Petrol price, taxes and downgrade talk – what lies ahead for South Africa in February

February will be an incredibly important month for South Africans, with a number of major economic events on the calendar that will have an impact on every day life in the country.

Petrol prices will be adjusted in the first week of the month, with the Budget Speech scheduled for 26 February, where possible tax changes and price adjustments will be made known.

Following this, a credit rating review is expected from Moody’s, which could spark further gloom in the economy.

Absa said in a research note on Monday (20 January), that persistently weak business sentiment and ongoing bouts of load shedding are constraining South Africa’s growth prospects, while the drought seems likely to have a significant negative effect this year as well.

“We now forecast real GDP growth of just 0.3% for 2019, 0.9% this year and 1.2% in 2021.”

All these economic events are piling on the pressure for consumers are already stressed and carrying a lot of debt, according to Neil Roets, chief executive officer of debt counselling company, Debt Rescue.

In light of the deteriorating economy, pressure on jobs, and the rising cost of living, consumers should brace themselves for even tougher times ahead, he said.

The number one priority now should be to reduce debt levels wherever possible and to avoid new debt ‘like the plague’,” he said.

“We are in trouble and nowhere is there even a glimmer of hope on the horizon. Numerous corporates including Telkom and the mining industry are planning substantial layoffs. Deeply indebted consumers are in trouble with nowhere to turn for relief other than to try and settle their debts over a period of time by going under debt review.

“The stark reality is that Eskom’s debt alone is enough to cause the government serious problems let alone its outstanding debts of more than R2-trillion that have to be repaid. Any plans that Cyril Ramaphosa and Pravin Gordhan may have had to cut jobs in the civil service have been unanimously shot down by the unions,” Roets said.

With gross consumer debt at around R1.9-trillion and the government’s gross loan debt at R2.2 trillion in 2016/17 financial year, it is clear that South Africans are in for a very rough ride, he said.

What to expect

Chief economist at Efficient Group, Dawie Roodt said that despite the 25-basis point reduction in the repo rate by the South African Reserve Bank last week, South Africa’s economy is still in a very bad place, and more pain is waiting down the line.

Here’s what consumers can expect:

More taxes

According to Roodt, it is by now common knowledge that the government and SARS are unable to collect enough taxes to cover the state’s budget.

Thus the economist sees National Treasury turning to new taxes to try and plug the gap.

“A number of options, including increased taxes, an increase in the VAT rate and all manner of rates and levies to bail the government out of the crisis it has created for itself, are likely to be announced in the budget speech in February ,” Roodt said.

Absa said in a quarterly update on Monday (20 January), that given South Africa’s ongoing fiscal challenges, it expects the government to lift indirect taxes in an effort to earn more revenues, and this carries implications for the inflation outlook.

“In our forecast, we have assumed that the government will raise the general fuel levy by 30cents/litre. But more importantly, we expect the government to increase the VAT rate by 1pp to 16% in the 2020 Budget.”

It said that some 65% of the headline CPI basket is subject to VAT after controlling for zero-rated and exempt items i.e., some food items, rentals, education and public transport.

“Meanwhile, we find that 71% of core CPI is subject to VAT, although we note that Stats SA does not survey all items of the CPI on a monthly basis.

“In a full pass-through scenario, the VAT increase would add 0.4pp to headline CPI inflation in 2020 and 0.2pp in 2021. However, given the recent experience where some retailers absorbed the 2018 VAT increase into their margins, we think pass-through may again be only partial,” Absa said.

Rating downgrade

Following the February budget speech, ratings agency Moody’s is expected to deliver a ratings review for South Africa, where it is “highly likely” that the country will be downgraded.

Roodt said that while much of the downgrade had already been priced in by the market, it would nonetheless send a very negative message to the foreign investor community.

“That message is that South Africa does not have an effective plan to turn around the economy and that things are going from bad to worse,” he said.

Absa said that further credit rating downgrades seem likely in 2020. “In particular, we think Moody’s is more likely than not to act on its Negative Outlook and downgrade South Africa to sub-investment grade on 27 March,” the financial services group said.


Absa noted that Eskom continues to be a major source of fiscal and general macroeconomic risk. “The unbundling programme laid out in the discussion paper last year on its own cannot fix the electricity sector’s challenges and the pushback against reforms at Eskom is intense.

“Load shedding is likely to continue and Eskom may need even more bailout money than that already allocated by the government. Structural reforms accelerated a little towards the end of last year, although progress overall has been slow, in part due to political contestation.”

Absa said that South Africa’s political functionality continues to be hobbled by the factional battle within the ANC.

“It remains to be seen if president Ramaphosa’s efforts to restore constitutional governance and roll back ‘state capture’ will pay dividends sufficiently quickly,” it said.

Petrol price

The petrol price looks like it will be staying flat in February, according to Roodt, though diesel prices could see a small jump.

This will help mitigate some of the financial strain experienced by consumers and the various industries.

The latest data from the Central Energy Fund shows a 9 cents per litre drop in 95 grade petrol, with 93 grade flat, and both grades of diesel climbing by 5 or 6 cents per litre.

Read: The rand, taxes and ‘other stupidities’ South Africans should look out for in 2020: Dawie Roodt

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Petrol price, taxes and downgrade talk – what lies ahead for South Africa in February