​Can the budget save South Africa from further credit rating downgrades?

The future of South Africa’s credit ratings hangs in the balance as the world waits to see what the 2018 budget will deliver.

The budget will be tabled in parliament on Wednesday afternoon when the finance minister is expected to announce plans to plug a mammoth R50-billion hole in revenues, and will also have to provide for other demands – such as free higher education for students from low-income households which is expected to cost up to R15-billion for this financial year.

The plan to address these issues, and many more that weigh on the budget, will provide clarity as to whether South Africa’s credit rating is doomed to be further downgraded into junk territory – or if a grace period will allow for the country to prove it can turn its fortunes around.

“The likelihood of further downgrades of South Africa’s sovereign credit ratings during 2018 appear to be remote in the light of recent political developments, including the election of Cyril Ramaphosa as the new president of the country,” said Conrad Beyers and Riaan de Jongh – academics at the University of Pretoria’s actuarial science department and the North-West University’s centre for business mathematics and informatics respectively.

In fact, according to researchers at the two universities, “current positive sentiment and expectations of economic and political stability should prompt rating agencies to seriously consider upward adjustments of their ratings of South African sovereign debt”.

The credit rating is a reflection of how risky an investment South Africa is, and in turn what average interest rate it pays its lenders.

In April 2017, a few weeks after finance minister Pravin Gordhan was replaced with Malusi Gigaba, Fitch was the first to downgrade South Africa’s credit rate to sub-investment grade aka junk status.

In November last year, “the shocking abandonment of fiscal consolidation as a key policy anchor in the October 2017 Medium Term Budget Policy Statement led to the downgrade to sub investment grade by S&P and the credit watch by Moody’s,” said Johann Els, Old Mutual Investment group’s head of economic research.

If this happened South Africa’s debt would fall out of a prominent global bond and cause large tracker funds to sell off SA bonds.

“Should politics continue to improve and the Budget marks a return to fiscal consolidation, then Moody’s might be willing to postpone a credit rating downgrade and the rand could hold onto its gains,” said Els. Chief executive at the South African Institute of Race Relations, Frans Cronje, said that if a compelling case for growth and fiscal prudence could be made in the budget “the odds of a further rating downgrade fall to below 50%”, he said. 

These are unprecedented times, and the role of media to tell and record the story of South Africa as it develops is more important than ever. But it comes at a cost. Advertisers are cancelling campaigns, and our live events have come to an abrupt halt. Our income has been slashed.

The Mail & Guardian is a proud news publisher with roots stretching back 35 years. We’ve survived thanks to the support of our readers, we will need you to help us get through this.

To help us ensure another 35 future years of fiercely independent journalism, please subscribe.


Judge trashes entire lockdown regime as constitutionally flawed

The high court ruling will delight gatvol South Africans but is unlikely to stand the test of time

Eusebius McKaiser: Two important lessons to learn about racists

The racially intolerant act to keep black people in “their place”, some even while claiming they're allies

press releases

Loading latest Press Releases…

The best local and international journalism

handpicked and in your inbox every weekday