South Africa’s deteriorating debt ratios and weak economic growth are major concerns for ratings agencies. S&P Global Ratings, which already has government debt at sub-investment grade, changed South African’s outlook from stable to negative.
Moody’s rating agency earlier in November affirmed the country’s long-term foreign and local currency debt ratings at ‘Baa3’ and revised the outlook to negative from stable.
South Africa is at risk of being excluded from the Citigroup’s World Government Bond Index if no meaningful action is taken to turn the economy around. Moody’s is expected to issue a review of South Africa early next year following the February budget.
Economists say exclusion from the Citigroup’s World Government Bond Index could trigger capital outflows of between $6 -$9 billion US dollars.
“The risk is always there … our view is that if we are able to demonstrate in the February Budget in 2020 that we can stabilise public finance, we can avoid further credit downgrade,” says Absa Economist, Miyelani Maluleka.
Rating agencies are concerned of a material risk that the government will not succeed in arresting the deterioration of its finances through a revival in economic growth and fiscal consolidation measures.
There are also concerns about government’s rising debt burden and contingent liabilities, especially posed by Eskom.
Over the medium-term, gross debt is projected to rise from 61% of Gross Domestic Product this fiscal year to 71% of GDP by 2022/23.
“When you look at the underlining reason for this the themes are similar, they are concerned about the lack of growth this year we likely to see the growth of 0.5%,” says Maluleka.
Last week, S&P revised down the outlook on South Africa’s debt from positive to negative.
Standard and Poor’s has cited a worsening fiscal and debt trajectory for its latest decision.
In October, the only rating agency to have South Africa still in investment grade, Moody’s also changed the country’s outlook from positive to negative.
Fitch cut the country’s assessment to junk in 2017.
