Govt borrows N$2 billion in October

Namibia borrowed a significant amount in October, issuing government debt securities totalling N$2.2 billion.

However, due to the redemption of the GC24 bond, the overall increase in the country’s government debt was limited to N$956 million.

The analysis says the month-on-month growth in government debt was 0.8%, which is lower than the 1.73% increase recorded in September.

This is despite the conduct of three bond auctions and five treasury bill auctions, which is more than typical for a month.

“By the end of October, Namibia’s domestic debt-to-gross domestic product (GDP) ratio stood at 45.1%, with total domestic debt reaching N$124.5 billion.

“Including foreign debt, the overall debt-to-GDP ratio expanded to 60%, reflecting the continued reliance on both domestic and international markets to meet funding needs,” analysts Simonis Storm Securities say.

The Monetary Policy Committee (MPC) announced the second rate cut of the year, lowering Namibia’s repo rate to 7.25%.

Reduction not only facilitates lower borrowing costs for consumers, but also offers cost-saving opportunities for the government, which raises funds through bond issuance, the analysts say.

According to Simonis, a strengthening United States (US) dollar drove depreciation of the local currency, prompting an upward adjustment in the yield curve.

This mirrors shifts in South African bond yields, which serve as regional benchmarks.

Namibian bond yields increased by an average of 31 basis points in October, and despite this upward trend, the bonds have sustained strong performance, delivering a total year-to-date (ytd) return of 12.51% as of 31 October, Simonis says.

“Longer-duration bonds – those with maturities exceeding 12 years – have led performance, achieving a year-to-date return of 15.97%.

“This outperformance can be attributed to both duration and convexity advantages, as well as higher coupon rates relative to shorter-term bonds.

“In contrast, shorter-duration bonds yielded an 8.59% return for the same period, underscoring a preference for duration in the current yield environment,” the analysts say.

Namibian bonds have shown exceptional resilience and outperformance, compared to emerging market peers, with a year-to-date return of 12.51%.

Relative to equity performance, Namibian bonds have outperformed the Namibian Stock Exchange (NSX) local index, which posted a total return of 9.02% ytd.

However, the NSX overall index outpaced both bonds and local equities, with a substantial total return of 22.37% ytd, highlighting the varying risk-return profiles across asset classes.

Commercial banks in Namibia experienced a liquidity uptick in October, attributable to the GC24 bond redemption, which injected about N$1.27 billion back into the system and coupon disbursements.

This liquidity surge was particularly pronounced on 15 October, when bank liquidity rose sharply to N$3.08 billion, marking a N$1.98 billion increase from the prior day’s levels due to the GC24 bond maturity and associated coupon payments.

The average commercial bank liquidity in October was N$1.78 billion, up from September’s N$1.45 billion.

This highlights the impact of bond redemptions and scheduled disbursements on systemic liquidity.

– email: matthew@namibian.com.na