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Cape Town - South Africa is living beyond its means, and the country may reach a level of 60% debt to GDP in a few years’ time.
So says economist Mike Schüssler in an opinion piece written for TreasuryOne. This has not gone unnoticed by the major rating agencies, and Schüssler says "concern that South Africa is living beyond its means is coming over loud and clear. Government is likely to have a deficit of over 4% for this year and next year will be close to that as well."
The rising government debt
South African ratings are inching towards the bottom end of investment grade ratings, says Schüssler. Standard and Poor's, Moody’s and Fitch, which make up nearly 95% of US and European ratings, are slowly dropping SA’s grade lower and lower.
His biggest current concern, says Schüssler, is the likely downgrade of SA by two of the three major rating agencies in the next year - "but more probably in the next nine months".
But that's not all: "Smaller national credit rating agencies from Japan and China are very likely to also downgrade South Africa; although I think that is perhaps just about a quarter or so of inflows, the fact is that these ratings will also hurt us in the margins just when we have to borrow huge amounts of money for capital expenditure programmes from State Owned Enterprises", which according to government is well over R1trn.
So how do we compare to other Brics - Brazil, Russia, India, China and South Africa - nations? "Compared to the other Brics countries, SA still has a relatively high rating from many a rating agency given our low growth and high unemployment and certainly high current account and government deficits.
"That says one thing and one thing only: the downgrades are coming. On the data I would think South Africa looks much more like Brazil and here and there weaker.
The Brics country ratings compared
As a consequence of downgrades, says Schüssler, the rand "will not get the inflow it needs to cover our import bill anymore. Any drop in commodity prices and the currency will search for a bottom far below present levels."
The government's need for investment in hard assets like roads is again a story of a need for capital - and foreign capital at that.
"Life for our finance minister and government will be hard from here on in. Not nice, but the one certainty now is the downgrades are going to keep coming for a while," says Schüssler.
- Fin24
So says economist Mike Schüssler in an opinion piece written for TreasuryOne. This has not gone unnoticed by the major rating agencies, and Schüssler says "concern that South Africa is living beyond its means is coming over loud and clear. Government is likely to have a deficit of over 4% for this year and next year will be close to that as well."
The rising government debt
South African ratings are inching towards the bottom end of investment grade ratings, says Schüssler. Standard and Poor's, Moody’s and Fitch, which make up nearly 95% of US and European ratings, are slowly dropping SA’s grade lower and lower.
His biggest current concern, says Schüssler, is the likely downgrade of SA by two of the three major rating agencies in the next year - "but more probably in the next nine months".
But that's not all: "Smaller national credit rating agencies from Japan and China are very likely to also downgrade South Africa; although I think that is perhaps just about a quarter or so of inflows, the fact is that these ratings will also hurt us in the margins just when we have to borrow huge amounts of money for capital expenditure programmes from State Owned Enterprises", which according to government is well over R1trn.
So how do we compare to other Brics - Brazil, Russia, India, China and South Africa - nations? "Compared to the other Brics countries, SA still has a relatively high rating from many a rating agency given our low growth and high unemployment and certainly high current account and government deficits.
"That says one thing and one thing only: the downgrades are coming. On the data I would think South Africa looks much more like Brazil and here and there weaker.
The Brics country ratings compared
As a consequence of downgrades, says Schüssler, the rand "will not get the inflow it needs to cover our import bill anymore. Any drop in commodity prices and the currency will search for a bottom far below present levels."
The government's need for investment in hard assets like roads is again a story of a need for capital - and foreign capital at that.
"Life for our finance minister and government will be hard from here on in. Not nice, but the one certainty now is the downgrades are going to keep coming for a while," says Schüssler.
- Fin24
