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Thursday 21 November 2019
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Will Namibia escape knocking on the doors of imf in the near future?

Finance Minister Calle Schlettwein put up a brave face after Fitch Rating Agency further downgraded Namibia’s sovereign currency rating at BB from BB+. The BB rating is in Fitch’s grading a non-investment category. As Rowland Brown of Cirrus Capital noted, external borrowing will become expensive (Namibian Sun, 4 October 2019).
The grading is telling potential investors that the country may not have enough foreign reserves to support the repatriation of foreign earnings. This means that foreign investors shall be cautious to invest in our economy.
While Fitch maintained that the economic outlook is stable, the Namibia Statistics Agency reported recently that the economy contracted by -2.6 percent year-on-year, in the second quarter of 2019.
The Agency stated that the main contributions to the contraction were mining and quarrying which contracted by -20.2 percent compared to last year; diamonds, -34.3 percent; uranium, -6.4 percent; Agriculture, -28.1 percent; construction, -5.5 percent; and wholesale and retail, -2.0 percent; hotels and restaurants, -2.8 percent and transport and communication, -0.9 percent. These figures tell us that Fitch downgrading should be taken seriously.
Fitch pointed out the major weaknesses in our economy. These include depressed domestic demand for goods and services due to the continuing fiscal consolidation; high levels of youth unemployment; widening gaps in income distribution leading to high inequality; transfers to State Owned Enterprises; high public wage bill and other statutory obligations.
It is important to understand the latest downgrade in historical trends to fully appreciate the seriousness of the situation the country finds itself.
On 2 October 2016 Fitch downgraded the country by BB- with negative economic outlook. On 20 November 2017 Fitch graded the country at BB+ with stable economic outlook.
One would have expected that the signals from Fitch would have attracted the attention of policy makers to seriously address the situation.
We take note that the President appointed the High Level Panel on Economic Growth. It is doubtful however,whether the recommendations of the Panel are being taken seriously by those who control the public purse.
Besides the sluggish economic growth, the economic outlook is further compromised by high levels of public debt.
The Government debt ratio to the Gross Domestic Product (GDP) has been increasing since 2015. In 2014 Government debt ratio to GDP was 23.2 percent. In 2015 it shot up to 37.6 percent. In 2016 it went up to 37.6 percent. In 2017 it increased to 40.3 percent. In 2018 it stood at 45.1 percent. This year it might have increased close to 50 percent.
Total Government debt was N$ 83.3 billion of which 16.6 percent are foreign stock and the rest is domestic stock and guarantees. Debt servicing has a potential of contributing to economic vulnerability.
The attempts by Minister Schlettwein to downplay the seriousness of the implications of Fitch’s assessment of the state of the Namibian economy should be understood as a politician’s attempt to mislead the public.
The Minister has fed the public with his wish list of actions he believe will lift the economy out of the doldrums.
He claims that the Government is engaged in a balancing act of striking a balance between fiscal consolidation and achieving broad-based growth in favour of long-term sustainable economic growth.
Where is the evidence of a broad based growth when youth unemployment is ever rising and poverty levels are decreasing at a snail’s pace.
The Minister further claimed that he is promoting growth friendly fiscal policy. Unless he re-prioritizes spending from capital intensive projects to labour intensive works , youth unemployment will remain a thorn in fresh of the Namibian social and economic arrangement. The Minister informed the nation that he is working on a package of structural reform.
One hopes that such a package will include the un-bundling of the Namibia Wild Life Resorts, putting of the management of some of State Owned Enterprises into private management as is the case with Windhoek Country Club and NAMDEB . The Minister committed himself to increase the Development budget to N$7.9 billion.
The impact of such a move will only be felt if the money is invested in growth enhancing ventures preferably in Regions.
If the public investment will target capital intensive projects such as road construction the impact of such an investment shall be minimal.
The Minister has committed the money borrowed from the African Development Bank to Agricultural mechanization. Is this the expansion of the Green Scheme or where will this mechanization take place.
The money should better be invested in climate adaptation Agriculture.
The Minister is hopeful that  import substitution will do the trick. The reality on the ground is that Namibia suffers from supply-side constraints because of lack of economies of scale.
The local products are likely to be far more expensive. Perhaps it is high time Government enters into Private-Public Partnerships to scale-up domestic production.
Youth enterprise development is roped in as solution to youth unemployment.
This is a political slogan which has no basis in the Namibian reality. There are many youth schemes such as the Youth Credit Scheme of the Ministry of Youth and the Youth Scheme in the National Youth Council. The impacts of such schemes have been minimal. In addition, if such a programme is going to be administered by financial institutions it will be unaffordable by the youth who do not have savings. Money in Namibia is just too expensive. Even the Development Bank of Namibia is charging 13 percent interest for its money.
Namibia needs a comprehensive economic growth strategy. Such a strategy should target sectors that have a potential of growing the economy and create employment. These include tourism and hospitality, animal production, the service sector, aquaculture and ocean economy, housing, promotion of regional development projects, ICT and digital economy, biomass development, improving health and sanitation in informal settlement and in rural areas and renewable energy.
The youth should be mobilized into production brigades supported by technical expertise to scale-up production. In the meantime, the Fitch’s message should be taken seriously by all. Avoid gimmicks! Otherwise Namibia will find itself knocking on doors of IMF for bail-outs very soon!




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