Fitch affirms Namibia at BBB- and says outlook is stable

Fitch this week affirmed that Namibia's ratings at foreign currency Issuer Default 'BBB-' (BBB minus), local currency Issuer Default 'BBB' and Short-term foreign currency 'F3', saying these had stable outlooks. As a member of the Common Monetary Area, the Country Ceiling which is 'A', was also affirmed this week. “Namibia's foreign currency IDR continues to be underpinned by sound macroeconomic fundamentals and the improved terms of trade are increasingly enhancing creditworthiness,” said Veronica Kalema, director in the Fitch Sovereigns Group. Public debt has stabilised below the 'BBB' rating category median, while external debt ratios remain very low and growth is relatively robust.

Fitch said during 2006 the overall balance of payments has been strengthened by a spectacular performance of the current account as a result of windfall revenues from the South African Customs Union (SACU) and the first ever positive trade balance due to a substantial increase in minerals exports. Fitch said improved fiscal discipline has reduced public debt to slightly below its peak of 34% of the GDP in the fiscal year ended March 2005. Fitch noted that Namibia continues to post solid, albeit volatile, growth, which has averaged 4.7% over the past five years. Fitch said the macroeconomic environment remains relatively stable, despite a sharp depreciation of the currency. The weaker currency should have a positive impact on Namibia's manufactured exports, fishing sector and tourism, which together with high prices and expansion in the mineral sector, should help offset the impact of higher interest rates on domestic demand, Fitch said.

Fitch added that over the medium term, the State-owned Enterprise Act 2006 will allow the government to restructure and privatise the parastatal sector so as to improve the efficiency of the economy and to increase domestic investment and employment opportunities. High commodity prices have improved prospects for the mineral sector, which is expanding operations and attracting more investor interest.
Fitch said Namibia's current account surpluses and huge national savings are an important rating strength. Capital outflows are, however, unlikely to let up in the short to medium term, owing to growing funds under management by Namibia's highly developed pension and insurance funds and still limited domestic investment opportunities, Fitch said. Fitch said however, social challenges remain a weakness compared with rated peers, including high unemployment, the still highly skewed income distribution (the Gini coefficient of 0.6, down from 0.707, is still one of the highest in the world), relative poverty and HIV/AIDS.