{"id":504259,"date":"2021-07-08T11:39:06","date_gmt":"2021-07-08T09:39:06","guid":{"rendered":"https:\/\/businesstech.co.za\/news\/?p=504259"},"modified":"2021-07-08T11:39:06","modified_gmt":"2021-07-08T09:39:06","slug":"ratings-agency-highlights-key-challenges-for-south-africa","status":"publish","type":"post","link":"https:\/\/businesstech.co.za\/news\/finance\/504259\/ratings-agency-highlights-key-challenges-for-south-africa\/","title":{"rendered":"Ratings agency highlights key challenges for South Africa"},"content":{"rendered":"

Ratings agency S&P Global says that while it maintains a stable credit outlook for South Africa, the country’s economic challenges include a heavy fiscal burden and weak economic growth, particularly on a per capita basis.<\/p>\n

S&P’s credit score for the country remains three notches below investment grade.<\/p>\n

The group’s analyst for emerging markets Ravi Bhatia said during a webinar on Wednesday (7 July), that South Africa could see lowered ratings if the economy fails to recover during the forecast period and fiscal financing or external pressures mount.<\/p>\n

“This could, for example, arise from further financing risks emanating from contingent liabilities, including public electricity Eskom, or tightening financing conditions increasing the government’s interest burden as a proportion of revenue,” he said.<\/p>\n

Looking at upside factors, Bhatia said that the main focus is on whether president Cyril Ramaphosa and the government implement their proposed reforms. This requires growth at a sustained level over a few years, which could lead to rising GDP per capita and a decrease in debt-to-GDP, he said.<\/p>\n

“In theory, South Africa could grow itself out of its fiscal problems and that could assist GDP per capita and the high poverty levels.”<\/p>\n

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Bhatia said that the country is currently tracking upwards, with the ratings agency forecasting GDP growth of 4.2% in 2021 – higher than government predictions.<\/p>\n

“But this starts to taper to between 1% – 2% in the medium-term which is a concern as there is no increase in GDP per capita,” he said.<\/p>\n

Bhatia added that long-term problems in South Africa still exist including concerns around Eskom’s power supply, an inflexible labour market, and heavy unionisation.<\/p>\n

“This is what kind of limited South Africa’s otherwise really good potential, and we haven’t really seen any (reforms) to push outside of these issues.”<\/p>\n

A fiscal problem<\/strong><\/p>\n

S&P said that South Africa’s public finances remain structurally weak, with high fiscal deficits, a large debt burden, and sizable contingent liabilities.<\/p>\n

It noted that the 2021 budget aims to combat these fiscal imbalances through restrained consumption expenditures – notably the increased wage bill.<\/p>\n

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Because of this focus on reduction, the ratings agency said that a number of risks exist, including:<\/p>\n