Namibia’s downgrading a good wake-up call – NCCI

Though the downgrading of Namibia's credit rating to junk status will not have a direct implication on the cost of borrowing in the country, it is a wake up call for the country, says the Namibia Chamber of Commerce and Industry (NCCI).

We believe the downgrade was a slap in the face at an opportune time. Perhaps we needed it so badly. The reality is that we unfortunately have a government we cannot afford, says the NCCI.

In an unusually detailed and frank statement, heavily peppered with idioms and analogies, the chamber said the downgrade should be a wake up call for us to re-examine our debt strategies.

Quite frankly, doubling the stock of the Namibian Government debt in three-and-a-half years could qualify as 'irrational exuberance', and more specifically the growth in foreign debt from almost nothing to N$22.5 billion, (inclusive of the recent N$3 billion from the AfDB) in the same period is material for a N$150 billion economy, says the chamber.

As proud citizens of our bright Republic, we need to share in the pain: the ones that have the money need to pay higher taxes, the less-rich need to have less government, the politicians must shrink the government while the private sector must invest in critical areas to address the trade deficit. A cure for the fiscal account alone is inadequate. If at all, Moody's had cause to downgrade Namibia, it was too late to downgrade. If Namibian debt is not investment grade, it has not been an investment grade for a while now, said the chamber.

NCCI also warned the private sector not to put all the blame on politicians, saying: If we are really honest with ourselves, we have to remember that we're the ones who make this economy tick or snooze.

The chamber said it issued the statement as a response to the many enquiries that it has received from its members wanting to know the consequences of the downgrade. Part of that response is that the indirect impact of the downgrade is perhaps our worry to the extent that it is unknown. However, the unknowns are unknown.

It noted that an investment grade rating of government debt is a foundation stone of any financial market, and when it shifts, even a little, other things may shift as well. Thus, it said, unintended consequences may be surprising. However, given the current fiscal stance and general macroeconomic stability, Namibia is probably one of the only true investment grade nations in the world with a debt-to-GDP ratio around 43 percent.

This view does not mean there are no areas of improvement for our policy makers. To deny our apparent and current problems is to be untrue to our cause, which is to fight poverty and inequality. It is expedient for one bitten by a snake to focus on the bite rather than killing the snake, said the chamber.

It pointed at the growth in the debt levels, in relation to the country's Foreign Exchange Reserves, which is averaging N$25 billion, and said this is particularly a concern given Namibia's small size and open nature of the economy while the currency is not a reserve currency.

We definitely ignored our sovereign debt management strategy, which aimed at an 80:20 ratio of domestic debt to foreign debt. At present, foreign debt is around 34 percent of total sovereign debt, the statement said.

Nevertheless, NCCCI is of the opinion that the cost of borrowing is unlikely to increase, not yet, not while the global economic landscape is still fragile. Namibia still has one of the world's most robust financial systems and diversified economy and, despite our problems, we are in a better shape than the advanced economies, whose banks are overleveraged through exposure to the highly indebted economies of the world.

The only downgrade that will really matter to our cost of borrowing in the long run is the one imposed by the bond markets, it said.

Source: New Era Newspaper Namibia