SA will weather the rising debt tide – experts

2011-07-23 13:56

South Africa’s debt was ­increasing, but the country was currently not facing a downgrade from the world’s rating agencies because it was able and willing to meet its debt obligations, ­economists said this week.

This puts to rest the increasing ­market talk that South Africa could soon be downgraded and would have to deal with debt ­default pressures because of its huge budget deficit, which stood at R136.6 billion by the end of the first quarter of this year.

The sentiments of economists also means South Africa may not be negatively affected by the debt crises that seem to be moving to other parts of the world, including the US. When the US “sneezes”, the rest of the world catches a cold.

But erroneous policies, such as contributing about R29 billion to the Southern African Customs Union (Sacu) and the mooted ­nationalisation of some sectors of the economy, could set South ­Africa on a thorny trajectory, economists said.

An analyst from the London-based think-tank Control Risk, who did not want to be named, said South Africa might be running a deficit, but the Treasury had retained significant reserves.

“Nor is its deficit as severe as that of the US and other EU countries such as the UK,” the analyst said. “South Africa’s deficit is still manageable at this stage.”

He said it would be alarmist to talk of South Africa’s sovereign default at this stage.

Dawie Roodt, a senior economist at the Pretoria-based ­Efficient Group, said South Africa was not facing a downgrade ­because it met the requirements of rating agencies.

“Can we pay? Yes. Do we want to pay? Yes,” Roodt said, insisting this met the most basic requirements of the rating agencies.

Mike Schussler, a director at Economists.co.za, said: “We will only face a downgrade for our own misspending. But our past finance ministers did a great job. Our debt is increasing and so too are our debt guarantees.”

Some experts believe the R29 billion contributed to Sacu would constitute “misspending” because this could be used for service delivery and other important things.

South Africa’s contribution to Sacu has been escalating each year, but it is still 1% of gross ­domestic product. As of January this year, South Africa had contributed about 90% of Sacu’s budget.

“South Africa urgently needs a new formula and we need to make sure that spending on common things like infrastructure takes place too,” Schussler said.

He said South Africa needed to check the Sacu agreement in ­future to make sure too much money was not paid to other members.

The Control Risk analyst said the question was not so much whether South Africa should continue to contribute to these countries, which seemed to be careless in spending.

“The question is more about how to reform a very old customs union in a way that ensures each Sacu member acquires a share of customs revenue that is commensurate with its contribution to the union’s finances.”

Roodt said South Africa should not pay as much as it does currently to Sacu.

Last week, Sim Tshabalala, the deputy group CEO of Standard Bank, said South Africa could ­suffer “a sovereign downgrade” if it pursued the policy of nationalising its banks.

“Unfortunately, a downgrade is not the worst thing that can happen because it makes debt more expensive, with policy errors likely to follow. A ratings downgrade is often the start of a slide down towards a sovereign default.”

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