Fitch Takes Namibia Down To “Junk”

Fitch Ratings this month announced that it had downgraded Namibia to junk status, just two weeks after the country’s finance minister Calle Schlettwein delivered his mid-year budget review.

The agency downgrade comes three months after Moody’s Investors Service junked Namibia in early August. Fitch has explained its downgrade “reflects weaker-than-forecast fiscal outcomes and our projection that public debt-to-GDP will continue to rise over the medium term”. The ratings agency predicts that Namibia’s GDP growth will decelerate to “0,8% in 2017 from 1,4% in 2016”.

Given the circumstances, it now goes without saying that the Government of Namibia needs policy intervention to improve production capacity in the country and diversify economic activities, which could ease the public debt-to-GDP ratio.

It is critical for the region and Namibia in particular, to focus on economic transformation and regional integration in the hope of steering the country in the right direction.

A Closer Look At Frontier Sovereigns

There have been 20 rating actions since our last update in July.  There were 11 negative actions and 9 positive, continuing the improving trend this year.  For 2017 so far, the actions have been 29 negative and 20 positive, which represents a 59% share for the negatives. This is an improvement over 2016, where 60 actions out of the 73 total (82%) were negative.

The ongoing deterioration in credit quality of the Frontier Markets largely reflects the negative impact from slower global growth and low commodity prices.  Given that this trend may be reversing, we look for further improvement in Frontier ratings as we move into 2018.  “Of course, there will be divergences within frontier markets, just as we have seen divergences in the emerging markets,” Win Thin, global head of emerging market currency said.

Of note, virtually all of the negative actions this past quarter were concentrated in the Middle East and Africa.  Furthermore, most of them were by Moody’s. Moody’s downgraded Oman from Baa1 to Baa2, Tunisia from Ba3 to B1, Namibia from Baa3 to Ba1, and Bahrain from Ba3 to B1.  All have a negative outlook. Moody’s also downgraded Lebanon from B2 to B3 and Angola from B1 to B2, both with stable outlook.  Moody’s put Kenya’s B1 rating on review for possible downgrade.

Elsewhere, S&P downgraded Jordan from BB- to B+ and Angola from B to B-, both with stable outlooks.

Graphic: Harvard Business Review

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