Moody's on Aug. 11 lowered Namibia's long-term senior unsecured bond and issuer ratings to Ba1 from Baa3 and maintained its negative outlook.

The country's public debt burden has risen to a high of 42% from 26% of GDP when Moody's first assigned the rating in 2011. A high share of debt in foreign currency renders the fiscal position vulnerable to rapid deterioration in the event of an exchange rate shock, the rating agency said.

Moody's also downgraded its assessment of Namibia's institutional strength.

The revelation of unbudgeted arrears to the private sector, amounting to roughly 1% to 1.5% of GDP, has been putting pressure on the banking sector by directly or indirectly limiting the ability of private sector borrowers to service their debt. The rating agency warned that liquidity pressures detected in the third quarter of 2016 could resurface amid waning interest from the banking sector, especially if the Namibian government were to address any revenue shortfall by resorting to "arrears financing."

Risks remain tilted to the downside. These include the possibility of lower-than-expected Southern African Customs Union revenues, an exchange rate shock, a shock to commodity prices, or a sudden freeze in capital flows as well as an interest rate shock.