The Allianz Risk Barometer report has identified critical infrastructure blackouts as the primary risk for the second consecutive year, followed by modest employment rates that may cause SA downgrades later this year.
In its report published on Monday, France-based Allianz Trade said it upgraded SA’s risk rating for 2023 mainly because the country was able to demonstrate resilience to global shocks, especially against one of the most aggressive global monetary policy tightening cycles.
It warned, however, that the country’s unstable electricity supply and its poor ranking in public debt sustainability could challenge the risk landscape, causing more downgrades in 2024.
“[Though] SA has experienced declining trends in insolvencies and reduced external vulnerabilities — with strong fiscal consolidation efforts, disciplined salary increases and increased tax collection, leading to the upgrade [in 2023] — the country faces weaknesses that could affect its risk rating,” said head of economic research at Allianz Trade Ana Boata.
She said SA’s lack of reliable electricity supply continued to hinder growth and affect businesses, industries and households.
“SA also ranks poorly in public debt sustainability risk due to short-term absorption of revenues for debt repayment and elevated sovereign bond yields,” Boata said.
“For 2024, liquidity constraints in an environment of high public and private debt and high interest rates, the below-potential growth in most regions, as well as lower pricing power for corporates that will drive revenue growth downwards are factors that could lead to a downgrade in 2024.”
Allianz Trade also operates in SA. Its barometer focuses on country risk that assesses the economic, political, and environmental, social and governance (ESG) factors influencing nonpayment risk for companies in 83 economies.
It aims to be a companion for businesses and investors in making informed decisions by identifying potential risks and opportunities, with a map it produces quarterly for all 241 countries and territories it monitors annually.
Boata said changes in global supply chains could take a toll on countries with twin deficits, mainly on current account balances. Global risk might rise amid increasingly polarised geopolitics in a year in which economies accounting for 60% of global GDP would head to the polls.
Upgraded economies
In the latest barometer Allianz Trade upgraded 21 economies that account for about 19% of global GDP, including SA, up from eight in 2022. This list included several emerging markets, notably China, SA, Qatar, Algeria, Tanzania and Uruguay, which showcased their resilience to global shocks.
The outlook for several advanced economies also improved.
The report shows that in terms of regions, Africa has experienced the most upgrades (10), followed by Europe (six), while the risk trajectories of only China and Uruguay have improved in Asia and the Americas, respectively.
“Africa remains the continent with the greatest difficulties in terms of liquidity and access to international markets at a time when liquidity risk is increasing almost everywhere. Against this backdrop, the current cycle and enduring fiscal and monetary policy efforts may trigger further upgrades in the Americas, with Africa and the Middle East most likely to fall behind,” she said.
In terms of economic indicators, Allianz Trade expects a modest GDP growth of 1.4% for 2024 and 0.7% in 2023. It expects inflation to return to a 4% average in 2024, with the central bank taking a dovish approach in the second quarter.
Boata said that due a considerable short-term absorption of revenues to repay interest on debt and an increase in sovereign bond yields, SA ranked in the worst quintile in its public debt sustainability risk assessment by end-2023.
“The primary balance in 2024 is expected to remain within -1% of GDP (-0.6%), with personal income tax, corporate income tax, local and import VAT, as well as import customs duties as primary contributors to revenue growth,” she said. “Salary increases and bonuses led to larger personal income tax inflows, and recent inflation bolstered VAT revenue streams.”
She said Allianz Trade expected interest expenditure on debt would account for between 4.5% and 5% of GDP.
Though the level of government debt is still elevated, the ratio is expected to stabilise at a little more than 70% of GDP, including government guarantees on debt of state-owned enterprises.
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