November 20, 2017 / 12:25 PM / 21 days ago

Fitch Downgrades Namibia to 'BB+'; Outlook Stable

(The following statement was released by the rating agency) HONG KONG, November 20 (Fitch) Fitch Ratings has downgraded Namibia's Long-Term Foreign-Currency Issuer Default Rating (IDR) to 'BB+' from 'BBB-'. The Outlook is Stable. A full list of rating actions is at the end of this rating action commentary. KEY RATING DRIVERS The downgrade of the Long-Term Foreign-Currency IDR reflects weaker-than-forecast fiscal outcomes and our projection that public debt-to-GDP will continue to rise over the medium term. This will leave debt in financial year 2019 (FY19, to end-March 2020) at nearly double the ratio in FY14. The downgrade also reflects a weaker-than-expected economic recovery and our view that medium-term growth has shifted to a lower gear. Fiscal consolidation was temporarily interrupted in FY17. We forecast the general government (GG) deficit to narrow to 6% of GDP from 6.9% in FY16, against a revised government target of 5.3%. However, this improvement is due solely to a one-off surge in transfers from the South African Customs Union (SACU) which we expect to lead to a downward adjustment in the receipts for FY19. The initially projected reduction in aggregate public capital spending will not materialise due to a NAD2.5 billion capital injection in a new public infrastructure fund and to the settlement of previously unreported arrears worth NAD2.7 billion arising from commitments undertaken in FY16. Total spending-to-GDP will stabilise as lower non-wage current outlays will offset the rise in the payroll, interest costs and public investment. The government has revised its fiscal consolidation strategy, and no longer targets a reduction or stabilisation of debt-to-GDP between FY17 and FY20. The latest Medium Term Expenditure Framework (MTEF) published earlier in November projects GG debt to grow to 44.2% in FY19, while it was forecast to decline to 37.7% in the previous MTEF. The government also foresees a reduction in the GG deficit to 2.9% in FY19, up from a previous target of 1%. It plans to achieve this improvement by cutting operational costs, stabilising capital spending in nominal terms, and freezing the wage bill by reducing the number of civil servants by 2% per year through natural attrition. We project fiscal metrics to fall short of the government's revised targets. We forecast the GG deficit to narrow only to 4.6% of GDP in FY19 due to economic recovery and lower current spending. GG debt will rise to 47% of GDP from 40.7% in FY16 and only 24.8% in FY14. We believe that SACU transfers will underperform official projections due to sagging growth in South Africa. The high public payroll is likely to absorb 50% of revenue in FY17, and is a source of fiscal rigidity. It has soared by 50% in real terms since FY11, and wages in the public sector will rise further in FY18 under a three-year agreement with the trade unions. Reducing the number of state employees will be challenging in the run-up to Namibia's 2019 elections and against the background of high inequality. The accumulation of previously undisclosed arrears by several ministries has shed light on underlying shortcomings in the management of public finances. The envisaged public infrastructure fund which will be managed by the Development Bank of Namibia (DBN) will improve the execution of some large public investment projects which are incurring cost overruns. However, it could reduce the government's incentive to cut non-priority capital spending. The liabilities arising from related investment spending will be attributed to the fund, although this debt will be serviced by the sovereign. GDP growth will decelerate to 0.8% in 2017 from 1.4% in 2016, according to our forecasts. Cuts in public investment have taken a toll on domestic demand and activity in the construction sector. The expansion of mining output has been slower than expected due to weak uranium prices while the increase in the production of the Husab uranium mine to full capacity was further delayed. GDP has contracted by 1.7% year-on-year in 1H17 despite the growth in the output of other mining commodities and the recovery in agriculture following a drought in 2016. The economic outlook through to year 2019 remains lacklustre. We project GDP growth to strengthen to 2% in 2018 and 3% in 2019, well below the 2010-2015 average of 5.7%. The acceleration in growth will be driven by the rebound in crop production, steady growth in mining output, and stabilisation of public investment. Namibia's medium-term growth will remain constrained by the lack of fiscal space, low prices for key mining products including uranium, tighter financing conditions and subdued growth in neighbouring South Africa and Angola. Namibia's 'BB+' IDRs also reflect the following key rating drivers: The government's financing conditions have eased after the strain observed in 2016. Namibia has secured a ZAR10 billion loan from the African Development Bank (AfDB) in 2017. Demand for government securities was bolstered by amendments to the regulation on pension funds and long-term insurers gradually raising the minimum allocation to domestic assets from 35% to 45% by October 2018. The disbursement of the first tranche of the AfDB loan, asset repatriations by investment funds and higher SACU receipts caused excess liquidity to soar fourfold to around NAD6 billion, according to Bank of Namibia (BoN). Refinancing risks are moderate. The stock of T-bills has doubled in two years, which has raised the rollover risk. Public finances are vulnerable to the risk of a depreciation of the South African rand to which the Namibian dollar is pegged, as 30% of GG debt is denominated in foreign currencies other than the rand. Significant contingent liabilities for the budget arise from the possible need to restructure some loss-making SOEs, notably in the transport sector. The expected liquidations of the troubled SME bank and Road Contractor Company are pending judicial approval but will generate only modest costs for the budget. Additional contingent liabilities for the budget arise from guarantees of SOE debt amounting to 7.4% of GDP, most of which are on external debt. The Public Enterprise Governance Act Amendment bill will streamline the institutional framework of state-owned enterprises (SOEs). Its approval in Parliament is likely in 2018. The reform may reduce government transfers to unprofitable public companies and also paves the way for a possible partial privatisation of some state assets, notably the telecoms operator MTC. We forecast the current account deficit to remain wide, averaging 6.9% in 2017-2019, well above the 'BB' median of 2.1%. It will nonetheless improve from 14.5% in 2016 as imports of capital goods moderate and mining exports expand. Net external debt increased to 5% of GDP in 2016, turning to a debtor position for the first time since 2005. External financing conditions are affected by heightened political and economic risks in South Africa. External buffers have improved, with foreign-currency reserves forecast to average 4.2 months of current account payments in 2017-2019, up from 3.1 in 2016. This is due to the disbursement of the AfDB loan, asset repatriations and the repayment of some BoN claims on the National Bank of Angola. The congress of the ruling South West African People's Organization (SWAPO) later in November is a source of policy uncertainty. We expect the fiscal and growth-enhancing reform drive to gain momentum after the congress. A government reshuffle seems likely, and we expect a new cabinet to initiate some major reforms - including the overhaul process of the SOE sector. We also expect the government to retract the most controversial provisions of the National Economic Equitable Empowerment (NEEE) draft bill and the National Investment Promotion Act (NIPA), and submit revised versions of the two bills to Parliament in 2018. The controversial provisions of the NEEE draft bill and NIPA underscore the lingering policy risks resulting from Namibia's high inequality despite being likely to be withdrawn. Namibia's long-standing political stability and governance indicators are a major credit strength, at well above the 'BB' median. SOVEREIGN RATING MODEL (SRM) and QUALITATIVE OVERLAY (QO) Fitch's proprietary SRM assigns Namibia a score equivalent to a rating of 'BB+' on the Long-Term Foreign-Currency (FC) IDR scale. Fitch's sovereign rating committee did not adjust the output from the SRM to arrive at the final LT FC IDR. Fitch's SRM is the agency's proprietary multiple regression rating model that employs 18 variables based on three-year centred averages, including one year of forecasts, to produce a score equivalent to a LT FC IDR. Fitch's QO is a forward-looking qualitative framework designed to allow for adjustment to the SRM output to assign the final rating, reflecting factors within our criteria that are not fully quantifiable and/or not fully reflected in the SRM. RATING SENSITIVITIES The Stable Outlook reflects Fitch's assessment that upside and downside risks are broadly balanced. Future developments that could result in a downgrade include: -Significant deterioration in debt dynamics beyond our current forecasts -Wider-than-expected external deficits or emergence of significant external funding pressures -Lower-than-forecast economic growth, for example due to an aggravation of policy uncertainty or weaker mining activity Future developments that could result in an upgrade include: -Narrowing of the budget deficit sufficient to place the government debt-to-GDP ratio on a downward trajectory -Marked improvement in the current account balance consistent with a stabilisation of external-debt-to GDP ratios -Stronger medium-term growth resulting from better prospects for the mining sector or implementation of structural reforms KEY ASSUMPTIONS We expect global economic trends and commodity prices to develop as outlined in Fitch's Global Economic Outlook. The full list of rating actions is as follows: Long-Term Foreign-Currency IDR downgraded to 'BB+' from 'BBB-'; Outlook Stable Long-Term Local-Currency IDR downgraded to 'BB+' from 'BBB-'; Outlook Stable Short-Term Foreign-Currency IDR downgraded to 'B' from 'F3' Short-Term Local-Currency IDR downgraded to 'B' from 'F3' Country Ceiling downgraded to 'BBB-' from 'BBB' Issue ratings on long-term senior unsecured foreign-currency bonds downgraded to 'BB+' from 'BBB-' Issue ratings on long-term senior-unsecured local-currency bonds downgraded to 'BB+' from 'BBB-' Namibia's National Long-Term Rating on the South African scale downgraded to 'AA+(zaf)' from 'AAA(zaf)'; Outlook Stable Issue ratings on Namibia's bonds with a National rating downgraded to 'AA+(zaf)' from 'AAA(zaf)' Contact: Primary Analyst Mahmoud Harb Director +852 2263 9917 Fitch (Hong Kong) Limited 68 Des Voeux Road Central Hong Kong Secondary Analyst Jermaine Leonard Director +852 2263 9830 Committee Chairperson Jan Friederich Senior Director +852 2263 9910 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com; Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: wailun.wan@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria Country Ceilings Criteria (pub. 21 Jul 2017) here National Scale Ratings Criteria (pub. 07 Mar 2017) here Sovereign Rating Criteria (pub. 21 Jul 2017) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here#solicitation Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE here. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2017 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch’s factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided “as is” without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

Our Standards:The Thomson Reuters Trust Principles.
0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below