By Ndapewoshali Shapwanale
Despite government’s stance to restrict borrowing and stay within manageable thresholds, latest indications are that debt has increased in the last financial year due to outstanding amounts of domestic Government bonds.
Bonds increased from N$28.4 billion at the end of 2017 to N$32.7 billion by the end of December 2018, in addition to N$18.3 billion owed for two Eurobonds.
This was published in the 2018 Bank of Namibia Annual Report.
In response to the increase in domestic bonds, the report stated that government continued to adopt measures to broaden the domestic yield curve.
“In this regard, the government introduced an additional inflation-linked bond (the GI33) in 2018, maturing in 2033, as well as a shorter-term fixed-rate bond (the GC23), coming due in 2023. This brings the total number of outstanding domestic Government bonds to 17, inclusive of the four inflation-linked bonds,” the report reads.
The report states that the 2021 Eurobond still carries an outstanding amount of US$500 million which equates to N$7,07 billion as at Thursday’s exchange rate.
The 2025 Eurobond carries an outstanding amount of US$750 million which converted to N$10,6 billion at Thursday’s exchange rate.
The yield of Namibia’s 2021 Eurobond continues to increase as it has now gone from 3.7% in 2017 to an average 4.9% in 2018, the annual report for 2018 states.
In addition to this, the yield on the Namibian 2025 Eurobond stood at 4.9%, following an upward trend since then and closing off at 7.2% in 2018.
“The yield movements on the Namibian Eurobonds during 2018 were influenced by the interest rate developments in the United States as well as changing market sentiment towards emerging market issuers.
The Federal Reserve raised its policy rate four times in 2018, with the last meeting in December hiking the policy rate to a range of 2% to 2.25%,” the Bank of Namibia annual report published.
BoN further published that the spread between the Eurobond and its United States benchmark widened from an average spread of 185 in 2017 to 225 in 2018.
In August 2018, Moody’s Investors Services affirmed Namibia’s credit rating status with a negative outlook.
Some of the highlighted areas of concern include a rapid rise in public debt, the economy’s external vulnerabilities stemming from persistent current account deficits, and relatively low international reserves.
Moody’s explained that the sovereignty is also susceptible to a further tightening of domestic funding conditions, should fiscal challenges persist.
Moody’s however assured that the outlook could return to stable if the government demonstrates its commitment to fiscal consolidation as this could decelerate the accumulation of debt and eventually reduce the level of public debt.
In response to the rating agencies, government committed itself to continuously implement instituted corrective measures to manage the macro risks identified by the rating agencies.
One of these corrective measures are the number of fiscal reform measures that were published in the 2018/2019 mid-year budget review that was released in October 2018.
“The measures are aimed at ensuring that public finances are well managed and ultimately that debt levels are maintained on a sustainable path. The Budget Review commits to maintaining the gradual fiscal consolidation policy stance over the next MTEF,” the report reads.
This measure is in addition to the added incentives aimed at growth friendliness and increased allocative efficiency achieved by reallocating resources to more productive areas and addressing bottlenecks in public procurement.
The government, the report states, also plans to improve domestic revenue through improved tax collection measures to partially compensate for losses in SACU revenue.
Central Government budget deficit
Bank of Namibia reported that central government’s debt as a percentage of the Gross Domestic Product for the 2018/2019 financial year stood at 4.4% compared to the 4.8% recorded in the 2017/2018 financial year.
This represents an estimated narrowing in the deficit compared to the previous year.
The deficit to GDP ratio is expected to further decline to 2.8% over the METF period which will be below the 3% ceiling.
The Patriot in February this year reported that government will have to fork out around N$8 billion in 2021 to pay back bonds that will mature in that year, as recorded in the Bank of Namibia Annual Report for 2017.
Of the close to N$8 billion, more than N$6,1 billion is owed to one of two Eurobonds.
The second Eurobond of N$9,29 billion is scheduled to mature on 29 October 2025.
According to the report the central government debt for the Eurobond was at N$5,2 billion in 2013, increased to N$5,8 in 2014 and ballooned to N$19,4 billion in 2015 before reducing to N$17 billion in 2016 and then N$15,4 billion in 2017.
Economist Mally Likukela at that time told The Patriot that the increase and decrease in the Eurobond debt and other loan debts may be as a result of the figures being recorded as accumulative debt and also as a result of the behaviour of the Namibia dollar or South African Rand for that year.
This debt is part of a total local and foreign bonds amounting to more than N$46,7 billion, excluding multilateral and bilateral loans. One bond of N$1,24 billion matured last year, while the rest of the bonds are scheduled to mature between 15 April 2020 and 15 July 2045.