South Africa’s failure to lower debt could trigger downgrade: Fitch

A failure by South Africa to lower public debt risks triggering credit downgrades deeper into subinvestment, Fitch said on Wednesday.

Debt in Africa’s most industrialized economy is set to breach 80% of gross domestic product next year as the government borrows more to bring the coronavirus pandemic under control.

Fitch downgraded South Africa’s credit rating deeper into “junk” territory in April, citing the lack of a clear path towards debt stabilisation and higher economic growth. The other top ratings firms, Moody’s and S&P, also rate the country at sub-investment grades.

“A continued rise in government debt/GDP and failure to formulate a clear and credible path towards stabilising the government debt/GDP ratio could lead to a further downgrade in South Africa’s ‘BB’ rating, which is on Negative Outlook,” said Jan Friederich, Fitch’s head of Africa sovereign ratings.

Finance Minister Tito Mboweni said in an emergency budget in June the Treasury would stick to its promise of some R230 billion ($13.5 billion) of spending cuts in the short term, a target set in February before the COVID-19 pandemic.

“Social and political factors, including exceptionally high inequality, powerful trade unions, and deep divisions within the governing African National Congress, present significant hurdles to fiscal consolidation,” Friederich said in a research report.

Source: SABC News (sabcnews.com)