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Euromoney Country Risk

Namibia’s risk score climbs to a record high

The sovereign is now on a par with Botswana, signalling overdue credit-rating action.

Several frontier markets saw their country risk scores improve, as doubts began to creep into the perceived safety of EM sovereigns last year.

Namibia in particular achieved its highest score in Euromoney’s global risk data table at year-end, climbing no fewer than 15 places to 56th in 2013. It took the sovereign from tier four to a comfortable tier-three position in ECR’s five risk categories, containing BB+ to A- sovereigns.

In part, Namibia’s leap up the rankings has been driven by the authorities supplying the World Bank with debt and current-account data for the first time for some years in 2013.

The ECR debt indicators score is produced using World Bank data and so the government’s decision to provide clarity over its external liabilities allows ECR to return a score in the survey variable, which constitutes 10% of its overall ECR score.

Namibia has thus seen its ECR score boosted significantly by its updated debt indicators score in December 2013.

Namibia’s total score of 54.1 out of a possible 100 still implies moderate levels of risk. As its latest IMF country report indicates, GDP growth has slowed and job creation is still a problem.

The government is also claiming it will not be ready to renew a trade agreement with the European Union when an existing deal expires in October, which would mean losing duty-free access to the single market if it is left to fester.

Nevertheless, Namibia’s rising score trend does suggest its credit ratings are overdue an upgrade, certainly relative to Botswana, which is lying one place below, with less than a 10th of a point separating the two.

Moody’s is the only rating agency to assess both countries: its Baa3 rating for Namibia is two notches below the A2 it gives Botswana.

However, as ECR survey data indicate (in the chart above), Namibia also scores higher than Botswana for no fewer than seven of the 11 economic and political risk indicators contributing to its total risk score. Government stability, and the regulatory and policy environment are notably weighted in its favour.

Moreover, Namibia’s government finances score increased more than any other indicator last year.

As Africa strategist Yvette Babb, a colleague of ECR expert Samir Gadio at Standard Bank, explains:

“After a significant fiscal deficit in 2011/12 [amounting to 11.3% of GDP], the government has set a path of fiscal consolidation for the medium term, which will see public debt remain below 35% of GDP.

“This is in sharp contrast to other countries, such as South Africa and Zambia, where large deficits have contributed to concerns about debt sustainability.”

Namibia has also experienced disinflation. Thus, when factoring in its diversified export base, private investment in new natural-resource projects and the expanding capacity of Walvis Bay port – a transit point for consumer goods entering the southern African region, which is boosting competitiveness – Namibia’s rising trend is understandable.

This article was originally published by ECR. To find out more, register for a free trial at Euromoney Country Risk.

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