Fitch Affirms Namibia at 'BBB-'; Stable Outlook
December 5, 2012 Fitch Ratings
Fitch Ratings-London-04 December 2012: Fitch Ratings has affirmed Namibia's Long-Term foreign currency Issuer Default Rating (IDR) at 'BBB-', Long-Term local currency IDR at 'BBB' and Short-Term foreign currency IDR at 'F3'. The Outlook is Stable. Fitch has also affirmed Namibia's Country Ceiling at 'A'. Namibia's National Long-Term rating is unaffected.
The affirmation of Namibia's sovereign ratings reflects the following key rating factors:
- The sovereign benefits from a strong balance sheet. Government debt is projected by Fitch at 26% of GDP at end-2012, a low level relative to rating peers (40% of GDP). Namibia is also a net external creditor equivalent to 8.2% of GDP thanks to past current account surpluses. Expansionist fiscal policy to support domestic demand in a difficult external environment has led to budget and current account deficits since 2009. However Fitch expects this trend to gradually reverse and the government debt ratio to be contained to 28.5% of GDP by 2015.
- Fitch expects the government to narrow its budget deficit in the medium-term. The agency expects the budget deficit to tighten to 2.4% of GDP by fiscal year 2014/15 (FY14/15) from 4.2% of GDP in FY12/13 and 6.4% of GDP in FY11/12 as the government gradually lower capital and current expenditures. Fitch anticipates South African Customs Union (SACU) receipts to be back in line with the trend (9.5% of GDP by 2014) after recent volatility (12% of GDP in 2012, 7% in 2011). The agency's deficit projections are higher than in the 2012/13 government budget reflecting more conservative GDP and tax growth assumptions.
- Growth prospects remain strong. Fitch forecasts growth between 4% and 4.5% from 2012 to 2014 after 4.8% in 2011 and 3.8% over the past five years. Continuing strong foreign direct investment flows (6% of GDP on average from 2008 to 2012) are expected, particularly in the mining sector. Given Namibia's openness (exports accounted for 45% of GDP in 2011) the main risk to the forecast is a higher than expected slowdown in Namibia's main trade partners (South Africa 25% of exports in Q212, United Kingdom, 21% and the euro area, 18%).
- International foreign exchange reserves are expected to stabilize. After a decrease to 2.9 months of current external payments (CXP) at end-2012 (from 3.0 months in 2011), Fitch projects reserves to stabilize at 2.7 months by 2014. This is consistent with a narrowing of the current account deficit to 2.7% of GDP by 2014 (from 3.1% in 2011 and 0.7% in 2012) in line with the expected fiscal tightening and slow growth in current account receipts.
- Political stability is expected to remain a strength for the sovereign relative to 'BBB' peers. The South West Africa People's Organization (SWAPO), the party of the independence, is widely expected to win the next presidential elections in 2014.
- Human development indicators are key weaknesses relative to peers. GDP per capita is USD5383, compared with the 'BBB' range median of USD10,085. Unemployment is reported at 34%. The Fourth National Development Plan adopted in 2012 has a specific focus on employment creation.
RATING OUTLOOK - STABLE
The main factors that could lead to positive rating action are:
- Sustained fiscal consolidation that delivers stabilization in the debt ratio.
- A track record of strong GDP growth and broader socio-economic development in the context of macroeconomic stability.
- Lower budget dependence and current account dependence on SACU receipts (one third of the government receipts and 18% of current account receipts (CXR) over the past 10 years). The government has a strategy to develop non-SACU tax receipts through strengthened revenue management and compliance and improved efficiency of the tax administration.
The main risk factors that could lead to negative rating action are:
- Material divergence from the expected fiscal tightening path needed to reduce the budget deficit and stabilise the government debt/GDP ratio.
- A potential adverse revision of the SACU revenue-sharing formula (though Fitch does not expect this to happen).
KEY ASSUMPTIONS AND SENSITIVITIES
Fitch assumes that there will be no major revision in the SACU revenue-sharing formula that could negatively affect SACU revenue to Namibia.
Namibia's exports, GDP and budget revenue are sensitive to commodity prices and demand for uranium and diamonds. Fitch assumes some recovery from current low prices in uranium and no major drop in commodity prices.
Fitch assumes the authorities will tighten fiscal policy broadly consistent with the Medium Term Expenditure Framework published with budget 2012/13.
Company — Namibia
Full nameRepublic of Namibia