Rating agency S&P Global has lowered its outlook for South Africa from positive Unpleasant stablewhile the country is plagued by a lot of bad news.
In an unscheduled announcement on Wednesday (March 8), the rating agency cited the disastrous effects of the tax shedding on businesses across the country as one of the main reasons for the change in outlook.
South Africa has experienced power outages every day so far in 2023 and has been experiencing near-permanent blackouts since September 2022.
The outages have had a material impact on businesses and households in the country, which has trickled down into economic data.
Stats SA revealed this week that the South African economy contracted by 1.3% in the fourth quarter of 2022, with economists warning that another quarterly decline is expected in the first quarter of 2023 – pointing to a technical recession.
While the South African government has promised to resolve the tax shedding since it first surfaced 15 years ago, the plans have only been put into practice in the past year with any semblance of political will behind them. And even then, progress is slow.
Reforms to address infrastructure shortcomings and improve governance and performance of SOEs are progressing slowly and weighing on growth, while state-owned contingent liabilities pose persistent downside risks to South Africa’s fiscal and debt position. S&P.
According to Reutersthe rating agency confirmed the credit ratings of South African foreign currency government bonds at ‘BB-/B’, but warned that if the government’s efforts to solve the power crisis do not go as expected, the ratings could be downgraded.
Overall growth estimates for the year have also been revised by the South African Reserve Bank (SARB); the central bank is now forecasting 0.3% growth on the assumption that the country will experience 200 days of tax cuts – a figure likely to be reached soon.
Credit bureaus are keeping a close eye on the country as international foreign investors lose interest.
On Feb. 15, another global agency, Fitch Ratings, said the South African government’s poor record for keeping promises — especially those related to tax shedding — means pledges about the crisis have the opposite effect.
During President Cyril Ramaphosa’s latest State of the Nation Address (SONA), he proclaimed national calamity over the energy crisis with the aim of accelerating reforms and cutting red tape. Load separation has occurred.
A positive credit rating helps the country show the world that it has strong business and consumer sentiment, making it a more attractive foreign investment opportunity.
However, South Africa’s economy has been in a sub-investment grade – colloquially known as “junk status” since 2017.
South Africa’s global reputation took another blow at the end of February when the Financial Action Task Force (FATF) added the country to its gray list – a list of countries under scrutiny for laxity in the fight against money laundering. money and the financing of terrorism.
While the addition to the gray list is unlikely to prompt rating agencies to downgrade South Africa more deeply into rubbish in itself, it does exacerbate existing issues such as tax shedding, economic recession, high levels of unemployment, growing levels of civil unrest , slow implementation of government policies and low business confidence.
Data from the RMB/BER Business Confidence Index (BCI) from Wednesday showed a further decline in business confidence. The survey covers more than 1,000 senior executives — and the benchmark hasn’t been in positive territory for nearly a decade.
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