B1 credit rating reflects improved growth prospects – Shiimi

Finance and public enterprises minister Iipumbu Shiimi hailed Moody’s Investor Service’s decision to upgrade the country’s credit rating outlook at B1, saying that the shift from stable to positive reflects positive growth expectations, fuelled by Namibia’s emerging hydrocarbon industries.

Shiimi says the concerted efforts of the government in ensuring fiscal sustainability and the economic recovery and development of new industries have produced formidable outcomes.

“The positive outlook reflects Namibia’s improved growth prospects supported not only by cyclical factors like higher commodity prices in a post-pandemic environment and renewed investments in the traditional mining industries, but also by the prospect of significant new hydrocarbon and renewable energy resource developments,” Shiimi told parliament on Tuesday.

In its assessment, Moody’s said the positive outlook reflects Namibia’s improved growth prospects, which are supported by renewed investments in the mining and energy sectors, especially the nascent oil and gas and green hydrogen industries.

However, the agency warned that the future of these promising new industries remains highly uncertain.

“The affirmation of the B1 rating captures the government’s relatively high debt burden and elevated cost of debt compared to higher-rated peers, in addition to its comparatively large gross financing needs,” Moody’s said.

Moody’s expects continued robust economic growth and a stabilisation in debt levels over the medium term, which will stem the tide of credit rating downgrades that Namibia has faced since 2017.

With an economy highly dependent on the exportation of minerals, the highly volatile commodity prices are generally considered a risk to Namibia’s revenue performance.

With the post-2016/2017 economic recession and the bust in commodity price cycles, Namibia’s economy weakened and the government debt, both domestic and foreign, started rising, which led to the high cost of debt service.

“These developments affected the trust and credibility of the fiscal policy stance as public debt levels were deemed unsustainable, which led to the adjustment in the outlook to negative, and eventually the first downgrade of Namibia’s credit rating in August 2017 from Baa3 to Ba1,” Shiimi said.

In the subsequent years until 2022, Namibia’s credit rating came under pressure and continued on the downward path until April 2022, when the sovereign credit rating was downgraded to stable at B1.

Shiimi said the downgrade reflected the economy’s reduced shock absorption capacity and the continued increase in the debt ratio to gross domestic product at the time induced by Covid-19 effects.

“The government implemented the economic growth strategy and post-Covid-19 policy reforms to resuscitate economic activities and boost government revenue. The outcome of these policy initiatives is reflected in our growth and fiscal metrics as tabled in this august house in February 2024,” Shiimi said.