The African Development Bank (AfDB) has advised Namibia to adopt conservative borrowing strategies and maximise the potential of the Namibian Stock Exchange (NSX) and Government Institutions Pension Fund (GIPF) to boost developmental capital.
The multilateral development finance institution said this strategy aims to address the country’s growing public debt and enhance financial stability.
“The Government should adopt a conservative borrowing policy and fiscal rules. This will avoid over-expenditure and control the debt,” the AfDB said.
The recommendation comes as Namibia’s public debt surged to 70.1% of GDP in 2023, slightly above the market access countries’ debt sustainability analysis benchmark of 70%.
The increase is attributed to the COVID-19 crisis and a sharp decline in SACU tax revenues. The AfDB highlighted the importance of judicious external borrowing.
Notably, Namibia issued its first non-South African sovereign bond on the Johannesburg Stock Exchange in November 2012, valued at N$850 million.
“More of such listings could be used to raise the much-needed financial resources for development projects,” the AfDB suggested.
The AfDB recommended innovative utilisation of remittances. It said Namibia’s worker remittances, constituting about 0.6% of GDP, can be repackaged into private equity funds.
“Such an arrangement would boost inflows and could go a long way in financing development projects in the country,” said the AfDB.
Additionally, the report advocates for the use of pension funds from public-sector workers, like the GIPF, for productive investments.
“The Government could also use pension contributions from public-sector workers such as the Government Institutions Pension Fund to finance productive investments which generate good return,” reads the report.
It notes that this approach could help address the increased debt vulnerability exacerbated by higher interest payments and exchange rate fluctuations.
The AfDB’s recommendations include sound macroeconomic policies, stating “Namibia should prioritise public spending and improve the quality of public investments while avoiding to crowd out the private sector”.
Tighter international financial conditions and a decline in Official Development Assistance (ODA) have impacted Namibia’s development budget, which is 80% externally financed.
Consequently, Namibia’s credit rating was downgraded in 2022. External debt peaked at 77.3% of GDP in 2020, with a significant share attributed to private debt.
Thus, AfDB said “although external debt is expected to gradually decline as the economy recovers, gross external financing needs will remain substantial in the medium term”.
