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Govt cuts borrowing plan – The Namibian

THE government has reduced the expected amount to be borrowed for the 2022/23 fiscal year through bonds and treasury bills by N$400 million.

This was recently announced by the Bank of Namibia’s financial markets department and the cut will bring the borrowing bill to N$12,2 billion for the fiscal year. Three billion namibian dollars remains to be borrowed before the end of the fiscal year in March 2023.

The initial borrowing requirement was set at N$12,6 billion.

From April this year to October, the state has already borrowed N$9,1 billion – much of which was sourced from pension funds, commercial banks and insurance companies.

Individual private investors have also thrown some cash to the state in an attempt to earn some positive real returns as inflation rose through the year – settling at 7,1% in September.

Although there has been steep demand for government securities this year on the local front, a decline has been observed for most African economies, and towards the end of the year such demand is expected to wane.

Simonis Storm Securities analyst Theo Klein in a recent report said the Bloomberg Africa Bond Index (Bapi) has decreased by 18,2% year to date, while the JP Morgan Emerging Market Total Return Index dropped 22% year to date and reached levels last seen in 2016.

The Bapi is a composite index of the local sovereign indices of South Africa, Egypt, Nigeria, Kenya, Namibia, Botswana, Ghana, Zambia, Morocco and Mauritius.

On the local front, Klein said the Simonis Storm Namibia Government Bond Total Return Index shot up by 6,3%, and its reflective bond yields have increased by 174 basis points on average in Namibia.

Klein said inflation is expected to fall during the last quarter of this year, and in 2023 it will lessen the upward pressure on interest rates and bond yields.

“Early indications show that inflation could have peaked in August 2022, and we forecast lower inflation for 2023 at 4,8%, compared to the 6,1% we expect for 2022. We see the interest rate hiking cycle coming to an end in the first quarter of 2023 in the United States (US), South Africa and Namibia,” he said.

Other global events, such as interest rate movements in the United Kingdom and European Union as well as the US could also add downward pressure on local bond yields in 2023.

Some economists expect South African bond yields to decrease in 2023, and for credit outlooks to turn positive over the next 12 months due to the ANC leadership and fiscal consolidation coming through, according to Investec.

If realised, benchmark movements will also assist in lowering local bond yields, and locally, bond yields have already shown signs of moderation.

Klein said of all 15 government bonds, eight have seen their yields decrease by 17 basis points (bps) on average during October 2022.

“The road to the peak may not be that long before we start observing lower bond yields,” he said.

Local demand has, however, remained reasonably resilient, with bid-to-cover ratios averaging at 2x in October 2022, compared to 2,7x in September 2022.

“Demand was mainly concentrated on medium-term bonds (GC32, GC35 and GC37). We continue to see commercial banks’ investment holdings increasing more than loan advances, a sign of risk aversion.

“We do expect demand to remain elevated for fixed-rate bonds with yields potentially on a downward path going forward,” said Klein.

In line with Bank of Namibia increases in benchmark rates, money market accounts have edged up.

Treasury bill yields have increased by 278bps, fixed deposit rates are up by 246bps, and negotiable certificates of deposit rates (NCDs) have increased by 244bps.

Klein said treasury bills have been most responsive to monetary policy tightening this year.

With every one percentage point repo rate hike, treasury bills rose by 1,11 percentage points, NCDs rose with 0,98 percentage points, and fixed deposits rose by 0,97 percentage points.

At yesterday’s 273-day treasury bill auction, N$943 million bids were received, and on offer was just N$600 million.

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