Noteworthy Events During the Week

-The Federal Reserve Bank of America opted to leave their interest rates unchanged for the second time. Their decision was in line with the market's expectation, although the US inflation recently flared up to 3.7% after being only 3% in June. Remember, they are trying to lower their inflation to 2% over the long term.

With one meeting remaining this year at around mid-December, their chairman, Mr Jerome Powell, made it clear that an interest rate hike is by no means off the cards and that the monetary policy committee of the bank will continually formulate their decisions to what they believe is it the best interest of the country at that particular stage. For some time now, our view has been that interest rates have reached a peak in the US and that more interest rate hikes are very unlikely; however, it is essential to remember that the world remains volatile and circumstances can change rapidly, which could potentially necessitate interest rates begin raised again.

The expectation is that the Federal Bank of America, the South African Reserve Bank and our own Bank of Namibia should, in all likelihood, leave interest rates unchanged at their last respective meetings for 2023.

Namibia and South Africa presented their mid-budget reviews this week. For Namibia, the expectation is for more significant revenue of around N$ 4 billion, but it is all swallowed up in more lavish spending, the largest of which is a N$1.7 billion additional interest on government debt on the back of higher than expected interest rates. With this higher-than-expected income, Namibia's debt-to-GDP (Gross Domestic Product) ratio is expected to improve to 66% from the initial 70%.

For South Africa, their interim budget report was accepted more positively in the market, as was expected and perhaps the primary reason for the recent stronger Rand and their long-term bond rates dropping slightly. Maybe worth mentioning was the growing gap between their income and expenditure and also, very worryingly, their worsening debt situation. SA's government debt is currently 71% of its total GDP, and they expect it to deteriorate even further to 78% before starting to level off. A massive 20% of their total expenditure is used to service debt, which is expected to grow past 22% in the next three years. They reckon they will spend R1.3 trillion over three years to service their debt.

Despite this bleak picture, the market accepted the report better than expected. They at least acknowledge that their economy is not growing primarily on the back of load shedding, poor fiscal discipline and overall ineffective management, and unless these issues are adequately addressed, their economy will soon enter into a downward debt spiral from which they may not recover.

The government further intends to manage their fiscus more efficiently and bring back stability through lower spending and better supervising or even closing down certain state-owned enterprises.

All good and well, but easier said than done.