South Africa has a lot to do to avoid a credit rating downgrade

Francois Botha, Head of Multi-Management, Novare

South Africa’s economic and political climate has deteriorated significantly, unemployment has increased, interest rates have spiked, and business and consumer confidence is low. The result of this is that the country’s GDP growth has slowed. Slow growth implies lower government revenue, higher fiscal deficits, weak investment spending, sluggish infrastructure roll-out, and rising social and political tensions, all of which are naturally credit-rating negative.

To avoid a credit rating downgrade later in the year the government will have to demonstrate a commitment to decrease spending. The government desperately need their income to increase. In order to do this the government will have to focus on measures which will grow the country, reduce the unemployment rate and increase the tax base.

The problem is that South Africa is already experiencing high inflation and the Monetary Policy Committee will likely impose further interest rate hikes this year to bring inflation back within the target band. The result of this is that it will put further pressure on economic growth

If we don’t find a catalyst for growth within the next few months then a downgrade would be inevitable.

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