JOHANNESBURG - RATINGS agency S&P Global has warned that it could downgrade South Africa’s credit rating if the country’s economic prospects fail to recover in the medium term.
S&P said it would review its attitude towards South Africa if fiscal financing or external pressures mount.
S&P is the third major credit rating agency to remain unconvinced by Finance Minister Tito Mboweni’s Budget presented two weeks ago.
S&P director Ravi Bhatia yesterday expressed concern over South Africa’s rising debt levels. He said South Africa has been plagued by a long period of low economic growth, lacklustre structural reforms and fiscal pressures.
He said the country’s greatest risk to its credit status was its large and rising fiscal deficit and debt burden, as well as contingent liabilities.
In November, S&P downgraded South Africa’s sovereign debt to BBwith a stable outlook.
Bhatia said the current outlook for South Africa was stable and evenly balanced.
“But we could lower the ratings if we see South Africa fail to recover the forecasted rebounded growth, especially fiscal financing pressures becoming significant,” Bhatia said.
“We have seen a fiscal problem, but the latest debt-to-gross domestic product (GDP) numbers have risen so much that it could translate into a fiscal financing problem and to a lesser extent an external problem, although the current account picture has been reasonably good lately.”
The 2021 Budget framework put South Africa on course to achieve a primary surplus after stabilising debt at 88.9 percent of GDP in 2025/26.
The government’s gross loan debt was expected to increase from R3.95 trillion in the current fiscal year to R5.2trln in 2023/24.
Mboweni said in his Budget speech that high government debt levels increased the cost of borrowing across the economy.
“The rising debt leads to higher future taxation and uncertainty,” he said. “Servicing this rising debt takes away resources that could have been invested in infrastructure and frays our social solidarity.”
S&P sovereign ratings associate director Tatonga Rusike said the Budget was more of a fiscal control exercise than a structural reforms exercise.
Rusike said the debt-to-GDP trajectory was at unsustainable levels, and there was no reason to expect a big sustained rebound in the growth trajectory going forward.
“We are looking at debt-to-GDP going up well above 90 percent in the forecast period to 2023,” Rusike said.
“The target on the deficit and trajectory was hinting on positive news we have heard in the couple of quarters last year. But stabilising debtto-GDP at 90 percent still has some downside risks.”