SA ranked no better than Greece

Cape Town - South Africa may be financially sound, but it will struggle to benefit from the sovereign debt crisis in Europe.

Rating agencies rank South Africa no better than Greece, Portugal, Spain, Ireland or Italy, the so-called PIIGS nations where government debt is dangerously high.

Rating agency Moody’s equates South Africa to Greece at A3 in terms of long-term debt, even though South Africa has balanced its budget for many years.

In addition, government debt in South Africa is 36% of gross domestic product, far lower than the 128% expected for Greece this year.

All of the major grading agencies rank South Africa lower than Portugal, Spain and Italy - each of which has massive debt and is in danger of dragging the eurozone into more trouble.

According to Investec economist Annabel Bishop, Europe’s high debt predicament reduces South Africa’s chances of rising up the rating ladder because that the crisis made the rand more vulnerable.

Although there is little chance of the currency weakening to R10 to the dollar, it is a possibility if other European countries become infected by Greece, Bishop said in a report.

The better a country’s creditworthiness is rated by the rating agencies, the lower the interest rate at which the country can borrow.

To borrow at a good rate makes infrastructural expansion cheaper and creates more liquidity for social projects, both of which would be welcome in South Africa.

The debt crisis makes investors generally risk-averse.

Unfortunately, it also means they give emerging markets like South Africa a wide berth because such markets have poorer credit ratings.

Sake24