International credit rating agencies ‘unfairly’ undervalue Namibia

Local economists say international credit rating agencies are unfair in their valuation and rating of Namibia.

Economists say the ratings of some of the major rating agencies (Moody’s, Standard and Poor’s, and Fitch) have affected foreign direct investments (FDI) and the cost of borrowing, pushing up loan repayments and interest in Namibia and other African countries.

Economist Josef Sheehama says despite the agencies claiming their ratings are opinions and not investment recommendations, they influence borrowing costs, potentially leading to Namibia paying higher interest rates.

Sheehama further says the agencies do not have adequate information to fairly evaluate Namibia.

“These foreign rating agencies have no understanding of Namibia’s environment.

Their conclusions are based on desktop data. These ratings have an impact on the conditions under which Namibia accesses funds, which comes with high interest due to risk,” he adds.

Sheehama says poor ratings reduce FDI.

He proposes the establishment of an African Credit Rating Agency to provide a more balanced assessment and facilitate African integration into global financial markets.

Economist Robert McGregor says credit ratings by agencies like Moody’s and Fitch should be viewed with a pinch of salt.

He says credit rating agencies tend to be conservative, potentially overlooking Namibia’s positive economic trajectory compared to its regional peers.

He adds that Namibia’s debt is primarily local currency-denominated, with domestic participants less swayed by credit ratings compared to international investors.

“The majority of Namibia’s debt is issued in local currency with most participants being local and thus are not as focused on credit ratings compared to offshore participants,” says McGregor.

According to McGregor, things like administered interest rates, South African interest rates and domestic economic forecasts have a more significant impact on debt servicing costs.

“Our debt servicing costs are a function of administered interest rates, South African interest rates, along with liquidity and risk perceptions.”

According to McGregor, the potential Eurobond redemption, coupled with fiscal discipline and growth-oriented policies, could improve Namibia’s medium and long-term prospects.

Economist Omu Kakujaha-Matundu questions the objectivity of credit rating agencies and suggests that their funding sources and past experiences with Africa may influence their assessments.

“The rating agencies are funded and work for their sponsors’ interest. So ‘once bitten, twice shy’,” he says.

Kakujaha-Matundu has criticised rating agencies subjective evaluation of political developments, which can lead to inaccurate creditworthiness judgements.

“Credit agencies’ assessment of political developments is subjective and can be way off the mark. Rating agencies’ downgrades lead to higher perception premiums in terms of making borrowing cost expensive,” he says.

Kakujaha-Matundu has proposed that credit rating agencies should be ignored and Namibia should pursue expansionary fiscal policies that prioritise infrastructure investment and reduce reliance on debt financing.

He adds that there is the potential of a future African credit rating agency, to be launched by the end of this year.

A United Nations Development Programme (UNDP) report estimates Namibia could save up to N$2,1 billion annually if ratings were fair and based on accurate data. This translates to potential savings of over N$10 billion in debt servicing costs over five years.

The UNDP report highlights similar situations across 13 African countries, suggesting a continental issue.

UNDP advocates for greater transparency in rating methodologies, exploring alternative rating systems and strengthening existing African credit rating agencies.

Ultimately, the UNDP calls for the establishment of a pan-African rating agency to provide a more balanced and Africa-centric perspective.