Moody’s, which is the only major rating agency that still has the country's sovereign debt above junk with a stable outlook, said in a research note that, beyond the implications for the 2019 Budget, the historically large contraction in GDP would complicate the government's economic and fiscal policy.
Lucie Villa, the lead sovereign analyst for South Africa at Moody’s, said the government's policy objective to boost economic activity while consolidating its fiscal position would prove even more difficult in the low-growth environment.
“For instance, any fiscal stimulus would likely come with immediate or nearly immediate costs, but potential economic benefits that would take longer to accrue. Because we expect lower growth, we also expect South African banks’ asset quality to come under further negative pressure,” Villa said.
“Banks are already competing for better-quality borrowers, and revenue is under pressure amid competition from new entrants and widespread migration to mobile and digital platforms by established players.”