Concern over SA debt costs - S&P's analyst

Jan 04 2016 21:15
Dane McDonald

Cape Town – Further depreciation of the rand could mean that South Africa would pay more to service its debt over the next three years, according to the South African sovereign analyst at Standard & Poor’s, Gardner Rusike.

The axing of former finance minister Nhlanhla Nene in early December sent the rand tumbling to a record low of R16.00 to the dollar.

Rusike said the concern for SA was the higher cost of debt should rand depreciation experienced in December 2015 continue into 2016 for different reasons such as tighter external financing or domestic policy slippages.

“The major challenges will remain rising interest rates in advanced markets which may be passed through the currency fluctuations and monetary policy responses [and] government policy responses in addressing domestic constraints to the economy and sticking to the fiscal consolidation path,” he told Fin24.

Governments in sub-Saharan Africa (SSA) were facing increasingly expensive debt financing as favourable global and domestic conditions came to an end, Standard & Poor's Ratings Services said in a report published on Monday.

Over the past few years SSA sovereigns had enjoyed unusually favourable financing conditions, said S&P’s.

“The tide has turned. We think these sovereigns will direct an increasing share of revenues over the next three years to servicing their debt. The effective management of these changes will pose difficult policy choices for African governments,” said S&P's. 

The ratings agency added that global and domestic factors contributed to its expectations of higher interest expenditures.

“Global factors include exchange rate movements and tightening liquidity conditions. Several SSA sovereigns' currencies have depreciated at a rapid pace this year,” said S&P’s.

Of the 18 countries S&P’s rated in the region, only four experienced currency depreciation of less than 10% against the dollar over 2015.

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s&p  |  rand  |  sa economy



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