SA at risk of further credit rating downgrades

SA Finance Minister, Nhlanhla Nene (pictured), is struggling to keep the country's credit rating afloat while diminishing tax revenue puts pressure on the budget deficit, affording him less room to stimulate the struggling economy.

While giving his recent mid-term budget speech, Nene battled to give investors the confidence for which they had hoped. And worryingly, the country seems to be yet another step closer to a credit rating downgrade, due in part to SA's slow economy and rising debt.

  • In early September, The Financial Services Board (FSB) announced that the Registrar of Credit Rating Agencies had cancelled Fitch Southern Africa's registration as a credit rating agency. Read more here.
  • Also interesting is an article we published previously on why it is important to listen to rating agencies. Read more here.

Nene cut this year's growth forecast from 2% to 1.5%, predicting expansion of 1.7% in 2016 - down from an earlier estimate of 2.4%. With the economic slowdown looking to shrink tax revenue projections by R35 billion over the next three years, the budget deficit will widen from earlier forecasts, reaching 3.3% in the fiscal year through March 2017, and 3.2% in 2018.

Making things worse, interest payments on debt are increasing at a faster rate than any other spending item in the budget. Gross debt has increase from around 26% of GDP prior to the 2009 recession, to almost 50% this year.

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