Namibia says it has no debt problem and dismissed a recently published Sovereign Debt Vulnerability Index published by Visual Capitalist and further distributed on Bloomberg, saying the methodology used was incoherent and misleading.
The Visual Capitalist survey ranked Namibia among top 10 countries out of 25 in the world with the biggest default risk.
“We have reviewed the various indicators that constitute the above-mentioned index, namely, Government bond yield, Credit Default Swap (CDS) Spread, interest expense and Government debt. We find the methodology utilized by the author to rank the countries incoherent and misleading. It is also unclear to us the weights applied to each indicator, and subsequently the impact of each indicator on the ultimate country ranking in the index. We therefore do not concur that Namibia is one of the countries ranked high on default risk in 2022,” the Ministry of Finance said.
The government department led by Ipumbu Shiimi as minister, despite acknowledging the increase in the ratio of public debt as a cause of concern, was quick to point out that the current public debt levels do not pose a default risk.
“The Ministry of Finance acknowledges the increase in the ratio of public debt in recent years stemming from significant shocks to the economy over the period. Nonetheless, we would like to highlight that our current public debt levels do not pose a default risk in the near to medium term. We would further like to provide assurance that, as we 2 have always done, the Government will continuously institute measures to ensure that we are able to meet our debt obligations as they come due.”
The Treasury department said the government will continue to roll-out policy measures aimed at diversifying the domestic economy and engendering a sustainable economic recovery.
“As we have consistently reiterated in several Budget Statements, there is no substitute for fiscal sustainability. As a result, ensuring the sustainability of our public finances is one of the highest policy priorities of the Government. Moreover, we continue to invest in strengthening our domestic resource mobilization capacity while entrenching fiscal and structural reforms. We believe that the combination of such measures will improve our fiscal position and thus improve our debt servicing capacity, going forward.”
Leading economists recently told The Brief that Namibia is unlikely to default on its debt obligations despite the country being ranked highly among states that may fail to service their debts this year.
“At present we do not regard Namibia to have a high probability of default as the country has the option to roll over its debt when it is due,” FNB Namibia Group Economist Ruusa Nandago told The Brief.
“Furthermore, most of the debt held by the government is domestic debt rather than foreign debt, which further cushions against the possibility of default. The government has indicated that they do not plan to issue more foreign debt.”
Simonis Storm Economist Theo Klein also concurred with Nandago’s assessment that the country’s risk of defaulting is very far off.
“We are definitely not there at the moment and do not see risks of default anytime soon. In the last 5 years public debt has more than doubled, whereas the economy has been contracting by 1.7% on average. With debt growing much faster than the economy, debt sustainability risks have increased steadily. However, we might be a long way off from defaulting. But, If we do not see a material improvement in economic growth and job creation, then debt sustainability and defaulting will become a bigger risk in the medium-term (10 to 15 years),” he told The Brief.
Klein indicated that implications of not correcting the current situation will lead to numerous negative outcomes in the medium- to long-term, as government finances remain constrained, and debt cannot filter through to the real economy.
“State owned enterprises and other government institutions could see further budget cuts, limiting their general operations and any initiatives they want to implement. Public wages will unlikely see inflation adjusted increases. Social spending will be hampered and lead to poor outcomes in public education and healthcare. Developmental spend with regards to upgrading infrastructure will also be limited. If the situation does not improve, Namibia could see further credit downgrades by Moody’s and Fitch,” he said.
Defaults happen when governments are unable to meet some or all of their debt payments to creditors. It can damage a country’s reputation with investors, making it harder for it to borrow the money it needs on international markets, which can further harm confidence in its currency and economy.
