Johannesburg - South Africa is being considered almost as risky as junk-rated Russia because of its fiscal bind, Bloomberg reports.
According to the wire service, investors see the country - Africa’s most industrialised economy and the second-largest by value - as risky.
Bloomberg reports that the cost of insuring against a default on Monday narrowed to just 14 basis points less than similar protection for Russia, which it notes is tackling a recession, involvement in two conflicts and international sanctions linked to the fighting in Ukraine.
By comparison, notes the wire service, the difference was 417 basis points in February.
Bloomberg notes president Jacob Zuma’s administration is battling to keep fiscal debt to less than 50 percent of gross domestic product as the economic backdrop continues to deteriorate.
Gross debt has surged from about 26 percent of gross domestic product from before the 2009 recession to reach almost 50 percent this year.
SA’s economy contracted 1.3 percent in the second quarter and third quarter figures, due on November 24, will show whether the country has hit a recession or not.
The country is also battling falling commodity prices, and declining exports to China, which is its biggest trade partner. In addition, government’s wage bill continues to climb.
“We have growth that’s so weak it’s very difficult to see how South Africa will pull itself out of some of the longer-term concerns,” Nigel Rendell, a senior analyst for Europe, Middle East and Africa at Medley Global Advisors, told Bloomberg. “The difference is, in Russia, all the bad news is probably in the price.”
SA’s economy is now only predicted to grow at 1.5 percent this year, only rising to 2.8 percent by 2018 - a figure economists note is too low to create jobs.
In October, SA took a step closer to another credit-rating downgrade as a slowing economy forced finance minister Nhlanhla Nene to boost debt at the same time that mounting spending pressures fuelled protests against the government.
The International Monetary Fund has also noted that SA’s debt - as a percentage of its economy - is likely to be more than twice that of Russia’s, and remain at that level for the next five years.
Fitch Ratings has a negative outlook on South Africa’s BBB assessment, indicating it may cut the nation’s debt from two levels above junk when it publishes its next review in December. Standard & Poor’s and Moody’s Investors Service have stable outlooks on their assessments. Fitch’s rating is in line with Moody’s and one level above S&P.
IOL