningful strides that the country has made, the announcement of the ratings downgrade was disappointing,” said Mungunda.
He added: “Over the 9 months since the mid-tem budget review in October 2016, the spending cuts have gone a long way in ensuring that government consumption grows at a slower pace and that the budget deficit continues to decline over the medium term expenditure framework. And whilst undoubtedly challenging, these budget cuts have been crucial in demonstrating Namibia’s commitment to fiscal prudence.”
It is important to note that given the magnitude of the economic slowdown experienced in 2016, said Mungunda, the Namibian economy has made significant strides towards economic recovery during the course of 2017.
Whilst the Q1 results of 2017 did show an overall contraction in the economy, there were some key sectors that are performing well – most notably the agriculture and mining sectors. Overall, Namibia’s economic growth is expected to pick up from the growth recorded in 2016; and, year to date, 2017 has already seen a sharp deceleration in inflation and, more recently, moderating interest rates.
“Whilst the currency peg to the rand will insulate Namibia from the most negative ramifications of the downgrade; positive trends in the  economy coupled with amendments to regulation 28 of the Pension Fund Act (which will require pension funds to hold 45 percent of their investments in Namibia), and rising import cover will ease liquidity constraints and ensure that the economy remains adequately capitalized,” he said.
Mungunda gave assurance that the Namibian banking system remains robust and sound, and well positioned to withstand the down-grade, with the liquidity position at healthy levels compared to a year ago and well above thresholds.
He also said that the ratings downgrade presents an opportunity for the government to fundamentally reassess its operating model and review the internal structures that have contributed to these structural inefficiencies.
“It is increasing apparent that budget cuts alone may not be enough. We believe it is imperative that government review its spending priorities and its fundamental operating model and structures including demonstrating urgency regarding the reform and divestiture of SOEs that have hindered and constrained the effectiveness of the government’s austerity measures. It is important that this is accompanied by measures to stimulate investments for the economy to be private-sector led and less reliant on the public sector,” he noted.
While concluding, Mungunda says Standard Bank is committed to positioning ourselves as a key player in ensuring that Namibia’s long term outlook remains positive the nation’s period of fiscal prudence and responsibility deepens.
“In this regard, the Bank will continue to make significant strides towards fostering a robust and constructive partnership and relationship with the Namibian public and private sectors in undertaking the structural reviews and reforms required to return our economy to a sustainable and inclusive growth.”




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