In October, Namibia experienced its highest issuance of government debt securities for any month of the 2024/25 financial year thus far, totalling N$2.2 billion, according to the Bank of Namibia’s updated borrowing plan.
However, despite this significant issuance, the country’s total government debt saw a net increase of only N$956 million, largely due to the redemption of the GC24 bond. The month-on month growth in government debt was 0.8% This was lower than the 1.73% increase recorded in September, 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-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.
On the monetary policy front, the Monetary Policy Committee (MPC) enacted a second rate cut of the year, lowering Namibia’s repo rate to 7.25%. This 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 initiation of a rate-cutting cycle signals potential further reductions, positioning the government to capitalize on more favourable borrowing conditions, potentially enhancing funding flexibility for critical infrastructure projects pivotal to Namibia’s long-term economic growth strategy.
A strengthening US dollar drove depreciation of the local currency, prompting an upward adjustment in the yield curve, mirroring shifts in South African bond yields, which serve as regional benchmarks. Namibian bond yields increased by an average of 31 basis points in October.
Despite this upward trend, Namibian bonds have sustained strong performance, delivering a total year-to-date return of 12.51% as of 31 October.
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.
Namibian bonds have shown exceptional resilience and outperformance compared to emerging market (EM) peers, with a year-to-date (YTD) return of 12.51%. In contrast, the Bloomberg EM Bonds Aggregate Index reported a YTD return of only 6.39%, underscoring the relative attractiveness of Namibian fixed income in the EM space. Additionally, Namibian bonds continue to offer a compelling yield premium over South African government bonds, with an average spread of 11 basis points. -Simonis Storm
