Chart of the Week
Last week, the Bank of Namibia released the FY ‘25/26 Borrowing Plan, highlighting the central bank’s issuance plan to fund the government’s financing needs over the fiscal year. The total financing requirement for FY ‘24/25 has been revised upward to NAD12.9bn, mainly due to an additional cash need now factored in (likely related to the GC24 redemption). This is expected to fall to NAD6.2bn next year (NAD6.4bn prev..), before rising again in the outer MTEF years, driven by the same redemptions and higher projected spending.
The Ministry expects the total funding requirement for FY ‘25/26 to decline to NAD5.9bn from NAD14.8bn in FY ‘24/25 (NAD12.9bn prev.), supported by a strong sinking fund balance (NAD13.7bn) and the reallocation of the AfDB loan toward development spending.
However, the domestic financing need has increased significantly, reaching NAD17.3bn in FY ‘25/26 (vs. NAD12.9bn in FY ‘24/25). The sinking fund essentially nets out, leaving the domestic market to absorb the budget deficit (NAD12.8bn) and a higher cash requirement of NAD3.0bn (NAD1.6bn prev.). This is a considerable ask.
The government noted that it’s increasing its reliance on the domestic market due to a notable drop in marginal funding costs and abundant local liquidity.
Since ‘20, yields across the Namibian nominal bond curve have declined by an average of 174bps, with investors bidding NAD11.9bn more than what was offered. This surge in demand has been supported by expectations of lower domestic borrowing (shifting the early ‘20s supply/demand dynamic), improving macro conditions, interest in the hydrocarbon sector, and excess liquidity. That said, uncertainty around these factors has seen appetite for longer-dated paper weaken early into ‘25.
There remains a gap between the budgeted domestic funding requirement and what will be reflected in the actual borrowing strategy, largely because redemptions of GC25 and GI25 aren’t included – the government plans to roll these into longer-dated paper. While theoretically, these are netted out by later maturities, the market doesn’t view it that way. These redemptions still require new issuance, effectively pushing the real domestic funding requirement NAD21.2bn. This is likely to further weigh on demand and pricing, all else equal.
The Ministry expects the total funding requirement for FY ‘25/26 to decline to NAD5.9bn from NAD14.8bn in FY ‘24/25 (NAD12.9bn prev.), supported by a strong sinking fund balance (NAD13.7bn) and the reallocation of the AfDB loan toward development spending.
However, the domestic financing need has increased significantly, reaching NAD17.3bn in FY ‘25/26 (vs. NAD12.9bn in FY ‘24/25). The sinking fund essentially nets out, leaving the domestic market to absorb the budget deficit (NAD12.8bn) and a higher cash requirement of NAD3.0bn (NAD1.6bn prev.). This is a considerable ask.
The government noted that it’s increasing its reliance on the domestic market due to a notable drop in marginal funding costs and abundant local liquidity.
Since ‘20, yields across the Namibian nominal bond curve have declined by an average of 174bps, with investors bidding NAD11.9bn more than what was offered. This surge in demand has been supported by expectations of lower domestic borrowing (shifting the early ‘20s supply/demand dynamic), improving macro conditions, interest in the hydrocarbon sector, and excess liquidity. That said, uncertainty around these factors has seen appetite for longer-dated paper weaken early into ‘25.
There remains a gap between the budgeted domestic funding requirement and what will be reflected in the actual borrowing strategy, largely because redemptions of GC25 and GI25 aren’t included – the government plans to roll these into longer-dated paper. While theoretically, these are netted out by later maturities, the market doesn’t view it that way. These redemptions still require new issuance, effectively pushing the real domestic funding requirement NAD21.2bn. This is likely to further weigh on demand and pricing, all else equal.
