N$14,3 billion Eurobond debt repayment weighs on Govt

Eighteen months before it is due to repay a Eurobond of US$750 million (N$14,3 billion), the government is strategising on how to repay the debt it took on in 2011.

Finance minister Iipumbi Shiimi during his 2024/25 budget on Wednesday said the government has a significant amount of debt that needs to be paid back, the largest single-day debt being the US$750 million Eurobond which is due next year.

This Eurobond, worth US$500 million, was issued during the presidency of Hifikepunye Pohamba and has been recorded on Namibia’s financial records since its issuance in 2011.

The funds from the Eurobond were used for various projects, including the implementation of the National Housing Enterprise housing initiative.

The repayment of this Eurobond is scheduled for 29 October 2025.

“This is the largest single-day debt maturity in the history of our country,” Shiimi said.

To manage this, Shiimi said the government plans to set aside at least N$3,5 billion from Southern African Customs Union (Sacu) receipts in the fiscal year 2024/25, and another N$2 billion in 2025/26 to a sinking fund.

This fund is meant to ensure that they have enough money to pay off two-thirds (US$500 million) of the Eurobond when it matures.

Shiimi announced that Namibia estimates revenue of N$28 billion from Sacu receipts during the 2024/25 financial year.

Sacu receipts are funds that Namibia gets from participating in this union, which it can use for various purposes.

In the recent budgets, the government has made provision to finance the repayment of the Eurobond from Sacu receipts.

“Consequently, the remaining one-third of the bond (US$250 million) will be refinanced utilising the most cost-effective instrument in the next financial year, cognisant of the prevailing high interest rate environment and the need to manage debt servicing costs,” Shiimi said.

Contacted for comment yesterday, economist Klaus Schade welcomed the government’s efforts to repay the debt, as the government has set aside around N$4,2 billion into a sinking fund to pay off part of the Eurobond so far.

“The redemption of a large chunk of the Eurobond will reduce the debt-to-gross domestic product ratio to some 56%, which is below the international threshold of 60%. Subsequently, interest payments will be reduced, as well as the risk exchange rate fluctuations pose to overall debts and interest payments,” Schade said.

Schade further said that it is best if the remaining Eurobond amount is borrowed from within Namibia.

He said this way, local financial institutions and individuals who invest in government bonds and treasury bills can earn interest income.

“However, interest rate levels are higher on the domestic market than on the international market and there could be liquidity constraints. government needs to be careful not to crowd out the private sector from borrowing,” he said.

Schade said borrowing from international development finance institutions carries the risk of currency exchange rate changes, as seen with the Eurobonds, even though the interest rates are lower.

The“government should, therefore, try to borrow from development finance institutions in the South African rand, which is still a foreign currency but without exchange rate fluctuation risks. These options need to be explored well ahead of the maturity date,” Schade said.

Also contacted for comment yesterday, IJG research analyst Angelique Bock said since the government has already set aside money for the Eurobond repayment in the 2025/26 projections, the primary balance is expected to stay positive.

However, she said the budget deficit is predicted to increase by 34% year-on-year in 2025/26, from -N$8,9 billion to -N$11,66 billion.

“However, we must consider that this is a once-off payment made next year and then it’s finished. The budget balance then is expected to narrow by 19% year-on-year in 2026/27.”

Bock said this demonstrates how the Eurobond repayment, among other factors, impacts the budget deficit.

“However, if we only focus on this year – it effectively means that money that could’ve been allocated towards expenditure is stored for the payment of the Eurobond next year,” Bock added.