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South Africa is facing the risk of a credit rating downgrade as government’s gross debt is rising and is now projected to peak at 77.7% of GDP from the 73.6% estimated in February this year. S&P Global is scheduled to issue a country review for South Africa on Friday evening.
An outright downgrade is not expected, but economists have said a negative outlook is more plausible, which could be a precursor to a further downgrade. S&P Global and Fitch currently rate South Africa at BB- with a stable outlook, while Moody's rates us at Ba2 with a stable outlook.
READ: MTBPS: R56.8 billion budget shortfall expected as government finances go from bad to worse
Earlier this month, Finance Minister Enoch Godongwana presented a worrying picture of government’s finances in the medium-term budget policy statement (MTBPS), with rising public debt and interest on debt that is starting to crowd out crucial spending items and less-than-expected revenue collection exacerbated by
Analysts have also raised concerns that government really has nothing to show for the debt it is incurring.
Annabel Bishop, chief economist at Investec, said the MTPBS was credit-negative, and there were risks for Fitch to also deliver a negative outlook.
"Moody’s now warns the risk of a bigger deterioration rather than a stabilisation of SA’s country's debt, which has risen.
READ: The state’s borrowing is a concern
Nedbank economist Isaac Matshego said that even though there’s been a deterioration in the past fiscal consolidation at the MTBPS, it wasn’t severe enough to threaten the country’s rating at this stage.
The concern, he said, was what would come out of the main budget in February 2024.
"That, against the backdrop of weak economic growth, will likely see rating agencies move probably to a negative outlook. Depending on how bad the numbers are, we could see another downgrade", Matshego said.
