Namibia calls Moody's rating downgrade "speculative"

WINDHOEK, Aug 13 (Reuters) - Namibia’s finance minister has rejected Moody’s decision to downgrade his country’s long-term senior unsecured bond and issuer rating to junk status as premature and potentially speculative.

Moody’s Investor Services issued the downgrade to Ba1 from Baa3 on Friday, maintaining its negative outlook for the economy.

Namibian President Hage Geingob and Finance Minister Calle Schlettwein gave assurances several weeks ago that the economy had stabilised and was on the road to recovery after the introduction of budget cuts late last year.

In a statement, Schlettwein said the government strongly believed that a substantive rating change should have been preceded by an in-depth assessment and engagement of the Namibian authorities instead of a “desk review”.

“A review of Namibia’s rating only 4 months into the budget implementation for 2017/18 financial year is made too early and therefore on a very narrow base and may contain speculative conclusions on the performance of the budget for the whole financial year,” the minister said.

Moody’s said it had based its decision on the erosion of Namibia’s fiscal strength due to sizeable fiscal imbalances and an increasing debt burden.

Schlettwein rejected that assertion, saying all borrowing undertaken this year was in line with the expectations in the budget.

“Our records show a current debt level of 41.9 percent (of GDP), which is within the threshold of 42 percent for Middle Income Countries of the size of Namibia to be considered sustainable. The debt level of 43 percent is, therefore, overstated by Moody’s,” he said.

“It is puzzling that, at a time when Namibia’s import coverage has increased, Moody’s decides to downgrade our credit rating.”

The Namibian government is facing a severe cash crunch that has resulted in budget cuts, as well as liquidity constraints in the domestic market, reflected in persistent undersubscription of government debt instruments.

The southern African country’s economy hardly grew last year, slumping from a more than 5 percent expansion a year earlier due to deep contractions in the construction, uranium and diamond industries.

Last month, the central bank lowered its 2017 growth forecast to 2.1 percent from 2.9 percent, citing uncertainty around the pace of recovery in the price of uranium.

The IMF has said it expects Namibia’s public debt to increase to over 60 percent of GDP by 2021. (Reporting by Nyasha Nyaungwa; Editing by Kevin Liffey)