Namibia’s Eurobond strategy earns praise: Economist commends government’s debt management approach
Expectations being managed
Prudent Eurobond approach applauded as redemption draws nearer.
Namibia's proactive approach to settling its maturing US$750 million Eurobond has received positive assessment from financial experts, signalling strong fiscal responsibility. Finance minister Ericah Shafudah in her maiden budget statement said that the government has already accumulated US$463 million in a dedicated sinking fund, with plans to add another US$162 million during the 2025/26 fiscal year.
With only US$125 million remaining to be refinanced through the domestic market before the October deadline, Capricorn Group Chief Economist Floris Bergh has lauded the government's transparent debt management strategy as "one of the big positives" emerging from the budget, despite noting challenges ahead in meeting overall funding requirements from local capital markets.
“I think that the handling of this Eurobond issue specifically, but also debt management generally, is one of the big positives for me that comes out of the budget and the fiscal process,” Bergh said.
The government’s approach towards settling the remainder also demonstrated a commitment towards sound fiscal management, Bergh said.
“It set out very clearly in the budget what the government intends to do with a Eurobond, which is an excellent way to prepare the market and tell them what the plan is. That sinking fund is going to be enough to pay down the Eurobond, excluding about US$125 million of the bond,” he said.
More work would however have to go into convincing the local market to fund the remaining US$125 million that would be required to help settle the Eurobond by the Ministry of Finance, Bergh pointed out.
“It will require some good footwork towards October this year when the Eurobond matures. It means that there's going to be quite a demand on the local capital market to fund the partial Eurobond issue,” he said.
Fiscal deficit
Funding the redemption of the Eurobond was also tied to the government’s ability to close the fiscal deficit, which Bergh said was a significant obligation on the part of the government.
“And there is the deficit, so adding them all together brings it to about N$17 billion that will be required from the local market in terms of funding. So, we start with a deficit of N$13 billion, which is reasonably all right, but it's still too big,” Bergh said.
“It is like very close to 5% of gross domestic product (GDP), but adding all of these other things, brings us to N$17 billion, which is a bit big for the market, but it looks like this will be a big year for that,” he added.
The moderation in debt would bring about some welcome change, Bergh said.
“Going forward, the next year, two, three years, we will return to a more normal funding requirement from the domestic market; so yes, it is probably preferable to have more exposure to the domestic market by the government rather than having this offshore pressure hanging over you.”
Work around thresholds
Bergh implored policymakers to introduce meaningful ratios to measure key performance metrics, saying it would bode well for Namibia’s attractiveness from a creditworthiness perspective.
“I would say the government needs to work towards a point where they say the tax take on the economy should be about 25% of GDP, which is already very big. I mean, it's a quarter of the cake. But it is healthier than where we are now,” Bergh said.
“Similarly, with spending, if you have a 25% to GDP ratio target for income, and you want a 3% deficit, then your spending should be limited to 28% of GDP, so, those types of things set them for out, because the thing that I miss the most from the budget is an awareness of the credit worthiness of Namibia,” he added.
Actively putting in relevant matrices around thresholds and working towards achieving them would also actively help Namibia build its attractiveness from a creditworthiness aspect, Bergh pointed out. According to him, not putting in those measures had the risk of Namibia not achieving a good credit rating and therefore not accessing credit at favourable rates.
“The worse your creditworthiness is, the higher the interest rate is that lenders charge. This is part of our difficulties and that creditworthiness issue can be addressed by having these benchmark targets set out again,” he said.
Maintaining debt ratios helped steer Namibia’s image positively in the past, Bergh pointed out.
“We had them in the past. There was a certain sort of ratios that the minister and Cabinet subscribed to, and we had them, and that is why we had an investment grade rating as a country, investment grade,” he said.
With only US$125 million remaining to be refinanced through the domestic market before the October deadline, Capricorn Group Chief Economist Floris Bergh has lauded the government's transparent debt management strategy as "one of the big positives" emerging from the budget, despite noting challenges ahead in meeting overall funding requirements from local capital markets.
“I think that the handling of this Eurobond issue specifically, but also debt management generally, is one of the big positives for me that comes out of the budget and the fiscal process,” Bergh said.
The government’s approach towards settling the remainder also demonstrated a commitment towards sound fiscal management, Bergh said.
“It set out very clearly in the budget what the government intends to do with a Eurobond, which is an excellent way to prepare the market and tell them what the plan is. That sinking fund is going to be enough to pay down the Eurobond, excluding about US$125 million of the bond,” he said.
More work would however have to go into convincing the local market to fund the remaining US$125 million that would be required to help settle the Eurobond by the Ministry of Finance, Bergh pointed out.
“It will require some good footwork towards October this year when the Eurobond matures. It means that there's going to be quite a demand on the local capital market to fund the partial Eurobond issue,” he said.
Fiscal deficit
Funding the redemption of the Eurobond was also tied to the government’s ability to close the fiscal deficit, which Bergh said was a significant obligation on the part of the government.
“And there is the deficit, so adding them all together brings it to about N$17 billion that will be required from the local market in terms of funding. So, we start with a deficit of N$13 billion, which is reasonably all right, but it's still too big,” Bergh said.
“It is like very close to 5% of gross domestic product (GDP), but adding all of these other things, brings us to N$17 billion, which is a bit big for the market, but it looks like this will be a big year for that,” he added.
The moderation in debt would bring about some welcome change, Bergh said.
“Going forward, the next year, two, three years, we will return to a more normal funding requirement from the domestic market; so yes, it is probably preferable to have more exposure to the domestic market by the government rather than having this offshore pressure hanging over you.”
Work around thresholds
Bergh implored policymakers to introduce meaningful ratios to measure key performance metrics, saying it would bode well for Namibia’s attractiveness from a creditworthiness perspective.
“I would say the government needs to work towards a point where they say the tax take on the economy should be about 25% of GDP, which is already very big. I mean, it's a quarter of the cake. But it is healthier than where we are now,” Bergh said.
“Similarly, with spending, if you have a 25% to GDP ratio target for income, and you want a 3% deficit, then your spending should be limited to 28% of GDP, so, those types of things set them for out, because the thing that I miss the most from the budget is an awareness of the credit worthiness of Namibia,” he added.
Actively putting in relevant matrices around thresholds and working towards achieving them would also actively help Namibia build its attractiveness from a creditworthiness aspect, Bergh pointed out. According to him, not putting in those measures had the risk of Namibia not achieving a good credit rating and therefore not accessing credit at favourable rates.
“The worse your creditworthiness is, the higher the interest rate is that lenders charge. This is part of our difficulties and that creditworthiness issue can be addressed by having these benchmark targets set out again,” he said.
Maintaining debt ratios helped steer Namibia’s image positively in the past, Bergh pointed out.
“We had them in the past. There was a certain sort of ratios that the minister and Cabinet subscribed to, and we had them, and that is why we had an investment grade rating as a country, investment grade,” he said.
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