By Thina Katangana/Megameno Shikwambi
Chairperson of the economic high-level panel, Johannes Gawaxab has said that the downgrade of Namibia by Fitch from BB+ to BB with a stable outlook was less worrisome when compared to the latest indications that the current account deficit had widened significantly.
Fitch downgraded Namibia’s Long-Term Foreign-Currency Issuer Default Rating (IDR) and now expects the economy to contract by 1.2% in 2019, marking the third consecutive year of recession, against the earlier expectation of 0.7% growth, given the 2.7% year-on-year fall in GDP in first half of 2019 (1H19).
But this was no shocker, Gawaxab has said, in an exclusive interview with The Patriot.
“I wasn’t really surprised because if you look at the real economy; signs were there. We have rising public debt levels, we have got steep economic contraction that is now (ongoing for) three years, the economy just contracting.
We have a very high unemployment rate, we have got declining, underperforming exports and because of lots of retrenchments and small companies going under, the number of people paying tax, from a revenue collection point of view; that is going to be under pressure.
So, I wasn’t really surprised when I heard the downgrade. The basic thing is that ‘guys, you are two notes under junk so the world out there is not taking any paper that’s issued by government, whether it’s TBs, whether its bonds, that’s not regarded as investment grade now’.
It’s a big challenge (but) I was not surprised, and I said to myself we shouldn’t panic now. We should remain cool-headed here because if you panic you start doing things that are irresponsible and you rush them,” he said.
GDP will merely stagnate over 2016-2021 in our forecasts, and Namibia will achieve the third-weakest economic performance among all Fitch-rated sovereigns during that period.
Prolonged poor economic performance points to a structural break in growth following the commodity and credit-driven boom during 2010 through 2015.
Fitch expects growth to recover to around 2% only over the medium term, well below the average of 5.7% in 2010-2015, reflecting the weaker contribution from the economy’s two main drivers, extractive industries and the public sector.
“You know what’s worrisome for me, was the Bank of Namibia coming out to say second quarter of 2019, the current account of the balance of payment has worsened from N$1 billion to around N$3 billion. That is worrisome for me. So, we need to address that as quickly as possible.
If you look at the common denominator; where the IMF has intervened in African countries one common thing was, they had current account challenges. So, it simply means that you are unable to import fuel, you are unable to import food stuffs, you are unable to import what’s really necessary. So, we need to help you to get the money to do that because the engine of the economy is going to stall if they (IMF) don’t come in.
But once they come in, they come in with very restrictive rules, you sort of give up your sovereignty.
So, I really hope we do not go there. I am not a big fan of going to the IMF because I am totally convinced that what the IMF has done for the continent was not in the best interest of the continent so far,” Gawaxab said.
On a comparative basis, finance minister Calle Schlettwein this week tweeted that Namibia was faring better than other African jurisdictions.
“Factually it’s correct what he said, but do you really want to compare yourself with people that are not good?
You need to understand as leaders we are dealers in hope. So, when leaders lose hope and we leaders tell our people that actually, our situation is bad, you think about what’s going to happen to this country.
So, I totally say what the minister did was factually correct and secondly, he is doing what leaders should do. You are there to give people hope around a situation. That doesn’t say that you deny and not acknowledge the problem that you have got,” he said.
What does this rating mean for the high-level panel?
Gawaxab said it talks directly to the core mandate of the high-level panel “because you need to grow the economy”.
“Try and help us grow the economy. That’s a core mandate of the panel and if you look at why they downgraded, they said its two reasons. They said ‘guys, your economy is not growing, your debt levels are rising, so we are very worried about that’.
The outlook is very stable, but we are very worried about those two things. And that is what we should probably start addressing, those are the two key issues,” he said.
Gawaxab said economic growth is not a destination, rather a means to an end.
“And what is that end that we are trying to reach with that growth? That end is (to) create jobs. Reduce inequality. Reduce poverty. Reduce public debt. Get the economy growing. So that is sort of the core mandate.
But what is growth? It’s a function of four things. The first thing is household income and currently our households are under severe pressure so that is probably what we don’t need, to pull out of this conundrum.
Secondly its government expenditure. Currently the minister is trying to do his level best from taking the development budget from about N$5 billion to close to N$8 billion and try and stimulate the economy but there is very little fiscal space for him there.
The third one is investments. Whether it’s domestic or foreign investments; and the fourth one is net exports; that is exports less imports. Those are the four things that we need to do. The big thing that we need to do is to focus on the investment part,” he said.
Recently the high-level panel had an audience with international investors at a UN summit, in the company of President Hage Geingob.
Says Gawaxab, “our conviction as the panel is that we need private sector-led domestic growth. Whether it is domestic investors or foreign investors.
As a panel we reached, to attract foreign direct investments and compliment the efforts of the government. So, the President hosted about 45 investors and the feedback that I have received was quite positive.
We had people in the room that command about USD250 billion. They were asking about the structural challenges in our economy; what we are doing in terms of reforming our economy so that they can invest.
We are expecting a full report in two weeks’ time, but the initial response is that there is good interest and appetite from American investors in Namibia.”