Category Archives: Team Commentary

By Rowland Brown

Figures just released by the Bank of Namibia show that domestic debt increased to over N$20bn for the first time in May, up 1.2 percent month on month, and 14.3 percent year on year. This increase and level may sound alarming, but is it?

Despite Government’s spending spree of the past four years, Namibia remains one of the countries with the lowest debt-to-GDP ratios in the world, and despite this aggressive spending by Government, the ratio has barely increased over the past two years. Following major debt issuance in 2011, which rocketed the debt-to-GDP ratio up from 16 percent to 27 percent, debt issuance has largely stabilised, and is now, for the most part, growing at an equal or lesser rate than nominal GDP, thus stabilising, and even reducing, the ratio.

Namibia Debt to GDP

Namibia Debt Growth

Moreover, the majority of the increase in debt that has been seen since the start of 2011, is foreign debt, which has increased by some 264 percent, compared to domestic debt increases of just 97 percent. This increase in foreign debt is almost exclusively the result of the Eurobond issuance in late 2011 (as well as the relatively small JSE listed bond), which represented N$4bn worth of debt when issued, but following major Rand-USD depreciation subsequently, now represents over N$5.2bn. As such, much of the increase in debt over recent months is not determined by actual issuance at all, but by currency movements.

Namibia Foreign Debt

This currency effect remains concerning, as the Ministry of Finance and Bank of Namibia decided against a currency hedge when issuing the bond, due to the apparent cost of such. As a result, the value of this bond is completely at the mercy of the exchange rate, and general social and economic conditions in South Africa. Since it’s issuance just 2 and a half years ago, the currency has weakened by over 30 percent. Should this trend continue of the remaining 7 and a half years of the bond’s life, it could prove hugely costly for the country, both from the perspective of bond repayment/rolling over, and also with regards to coupon payments.

Generally, however, Government continues to run a fairly tight ship when it comes to fiscal expenditure, and despite expectations of more aggressive debt issuance in the 2014 financial year, the debt-to-GDP ratio is largely expected to remain manageable, sustainable and prudent. However, this is very dependent on on-going strong growth. While such growth is expected to continue for the foreseeable future, should it falter, Government will have to reign in borrowing dramatically, and rapidly. This said, while debt levels remain manageable, they represent but one of the issues or indicators that the Government needs to observe when planning its expenditure. International reserve levels (the balance of payments) and demand side inflation, not to mention efficiency of spending and strategic utilisation of borrowed funds are equally important, and thus should not be disregarded when further debt issuance is considered.

By Rowland Brown

Figures just released by the Bank of Namibia show that private sector credit extension (PSCE) increased by 14.8 percent year on year in March, down from 15.7 percent the preceding month. As such, outstanding loans to the private sector now stand at N$61.3 billion, up N$7.9 billion when compared to a year ago. However, while this growth is notable, the growth in credit extension to individuals, particularly in the form of installment sales, is what is most interesting in the latest set of statistics.

Installment credit captures credit extended for the purchase of goods bought on installment, such as furniture, consumer electronics, and most importantly, vehicles. And over the past year, this form of credit has grown remarkably, largely on account of the current accommodation monetary policy position in the country. Historically low interest rates have increased the demand for credit from the populous, a fair amount of which goes to fund consumer goods, most of which are captured in the aforementioned category of PSCE.

The latest figures show that PSCE in the form of installment sales to individuals (i.e. not companies) has increased by a whopping 18.2 percent in the last year, the largest growth seen in 18 months. As such, outstanding installment credit to households now stands slightly below N$6 billion, following a N$920 million increase in this form of credit over the last year. This is potentially alarming, as not only is this strong growth coming off an ever increasing base, but we are also likely to be on the cusp of an interest rate hiking cycle in the region, which would make this outstanding debt increasingly expensive for the consumer.

Moreover, many of the consumer goods purchased with installment credit are imported, as we do not manufacture much in the way of consumer electronics or consumer vehicles in Namibia. Potentially concerning is the fact that the country’s reserves, which are used to fund many of these foreign purchases, started the year relatively low, and tend to see a downward trend through the year. Going forward, this trend could be accelerated based on these high levels of installment credit growth, and the imports likely to have resulted, or to result, from such. On this, it is interesting to note that January 2013 to January 2014, reserve fell by approximately N$1 billion, a very similar number to the new uptake in installment credit March 2013 to March 2014.

Given the increase in installment credit, alongside the general positive state of the local economy, household debt figures and the local reserve position, it is somewhat surprising that the Bank of Namibia has yet to increase interest rates in the country.

Installment Sales: Individuals

Reserves Namibia