Sunday 11 April 2021
  • :
  • :

Namibia should subscribe to debt transparency to enhance business confidence

Earlier this year, the Institute of International Finance (IIF), the global association of the financial industry, issued a document detailing the Principles of Debt Transparency.
The Principles of Debt Transparency was issued as a reaction to various loans made to developing countries that were opaque and had a potential of putting the macroeconomic stability of those countries at risk.
The Principles are therefore aimed at addressing the rising levels of debt, especially in low-income countries and at making the emerging debt sustainable.
The goal is further to enhance a full and transparent accounting of public sector borrowing by enabling the assessment of debt dynamics and debt sustainability.
Mark Plant, Director of Development Finance at the Centre for Global Development, Europe, identified the following as salient features of the Principles: a) they are voluntary; b) they include all transactions that commit public sector directly or indirectly; c) all details of the loans are to be published indicating who is involved: borrower, lender, guarantor and agent; d) what are the terms, for example, interest rate, amounts and currency; e) what is the loan for and f) how is the loan governed, the governing law, collateral and dispute resolution.
The information is to be made public within 60-120 days after the date at which the funds first move.
The applications of the Principles shall be reviewed annually.
The Principles shall mostly apply to countries and financial institutions which are expected to commit themselves to responsible lending and borrowing.
The Principles of Debt Transparency aim at promoting timely disclosure of financial transactions entered into by the sovereign governments and sub-sovereign institutions such as State Owned Enterprises and local governments.
The Principles shall enhance fiscal discipline and transparency by holding governments and key decision makers to account.
They will further encourage sound risk management practices as well as facilitate the fight against corruption. Moreover, they will increase confidence of investors, lenders, international financial institutions and the public at large. Greater transparency reduces vulnerability to market shocks by promoting debt sustainability.
Though Namibia occasionally issues Medium Term Debt Management Strategy reports as well as Debt Sustainability Analyses, these are not subjected to some kind of peer review or wider public scrutiny.
Similarly, the IMF Article IV consultations only assess economic and financial developments by holding discussions with key policy makers and Central Bank officials.
The findings of such exchanges are not binding.
Rating agencies give signals about a country’s credit worthiness but the ratings do not prevent countries to take up expensive loans.
The Principles of Debt Transparency, though voluntary, give countries an opportunity to choose whether to do business with financial institutions which subscribe to the Principles or not and vice versa. They ensure greater accountability and transparency.
Namibia needs such a regime due to escalating budget deficits and subsequent rising public debt levels. In 2011 the ratio of public debt to the Gross Domestic Product (GDP) was 16.4 percent. There was a rapid rise in public debt by year 2017. The ratio of public debt to GDP went up to 40.6 percent according Government’s own admission.
This means that Government went from fiscal prudence to rapid fiscal decline.
The country was then downgraded by both Fitch and Moody’s rating agencies to non-investment grade. According to the Namibian Economist newspaper of March 2018, IMF estimates that Government debt will grow to 70 percent of the GDP by 2022.
By the end of this year public debt will be above 50 percent of the GDP. With negative ever economic growth, Namibia risks to fall into debt trap.
A sizeable portion of the National Budget will be spent in servicing debt.
This means that Government will not be in a position to stimulate economic growth through public investment. The mid 2019 IMF Article IV mission recommended that Namibia should implement structural reforms to strengthen productivity and competitiveness. The mission further recommended that the country should take measures to lift business confidence thus boosting the long-term growth potential of the economy. The question is how?
One way of doing it is by subscribing to the Principles of Debt Transparency! Namibia should demonstrate its enduring commitment to debt transparency. Otherwise the country will soon find itself in debt distress!
Rainer Ritter, an independent economist, commenting on Mid-Year Budget Review and Economic Outlook ( 29 October 2019) recently presented in the National Assembly by Minister of Finance, Calle Schlettwein, correctly observed that “… the constant rise in Statutory expenditure neutralizes since 2015 any stimulus effects because Government puts less and less money in the economy”.
He further noted that Government will spend about 10.4 percent of its budget of interest payment.
Clearly, Namibia will soon enter the club of Highly Indebted Countries (HIPC). There is therefore an urgent need for the country to subscribe to debt transparency and debt sustainability regime for the sake of posterity!

Leave a Reply

Your email address will not be published. Required fields are marked *