S&P Global Ratings has given SA a reprieve by maintaining its foreign currency rating at BB- with a stable outlook.
The agency did, however, warn in its report issued late on Friday that: “Lower revenue owing to softening commodity prices and rising spending pressures from the wage bill, potential support to financially weak state-owned enterprises (SOEs), the social relief of distress (SRD) grant, and debt service expenditure, will drive steady debt accumulation over the forecast period through to fiscal 2026.”
“Contingent liabilities arising from financially weak SOEs, are likely to remain a risk to the economy and the government's fiscal position,” it said.
In finance minister Enoch Godongwana’s recent medium-term budget policy statement (MTBPS), he made it clear that it was vital that the country maintain its path of fiscal consolidation.
This, he said, meant the government was unlikely to be dishing out more money to SOEs. The country has already provided ailing power utility Eskom with a R254bn debt relief package even as rolling blackouts remain a part of everyday life for South Africans.
Port and rail utility Transnet, whose failings have had a dire effect on the economy, is already holding out the begging bowl, having run up debt of R130bn, which it is battling to service.
Friday’s move by S&P leaves the door open for it to lower the outlook after Godongwana delivers the budget speech in February next year.
This would increase borrowing costs for a country which is already paying in the region of 11% interest on 10-year bonds.
S&P said in the report that while policy and reforms to address infrastructure deficits are ongoing, “execution remains slow”.
“We believe the ruling ANC could lose its parliamentary majority in the 2024 elections. Deteriorating economic conditions and poor service delivery are leading to strikes and protests, and this could translate into weaker support for the ruling party at the polls,” it said.
“We forecast that the fiscal deficit will average 4.7% of GDP over 2023-2026, higher than our previous estimate of 4.1%.”
On the positive side it said private-sector investment in power generation and renewables was picking up but it still expects economic growth to slow to 0.8% in 2023 from 1.9% in 2022.
In a statement issued by the Treasury shortly after the S&P release it said: “Over the next three years, government will focus on raising GDP growth by improving the provision of electricity and logistics, enhancing the delivery of infrastructure and restructuring the state to be efficient and fit-for-purpose.
“Fiscal policy continues to support this approach by stabilising debt and debt-service costs. Additionally, fiscal consolidation will be implemented through spending reductions, efficiency measures across government and moderate tax revenue measures,” the Treasury said.
The rand firmed slightly in response to the news and at 11.45pm it had gained 0.19% to R18.3295/$.
S&P last downgraded SA’s rating in April 2020 to three rungs below investment grade as the world was thrust into the Covid-19 pandemic and global economic activity ground to a near halt.
The next scheduled review from S&P is in May next year. It can however change a rating at any time as it did in March soon after the budget speech when it lowered the outlook to stable from positive.
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