Rising debt threatens SA’s prospects

Staff Writer | Jul 21, 2019
The Institute of International Finance (IIF) revealed in its global Debt Monitor released this week that South Africa’s debt-to-GDP ratio is close to 60%, having reached 59.3% in the first quarter.

South Africa’s was the biggest debt-to-GDP increase in sub-Saharan Africa during the quarter, rising to nearly 60% from 54.7% a year earlier, the Washington-based IIF said.

The IIF said: ‘An increase in government debt pushed South Africa to the largest change in emerging market debt-to-GDP year-over-year in sub-Saharan Africa, the fifth-largest difference among the emerging markets assessed.’

It noted that emerging market debt rose to a record high of $69 trillion (R960 trillion) in the first quarter of the year, with the most significant increases being in Chile, Korea, Brazil, South Africa, Pakistan and China.

Economists have warned that this could have implications for the next review by ratings agency Moody’s, due in November. Moody’s is the only major ratings agency to hold South Africa in investment grade, after both S&P Global and Fitch junked the country’s rating two years ago.

In its latest statement in May, Moody’s warned that continuing structural weaknesses and rising debt imperilled South Africa’s ability to service its debt obligations.

Should Moody’s downgrade the SA economy, Businesstech reported, South African bonds would be forced out of the World Government Bond Index (WBGI), compelling investors and hedge funds to withdraw their money from the county. Investments of some R100 billion are estimated to have flowed into the country through the WBGI since South Africa joined the index in 2012.

 

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