S&P says concerned about SA’s fiscal consolidation, land reform

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South Africa’s sovereign rating risked being downgraded due to concerns about the postponement of fiscal consolidation and lack of clarity around land expropriation, a senior S&P Global Ratings analyst said on Tuesday.

Recession-hit South Africa last week unveiled a bleak budget that saw wider budget deficits and low growth. South Africa is rated “junk” by S&P Global Ratings and Fitch.

“It is on those two aspects we would consider lowering the rating,” Ravi Bhatia, Director, Sovereign Ratings at S&P, said, referring to land reforms and fiscal consolidation.

The next rating review by S&P would be on Nov. 23, he said.

Bhatia said fiscal consolidation had been postponed in the Medium Term Budget Policy Statement (MTBPS) presented by new Finance Minister Tito Mboweni on Wednesday last week.

“This has been a trend for many years. That the deficits in the MTBPS are being revised upwards … that feeds into the debt stock where you see it rising towards 60 percent with no clear stabilisation,” he said.

“And if you look at interest payments as a percentage of revenues, they’re above 10 percent, and whether they’ll go above our thresholds of 15 percent is something to watch.”

Bhatia also said “sentiment has been dampened by the lack of clarity in the land expropriation.”

South Africa’s ruling African National Congress (ANC) has said it aims to change the constitution to allow for land expropriation without compensation to address racial disparities in land ownership that persist more than two decades after apartheid’s demise in 1994.

President Cyril Ramaphosa has said the policy will be undertaken in a way that does not threaten food security or economic growth. The ANC has said unused land will be the main target. However, the policy has still unnerved investors worried about the impact on property rights.