SA lives beyond its means, downgrades to follow

SA lives beyond its means, downgrades to follow

2014-07-11 11:00

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

  • ThandoGqabaza - 2014-07-11 11:07

    Let me translate the article for others - we are screwed. NUMSA and AMCU have destroyed the country

      JimGordon - 2014-07-11 11:17

      Actually, it is not Numsa or Amcu that is to blame. It is the fault of every single person that voted for the ANC. They made a conscious choice to support a government that is ensuring their own economic downfall.

      Burgert Potgieter - 2014-07-11 11:20

      WITH the Blessings of Zuma and the ANC as all those Unions are ANC Voters.

      Malcolm MacLeod - 2014-07-11 11:39

      The real problem is a government that lets NUMSA and AMCU do this without stepping up and stopping it. So yes, the ANC and those who vote for them are the real problem. AMCU/NUMSA are but one of the many symptoms of this problem.

      John Williamsii - 2014-07-11 11:40

      The real problem is NUMSA and AMCU because they hit exports and the economy immeasurably hard. But there is STILL not enough electricity too. Losing R300m a day in exports due to strikes is MASSIVE! A country can produce roughly 4x what they export. So R300m a day in exports lost is actually R1,5bn lost a day of total economic activity.

      Ian McNaughton - 2014-07-11 11:48

      Correction Thando. We are getting screwed. This country is being governed beyond its means. Notice that the debt starts ticking upwards in 2009? If you don't see the correlation then let me give you a clue: NKANDLA!

      Bogosi Kolobe - 2014-07-11 11:50

      but people we all know that the past elections were not free and fair regarding all the scandles prior ballot boxes

      Bastille French - 2014-07-11 11:56

      My brada u r being a tad simplistic. The unions are in this case scape goats. The more we point fingers and search for a boogey man there more we delay our plan to find a solution. Ok let's say the unions are in effect responsible for our economic decline. What are we going to do with that accusation. Because, unions are not going anywhere. We can point all the fingers of our hands at them, but, those guys ain't going anywhere anytime soon. Let's tackle the tacklable. Let's control the controllable, like our low levels of entrepreneurship among youth and adults. Let's ask ourselves why do countries like ghana have single digit unemployment rates with as less infrastructure as sa. I cite ghana in an attempt to counter the argument that seeks to link entrepreneurship with domestic demand, that is high levels of disposable income. Ghana is definately no america, with a strong a consumer base. But, those baghana baghana's are hustling u know what arm sayin to a point where unemployment is below ten percent.

      Jon Low - 2014-07-11 11:57

      Neither NUMSA nor AMCU caused SA to make more debt. Government needs to reduce debt by increasing tax.

      Sylvia Sommeling Shaw - 2014-07-11 12:09

      Another good story, proudly brought to you by Zuma's ANC.

      John Williamsii - 2014-07-11 12:10

      Jon Low the government collects taxes from employees and companies. Now if due to strikes, the employees lose R10bn in wages and the companies lose R30bn in export earnings. Then the government also loses money because that income could have been taxed. So the government loses money in strikes. Everyone loses. Every shop across the land, because the employees could have spent their wages there. Hundreds of billions of Rands.

      Naas Du Plessis - 2014-07-11 12:18

      And zuma. Boom

      John Williamsii - 2014-07-11 12:18

      Jon Low if you touch money, it is not only you and your employer that have touched that money. It's workers ALL across the land. Millions of people. So 1 strike hits the ENTIRE economy, millions of workers could have had more MONEY. Money exchanges hands a million times. A million workers have touched that same Rand or same R50 or R200 note. The less you have of it, the less everyone can touch it.

      Jasper Sterling - 2014-07-11 12:28

      Ngqukuva Mthombo - you're absolutely right about people living beyond their means and living on credit. To say this has nothing to do with the ANC and unions, however, is ludicrous; the impact of people living on credit vs the impact of action/inaction by Govt and its alliance unions pales in comparison. In addition, the latter two group's policies also to a large degree promote the negative behaviour of the former. They directly impede productivity and directly control economic policy and how tax money is spent. The EFF, as irritatingly stupid and destructive as they are, are merely an oppostion party and have very little direct impact on these things, so I wouldn't even blame them for the mess (though their negative influence doesn't help matters either, and God help us if they do ascend to power). Likewise the DA are also merely an opposition party, but do have control in some areas of govt (albeit very limited). However, they are definitely not a part of the problem, and in fact are one of the few parties that actually make positive contributions to the economy. Were it not for them, I suspect we'd be a lot further down the long drop than we already are.

      Johannes Smid - 2014-07-11 12:52

      Why blame NUMSA? Surely the article points to South African's 'living beyond their means'... i.e driving Fortuners, Jeeps etc and living off credit? That is the same problem the US had. If folk aren't willing to mortgage 80% of their property, the property prices won't be so high and if they don't spend R4K per month paying off a car, they'll not have to buy clothes on a credit card. I'll never forget coming back to SA and being stunned at how much folk here are willing to pay for a car! In the UK, a decent car will cost 1/4 of your annual salary. In SA, it often costs the same! Lastly, perhaps it is a generational thing, but my parents (who earn 6x more than I do) are less inclined to buy a new TV or spend money on petrol than I am. And even they are a generation that struggles financially when they're close to retirement. What will happen of us?

      Karl Kat - 2014-07-11 12:53

      Our goverment debt is massive. The interest on goverment debt is approx R100 billion a month. Goverment departments are too big, too many employees and paid too high salaries and then SA has become a welfare state with a social spending budget of 130 billion for this financial year and growing. Coupled this to our recuced exports and GDP and we have a recipe for disaster

      Brandon Conroy - 2014-07-11 13:25

      @Ngqukuva - Spot On! The average SA citizen is living way beyond their means, blame personal economics as opposed to politics, a bit of planning, saving and paying in cash for what you can afford is the way forward. 100 thumbs up - influence those around you in the same thinking!

      Joe Black - 2014-07-11 13:49

      @Ngqukuva Mthombo: You are confused. You are talking about consumer debt. The article and ratings concern national debt. We are talking about loans to fund road works, infrastructure and all other expenses the government has to carry. The reason why people are blaming the unions is because they are degrading the value of the rand and harming the national economy which are supposed to carry the national budget. And well... as we all know billions are being lost to corruption each year. Much more than the 4% deficit mentioned.

      Konstabel Koekemoer - 2014-07-11 16:47

      The strikes are just a symptom of Zuma and the ANC's failures. The government corruption, gross incompetence and racist policies have throttled the economy resulting in huge unemployment, decrease in service levels and increases in the cost of living.

      Wikus WebWorks - 2014-07-11 19:19

      Where negativity is expected, negativity will proceed. It is sad reading the news and its followers. Law of attraction is a very real thing.

  • Bastille French - 2014-07-11 11:27

    We need as a country to be downgraded to junk status. The junk status may give us a jolt and compel us to do something or someone. Because, the way i see it we are headed for junk status because, of our plummeting growth trajectories in terms of gdp and whatnot. Sometimes when you are down and on the ropes. There's no where to go but, up. Maybe junk status will be that sucker punch. That punch you get when you realise that you are not special and frankly nobody cares. And when you get it you have no choice but, to self actualize like a michael angelo rearing to paint a siston chapel in less than twenty four hours.

      Tina Poole - 2014-07-11 11:50

      The entire African continent is junk status. Have you seen any other African country 'jolt' into doing something? Once it hits junk status, that's where it will stay. I pity the citizens of those countries.

      Jon Low - 2014-07-11 12:01

      Many perfectly respectable countries -- like Croatia, Argentina, Hungary and Africa's largest economy -- Nigeria -- have junk-bond status.

      Aaron Aden - 2014-07-11 12:02

      Why pitty them they're fools they asked for it just like all the ANC supporters - I don't feel sorry for them what so ever. I hate them I know its a strong word but I truly hate them for killing so many people via the ANCs hands because they support this the same way so many Aficans hate the NAT supporters for supporting such a corrupt organisation.

      Bastille French - 2014-07-11 12:10

      Maybe those africanus lacked a world class infrastructure and a class of world class entrepreneurs like sa. Maybe with our jse and private sector our response to the impending junk status will be radical. Maybe being the operative word. But, let's hope that when we get junk status we will be proactive and united both as employers and employees.

      Konstabel Koekemoer - 2014-07-11 16:53

      That theory may work in some countries e.g. Germany, Japan, Israel etc but not in Africa. Just look at Bafana Bafana, whenever they loose there is lot of blame and in-fighting but no real solutions to help the team improve ... making them even more pathetic.

  • Iam Theman - 2014-07-11 11:35

    Yep the writing is on the wall. If you haven't already, and like me you not rich, then start working down your debt level as much as possible. All this leads to retrenchments and misery. If you are caught in this situation with high debt you will lose everything. Really sad that this great country is being destroyed while the world looks on but turns a blind eye.

      Ngqukuva Mthombo - 2014-07-11 12:02

      Well said and right on the spot! Thumbs up I am!

      Jasper Sterling - 2014-07-11 12:02

      Can't really blame the rest of the world for the incompetence of our govt and the numnuts that keep voting them back in.

      Rodney Visser - 2014-07-11 12:05

      The rest of the world are only interested in what they can rape the country of, that is what is left of it.

  • Kirsty Prinsloo - 2014-07-11 11:39

    Strange...when was Zuma first term...closely relates to increase in government debt.

      Karl Kat - 2014-07-11 12:52

      Kirsty, goverment debt is massive. The interest on goverment debt is approx R100 billion a month. Goverment departments are too big, too many employees and paid too high salaries and then SA has become a welfare state with a social spending budget of 130 billion for this financial year and growing. Coupled this to our recuced exports and GDP and we have a recipe for disaster

  • Jon Low - 2014-07-11 11:49

    USA debt-to-GDP is at 105% (IMF figures). Germany is 78%, Britain 90%, Japan 243%. SA's debt-to-GDP is actually very low, even if it did reach 60%.

      Marang Lesedi - 2014-07-11 12:15

      Thanks for the numbers Jon. Funny how the celebrity 'economists' choose to exclude them in their doom-and-gloom reports.

      Kagisho Dark - 2014-07-11 12:20

      Informative...maar in euros or dollar, how much is that?

      Wehr Wulf - 2014-07-11 12:24

      The difference is they are working furiously to bring their debt down - and with their percentage of taxpaying populations will manage to do so eventually - but we are going in the opposite direction and only have 1 in 11 people paying tax, and getting worse.

      Jasper Sterling - 2014-07-11 12:45

      They are also of the strongest countries in the world with the means and will to sort that out and manage their situations. Those country's were also of the hardest hit during the credit crunch...With the USA and Britain's massive debt also being affected by extraordinary (temporary) circumstances (war); likewise Japan has also racked up huge debt in the aftermath of the tsunami and the nuclear disaster that followed. Take these things out of the equation, and while maybe not perfect, their respective govt's managing of of their economies and economic policies are sound. As a result they will be just fine. They have many options available to them, and most of their population's are educated and productive i.e. they are able to generate value, and when their govt's mess up, they are replaced.

  • Rodney Visser - 2014-07-11 12:01

    They should be downgrading the government, it is them that is living above there means at the cost of the people.

  • terry.coomber.1 - 2014-07-11 12:02

    The ANC needs to lose power or get people who know what they are doing to run the show behind the scenes as they are unfortunately incompetent. Look at JZ money wastage on his nkandla....maybe DA could assist

  • Nolan Allnutt - 2014-07-11 12:04

    The communists in SA want to cripple our country. We are heading for a dictatorship and a communistic regime. welcome to SA, the failed banana republic of regeim

      Marang Lesedi - 2014-07-11 21:06

      The bananas must be fantastic, hey? You and your hopeless kind still hang around the tree after 20 years of a 'failed state'.

  • Kagisho Dark - 2014-07-11 12:14

    I always ask,when the government decide to loan money from the world bank,should they fail to pay, what is repossessed? I foresee disaster....buckle up!!! I see a ZIM

  • Giancarlo_Groenewald - 2014-07-11 12:18

    If you're a student or already on your way in getting your degree I'd just say get out of the country before our currency exchange rate takes a knock.

  • Richard Daniels - 2014-07-11 12:19

    If they continue to downgrade our credit rating the only winner would be Julius Malema. What's the point in worrying about nationalizing our resources if investors are scarce anyway. I don't think this economist looked at external factors such as this and if those credit rating agencies ignore it, too. Nationalization will definitely be a national topic for economic growth.

  • Graham Vivian - 2014-07-11 12:48

    What this article misses is that this is not a situation that is unique to South Africa. There are many countries that have rising debt levels. The worst is the good old USA. Yes we have a problem but for all the people commenting saying the unions are to blame the simple truth of the matter is that this problem pre dates any of the strikes. Because we have such a good budgeting process(it was voted the most transparent in the world) we know exactly where we are going over the next 3 to 5 years. For those complaining what is the solution. There are only 2 cut spending or increase taxes. I hear everyone saying corruption is the issue. yes it is a big problem but even solving it completely(which you never will) will have little effect. As for those people who are as always blaming the ANC, do yourselves a favour and ask Mr Schussler where we were when they took over. It was in a much much worse scenario and at that stage the world economy had just gone through a major boom, not the recession we have just done. Yes we have many problems and the economy has not been well managed in the past few years, but lets get some perspective.

  • xirhandziwa.guwela - 2014-07-11 13:03

    My fellow South Africans, the hurting and bleeding of our economy affect all of us irrespective of our colour and ethnic group. Pointing fingers won't help. What we should be asking ourselves is, what do we do as South Africans to help our country out of this situation not who to blame. South Africa needs a accountable and responsible leadership. South Africa needs a leadership that will serve all people of South Africa selflessly. I believe our country have strong men and women of all race in business, education, politics and government who can take this country forward. To encourage you my fellow South Africans, I would like to quote the following " I wold like to say that gloom and despondency have never defeated adversity. Trying times need courage and resilience. Our strength as a people is not tested during the best of times. As we said before, we should never become despondent because the weather is bad nor should we turn triumphalist because the sun shines". My follow South African from all spheres of life, let's unite and help our country move forward.

  • Lesiba Ernest'o - 2014-07-11 13:05

    SA is not living beyond its means rather service providers r overpricing goods e.g the farmer today sells watermelon @ R5 each en Supermarkets resells it @ R55 making 500 percent profit. Greediness is causing poverty.

  • June Francis - 2014-07-11 13:08

    The cANCer doesnt care becuase they dont understand the harm they are doing. All they care about is stealing hard earned tax money , for houses and BMWs for themselves.

  • Utopian Indigent - 2014-07-11 13:16

    ANC-Government will learn too late that wasting money borrowed is much more dangerous that wasting tax money. Public Sector needs to massively improve cost-efficiency, starting with salaries/packages. Those salaries/packages for PublicSector officejobs, created in thousands every year, are what cause irrational expectations in the market and the "living beyond our means" problem. It is not Numsa, it is government causing the misunderstanding of economic realities. By the way that graph is popularly misunderstood: the FW De Klerk government was frugal and well-managed by comparison. The spike of loans in 1994 was purely to finance the transition of power. It had nothing to do with the previous regime, which was efficient by international standards, even though "evil" in the eyes of the world. The world needs to realise the new kind of evil in South Africa - government crime which is killing the future of the children of South Africa regardless of race or creed. Finally, other opinion pieces here call overpopulation a myth. That is absolute rubbish. Living beyond our means includes increasing our population, mostly economically inactive, by 50% over the last 12 years!

  • Peter Webb - 2014-07-11 13:23

    Thanks to the ANC we are forced into living beyond our means. Soon the rand will be worthless.

  • Jenny Anderson - 2014-07-11 13:25

    Brought to you by the ANC, the best government on the planet,WAY TO GO GUYS IN DESTROYING A COUNTRY

  • Us3rname - 2014-07-11 13:47

    Exactly what happens when you elect government and employees based on the colour of their skin, no matter how useless & incompetent. As long as a black backside fills the chair, it's all good!

  • Dawie Barnard - 2014-07-11 15:20

    "Let BMW and Ford go if they want" the most recent NUMSA comment read. Mr Shussler these people do not understand downgrades nor their implication. This stems from the total lack of basic maths knowledge for one. There is also the pervasive belief in government that the world owes them and irrespective of their actions, they will be treated differently. Hard times ahead.

  • Jared Kalil - 2014-07-11 18:26

    AND has destroyed this country. It only took them 20 years let's give them a bit of credit.

  • Jacques H. Kirchner - 2014-07-12 09:18

    It is truly scary how any government of any developing country in the world can sit back and just allow its economy to be plundered. Being in bed with unruly trade unions with militant (rather than informed) outlooks, certainly does not help either. Bleak outlook indeed.

  • Pete Mears - 2014-07-12 10:29

    bloated incompetent government

  • Herklaas Jantjies - 2014-07-13 11:14

    1999 until 2008 the graph was decreasing must have been T.M, T.M and T.M. But juju said... We do not need a president with a Masters degree in economics?!

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