JOHANNESBURG - Dawie Roodt, chief economist at the Efficient Group, said it was highly likely that ratings agency Moody’s would downgrade South Africa’s sovereign debt to sub-investment grade later in the year given that it had expressed concern over the vast sums of money needed to bail out state owned entities and the lack of growth in the economy.
Although Fitch kept South Africa’s long-term foreign and local currency debt on BB+, the first notch of sub-investment grade (or junk status). But it has downgraded the country’s outlook from stable to negative, citing concerns about the government’s financial support of Eskom and low economic growth.
“The moment the government and its state-owned entities have to pay more to borrow money both locally and internationally, it has no option other than to pass those increased borrowing costs on to the consumer.
“It is common cause that SARS is not meeting expectations in collecting taxes to cover the state’s budget so a number of options including increased taxes, an increase in the VAT rate and all manner of rates and levies to bail it out of the crisis it has created for itself,” Roodt said.
Consumers will face the bulk of the pain because government has already taxed corporates to the hilt and personal tax payers are so deep in the hole that there is little room to manoeuvre.
Roodt said the growing fiscal deficit is something that all the ratings agencies are looking at closely.
“The five and a half to six percent deficit we are looking at in South Africa is a serious problem.”
Neil Roets, CEO of one of the largest debt counselling companies in South Africa, Debt Rescue, said consumers were in for a very rough ride with nowhere to turn for relief other than to try and settle their debts over a period of time by going into debt rescue.
“The stark reality is that Eskom’s debt alone is enough to cause the government serious problems let alone its outstanding debts of more than R2-trillion that have to be repaid. The state’s plans to cut jobs in the civil service have been unanimously shot down by the unions, Roets said.
An in-house survey conducted by Debt Rescue recently found that 24.8% of consumers piled up debt to pay for day-to-day expenses, such as food, transport and schooling. A whopping 43% said they spent 50% or more of their monthly income on debt.
The fact that nearly half of young people below the age of 35 were unemployed presented a huge problem. There was little to no chance that the sluggish economic growth would provide jobs for the millions of unemployed people, he said.
Roets said it was also painfully evident from the rapid growth of Debt Rescue that a growing number of consumers were falling behind in debt repayments and resorting to the process of legal debt review.
“We are seeing daily records being set by the number of distressed consumers who are knocking on our door to be placed under debt review.
Overall there had been a 21% increase in applications for debt counselling comparing the first quarter of last year with the same period for 2019.
“Although many of us have already reached the point where there is nothing left to cut, we are going to have to adapt our lifestyle to adjust to tighter market conditions doing more with less.” Roets said.
With gross consumer debt at around R1.8-trillion and the government’s gross loan debt at R2.2 trillion in 2016/17 financial year, it is clear that South Africans are in for a very rough ride, Roets said.
He said almost half of all consumers were three months or more behind in their repayments. The major culprits are credit and store cards followed closely by unsecured debt.
The only measure of relief for consumers who were in over their heads was the legally-binding system of debt review which allowed deeply indebted consumers to repay their debts over a longer period of time in smaller instalments often at a discount.
“Lenders are sometimes willing to take a cut if it means they can avoid having to involve debt collectors or foreclosing on the fixed properties of debtors.” Roets said.