JOHANNESBURG – Ratings agency Moody’s yesterday warned that South Africa’s sovereign credit rating could be pushed further into sub-investment territory, as public debt was growing at an alarming rate.
Moody’s said their next credit review would come after Finance Minister Tito Mboweni’s medium-term budget policy statement in October.
However, Moody’s lead analyst for South Africa Lucie Villa warned there was already some downside risk to the economic forecast for this year.
Villa said the main risk to the downside to the credit outlook for public sector entities in South Africa would be from Covid-19’s second wave, subdued revenues, renewed power outages and debt overhang.
She said the government’s finances continued to deteriorate, crowded by the public sector wage bill as well as transfers and guarantees to state-owned enterprises.
Villa said Eskom’s debt burden had increased more than 55percent over the past few years, while Transnet had moderated about 14percent and Airports Company of SA was sitting at more than 40percent.
She said the government’s debt as a percentage of gross domestic product (GDP) was set to rise dramatically and exceed 100percent in the not-too-distant future.
“South Africa has a high debt crisis. Total public debt has increased by more than 30percent in 10 years, while private sector debt has moderated over the same period,” Villa said.
“All the trends to recover debt will depend on structural reforms. If the structural reforms fail to achieve fiscal consolidation, there will be more negative fiscal pressure.”
Moody’s said the country’s gross national debt would be close to R4trillion, or 81.8percent of GDP, by the end of this fiscal year.
In March, Moody’s downgraded South Africa’s credit rating to “junk” status due to the continuing deterioration in fiscal strength and structurally weak growth.
Yesterday, the agency warned that any further cut to the country’s credit rating could push up the government’s borrowing costs.
“The government will have to pay more and more interest in terms of big borrowing,” she said. “The main credit channel will be more expensive.”
Villa said South Africa was facing an uphill battle to recover from the impact of Covid-19, as all sectors of the economy were struggling, except for the banks, which have remained liquid due to less demand for credit.
“In all likelihood, we are going to remain in an environment whereby the government is highly constrained in terms of slowly removing the support measures for the economy,” she said. “Of course, if you go too quickly or too slowly, you jeopardise the recovery.”
South Africa’s economic and electricity woes have seen the government move with speed to gazette the procurement of an extra 11800MW of electricity from independent power producers.
Investec chief economist Annabel Bishop said the switch to allowing the additional procurement of power marked a key point for the future recovery of the economy.
“These reforms, if efficiently implemented, will improve the ease of doing business and so economic growth only if other regulatory blockages, complexities and onerous burdens are unlocked across the primary and secondary sectors of the economy,” Bishop said.