Deloitte’s managing director for emerging markets and Africa, Martyn Davies, said: “Many African states are experiencing a fiscal blow-out - they have taken on too much public sector debt and are unable to service it. In total, African states owe just more than $35 billion (R481.37 billion) in Eurobond debt.”
Davies said South Africa’s debt-to-GDP currently stood at more than 50 percent, with the worst performing country in the region being Mozambique with its debt being 130 percent to its GDP. He said African countries needed to arrest the spiralling debt levels to ensure the well-being of their citizens.
“For frontier-type markets, any figure approaching 60 percent is considered unsustainable and governments need to reduce budgetary expenditure as a result,” Davies said.
South Africa’s sovereign debt once again came under the spotlight last week when two ratings agencies, S&P Global and Fitch downgraded the country’s credit rating to junk on the heels of a cabinet overhaul that included the dismissal of Pravin Gordhan as head of Treasury.
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The announcement by the rating agencies saw the rand further weaken and the bond market came under pressure. Fears are that the current political instability could push the country’s cost of borrowing to unaffordable levels. Countries across the globe have over many years been grappling with how to contain their debts.
IMF’s former managing director, Anne Kruger, had in 2001 proposed the creation of a Sovereign Debt Restructuring Mechanism that would have been administered by the IMF, but the proposal was blocked by the US.
In 2015 The UN General Assembly approved what it described as global “basic principles” for sovereign debt restructuring processes.
Econometrix chief economist Azar Jammine said the recent credit downgrades have opened up the country to the potential of struggling to pay off its mounting debt and would have impact on fixed investments.
The country’s government debt to GDP ratio averaged 37.89 percent from 2000 until 2015, with it reaching an all time high of 50.10 percent in 2015 compared to a record low of 27.80 percent in 2008.