CREDIT rating agency Moody's Investors Service last Friday said the financial market should not expect Namibia to bounce to good creditworthiness soon.

Reinforcing this statement are the economic and financial pressures the coronavirus shock is exerting on Namibia's credit metrics, worsening the country's existing vulnerabilities.

The prolonged recession, sharply rising debt, and significantly larger gross borrowing requirements amid tighter financing conditions also particularly expose Namibia to the current shock, and motivated the agency to shoot down confidence in Namibia's credit worthiness.

While analysts also agree with Moody's, they said, this should not spark panic in the market as Covid-19 is having a devastating effect on most, if not all, economies in the world.

According to the statement, the outlook on the government of Namibia's ratings moved to negative from stable.

What this means is that investors who like to normally buy up Namibian government debt are forewarned to stay away, as the expectation is that Namibia's creditworthiness will deteriorate.

Namibia has been under the stable banner since December last year, after almost two years of negative outlooks.

Moody's said the decision to change the outlook to negative reflects the challenges the government faces as a result of the coronavirus shock and the difficulties in addressing the vulnerabilities present in the rigid structure of the country's economy and government budgetary position.

The agency also said the significant contraction in the national output, and a much larger fiscal deficit, as a result of the coronavirus outbreak and associated policy response, will add to the already deteriorating fiscal trends in Namibia, resulting in a significantly higher debt.

"Coupled with the continued weakness and subdued growth in its important trading partner South Africa (Ba1 negative), lower than expected Southern African Customs Union revenue from next year as a result of the sharp regional slowdown, a shock to demand for minerals and associated commodity prices declines, an extended drought, and dislocated capital markets, are all challenging the country's credit profile.

"While the government has moved quickly to address the health challenges posed by the coronavirus outbreak, the effect on the economy leaves Namibia's credit profile more exposed than peers to economic and financial shocks," said Moody's.

The agency expects the gross domestic product to contract by at least 7% this year, and bounce to a 1,8% growth in 2021.

Both mining and tourism are expected to contract sharply due to subdued global commodities demand, lockdown curtailing many mining operations and the exports of minerals, as well as cessation of international travel.

Equally selling Namibia away is the fiscal deficit, which is expected to bring the debt burden to 68,5% of gross domestic product by the end 2020, rising further to 72,3% in 2021, up from 53,3% at the end 2019.

The high government wage bill, high debt servicing, rigid budget structure and repetitive ambitious fiscal consolidation will become increasingly more difficult and are expected to make matters even worse said the rating agency.

Reacting to the announcement, economist Salomo Hei said the revision of the outlook is not surprising, and is common for most countries given the circumstances.

"It should also not cause any panic in the market, because [I doubt], there's any country in the world today that will get a positive outlook from Moody's," he said.

Hei added that the world's biggest economies are even expected to roll over about US$8,7 trillion of debt maturing this year, so Namibia is no exception and could go the same route.

He, however, said, the worrying part of the negative outlook is the "exacerbating existing vulnerabilities" that Moody's is alluding to.

"This is where the structural reforms should take root and reset Namibia's economy," he stressed.

PSG Wealth Namibia's Elloise du Plessis said any positive rating action from even Fitch is unlikely in the next 12 months and that risks to the country's sovereign credit ratings are still skewed to the downside.

"In fact, it is likely that Fitch will also soon change its outlook to negative," she said.

The country's long-term local currency bond and bank deposit ceilings remain unchanged at Baa1. The long-term foreign currency bank deposit ceiling, and the long-term foreign-currency bond ceiling also remain unchanged at Ba3 and Baa3, respectively, said Moody's.

Attempts to get comment from the Ministry of Finance yesterday were not successful.

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Copyright The Namibian. Distributed by AllAfrica Global Media (allAfrica.com)., source News Service English